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Are you using too many indicators on your chart?


too many indicatorsTechnical indicators are created to help the traders in finding the best points of entry for their trades. They have to be, however, used wisely and in a proper amount. You should not use too many indicators. And this last issue is the topic of today's article.

When there are too many indicators on the chart

A question about the proper amount of indicators on the chart is not easy to answer. It depends on many factors. But one thing is sure. Too many indicators make the chart chaotic and difficult to read.

Analysis-paralysis - what can you see when there are too many indicators
Analysis-paralysis – what can you see when there are too many indicators

There are many kinds of indicators and when you mix them it can result in excluding signals. Like this, it will be very difficult to make a decision about the right moment to enter the trade.

On the other hand, adding a few indicators that provide comparable information is not the best idea either. Some think it will give them a confirmation of the entry points. But in reality, it can lead to unnecessary confusion and make the market difficult to evaluate accurately.

Indicators types

Indicators are based on mathematical calculations. They gather information from the past and present prices and show the results. They provide signals, but it is up to a trader to interpret them correctly.

There are four main types of indicators you will find on the IQ Option platform.

  • Trend following indicators. They are used to recognise the trend in the market. Here belong different moving averages and the Parabolic SAR.
  • Momentum indicators. They oscillate around specific value and you can define oversold and overbought areas with them. Among them, you will find the RSI, the Stochastic or the CCI.
  • Volatility indicators. They help to understand the price range of an asset. The Bollinger Bands and the ATR are examples of the volatility indicators.
  • Volume indicators. Those are based not just on price data. They are calculated using transaction volume data. Some examples are Weiss Wave Volume and Net Volume.

IQ Option beats its competitors with a number of indicators available on their trading platform.

IQ Option platform is very robust in terms of available indicators
The IQ Option platform is very robust in terms of available indicators

But what is the best amount to use simultaneously?

Decide how many indicators you need

To decide how many indicators you need to add to your chart you should answer a few questions. Here they are.

  1. What is your level of experience in trading?
    In the beginning, you might need a little more indicators on your chart. It will help you to filter the signals and learn price action. When you gain experience, you will need fewer tools and you will be able to use the right indicator for a specific strategy.
  2. Do you want to open short or long-term transactions?
    Opening short-term trades requires working with shorter time frame charts. You will receive more signals and thus, having too many indicators can result in the signal overload. Using, for example, a daily chart allows you to think more about the move you should make.
  3. What is the most transparent chart for you?
    People are different and so their preferences. For some, a chart with 1 or 2 indicators will be enough. Others would rather add a bigger number of tools. You must get to know what suits you best and what kind of chart will be the most transparent for you. It may turn out you do not need any extra tools and choose the strategy based on price action only.

Summary

Indicators are great technical analysis tools. However, to be an efficient help, they need to be used wisely.

Avoid using too many indicators as they will confuse you and the chart will be impossible to read. Moreover, it is not the best idea to utilize simultaneously the indicators from the same group.

It is possible to combine a few indicators on one chart, but you must know them well. For example, you can use a trend and momentum indicators together. One will confirm information from another. You can find many interesting combinations of indicators on the IQ Option Wiki.

Combine indicators from different groups like trend (eg. EMA) and momentum (eg. Stoch)
Combine indicators from different groups like trend (eg EMA) and momentum (eg Stoch)

Adjust the chart for your needs. The IQ Option platform gives you a lot of possibilities to customise its interface. It must represent your preferences so you feel comfortable with it. The number of indicators added to the chart is, among others, the matter of personal choice.

Eliminate what does not serve you. If you notice that you do not use a particular indicator on your chart, just remove it. It will help you to focus on more important ones.

Remember that IQ Option offers a free demo account. You can start choosing the indicators there. Try a few combinations and check how it works for you.

Tell us about your optimal number of indicators. Kindly use the comments section which you will find further down below the site.

Good luck!

 

 

 

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Bart Bregman

Fulltime Day trading, and help Iq option wiki in my spare time to build an awesome platform to help beginners out there. #digital nomad, traveling all over the world.

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