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Technical Analysis For Dummies®, 2nd Edition by Barbara Rockefeller

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Chapter 4

Using Indicators to Trade Systematically

In This Chapter

Moving beyond emotion with indicators

Selecting indicators

Optimizing and backtesting indicators

Indicators are a shorthand way to identify and measure market sentiment. They give you a platform for making rational trading decisions, bypassing greed, fear, and the other emotions that accompany trading.

In this chapter, I discuss using indicators to help you trade systematically. Technical traders believe that systematic trading has a sporting chance of making significant profits. But indicators don’t always work, and I explain why in this chapter. To overcome the unreliability of indicators, a money management plan is necessary, which I cover in Chapter 5.

remember.eps Trading is about money, and money arouses hot emotions. To speak of trading as involving only greed and fear, though, as most commentators do, is to shortchange the range of emotion in trading. Trading is also about personal success and failure. Traders feel remorse, shame, and despair as well as hope, joy, and satisfaction. Technical traders go to great lengths to remove emotion from trading decisions. The chief tool to squelch emotion is the indicator.

Introducing Indicators

remember.eps An indicator is a calculation that you put on a chart to identify chart events, chiefly ...

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