What's your best method for picking technical indicators and oscillators?

1 Define your goals and timeframe

The first step in picking technical indicators and oscillators is to define your trading goals and timeframe. Are you a scalper, a day trader, a swing trader, or a long-term investor? Do you prefer to trade with the trend or against it? Do you focus on price action or volume? These questions will help you narrow down your options and select indicators and oscillators that match your trading objectives and time horizon. For example, if you are a scalper who trades on a 5-minute chart, you may want to use fast-moving indicators and oscillators that can capture short-term price fluctuations and signals. On the other hand, if you are a long-term investor who trades on a weekly or monthly chart, you may want to use slow-moving indicators and oscillators that can filter out noise and reflect the dominant trend and momentum.

2 Choose your indicator categories

The next step in picking technical indicators and oscillators is to choose your indicator categories. Technical indicators and oscillators can be broadly classified into four main categories: trend, momentum, volatility, and volume. Trend indicators and oscillators help you identify the direction and strength of the market trend, such as moving averages, trend lines, and MACD. Momentum indicators and oscillators help you measure the speed and force of price movements, such as RSI, Stochastic, and CCI. Volatility indicators and oscillators help you gauge the range and variability of price fluctuations, such as Bollinger Bands, ATR, and Keltner Channels. Volume indicators and oscillators help you assess the level and intensity of trading activity, such as OBV, Chaikin Money Flow, and On Balance Volume. Depending on your trading style and strategy, you may want to use one or more indicator categories to complement your analysis and decision making.

3 Avoid redundancy and overloading

The third step in picking technical indicators and oscillators is to avoid redundancy and overloading. Redundancy means using multiple indicators and oscillators that provide similar or overlapping information, such as using two or more trend indicators or two or more momentum indicators. This can lead to confusion, contradiction, and paralysis by analysis. Overloading means using too many indicators and oscillators that clutter your charts and distract your attention, such as using 10 or more indicators or oscillators on a single chart. This can lead to information overload, noise, and indecision. To avoid redundancy and overloading, you should limit the number of indicators and oscillators you use and choose only those that provide distinct and relevant information. A good rule of thumb is to use no more than three to five indicators or oscillators on a single chart, and preferably from different indicator categories.

4 Test and optimize your indicators and oscillators

The final step in picking technical indicators and oscillators is to test and optimize them. Testing means applying your indicators and oscillators to historical data and observing how they perform in different market conditions and scenarios, such as trending, ranging, volatile, or calm markets. This will help you evaluate the accuracy, reliability, and usefulness of your indicators and oscillators, as well as identify their strengths and weaknesses. Optimizing means adjusting the parameters, settings, and inputs of your indicators and oscillators to suit your trading goals and timeframe, as well as the current market environment. This will help you fine-tune your indicators and oscillators to fit your trading style and strategy, as well as improve their responsiveness and effectiveness. You can use backtesting, paper trading, or demo trading to test and optimize your indicators and oscillators before using them in live trading.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?