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

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Chapter 16

Combining Techniques

In This Chapter

Finding out just how straightforward trading can be

Looking at complexity

Figuring out positive expectancy

Discovering setup trading

Indicators are roughly grouped into three types — trend, momentum, and sentiment. Technical heads argue over which category to file any particular indicator. Relative strength, for example, is a momentum concept that is used to measure market sentiment (overbought or oversold).

The key point is that using one indicator increases profits and lowers losses. Combining two indicators works even better. You can add as many indicators and trading rules to your charts as you can hold in your head or program into your computer.

This chapter surveys some combinations of techniques and offers guidance on the process of putting techniques together to forge a systematic approach to trading. Before you get to full-scale trading systems (see Chapter 17), though, you need to examine the compatibility of indicators. You also need to know that adding indicators multiplies the difficulty of the trading decision. That’s where this chapter comes in handy.

Standing the Test of Time: Simple Ideas

Many professional traders make a living by applying the same simple indicators and the same simple rules, over and over again, on the same small set of securities. “It can’t be that easy!” you think. But it is. Professionals have a superhuman ability to focus on a single narrow set of circumstances. They know from experience that ...

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