Best combination of trading indicators

Knowing what indicators to use and what is the best combination of technical indicators can dramatically improve your chart reading skills. If you use the wrong technical indicators, this can lead to inaccurate price interpretation and subsequently, to bad trading decisions.

Our team at Trading Strategy Guides has meticulously hand-picked every technical indicator so it can give us the best performance for each individual trading strategy that we’ve created. Also, read our best ADX Strategy.

However, if you are a price action type of trader that only uses naked charts you can safely check out our ultimate chart pattern step-by-step guide.

Technical indicators make it easy for you to identify current price trends and predict where prices will move in the future. By developing effective technical analysis strategies, you can increase the amount you earn each trading day.

However, while all technical indicators are useful, they each have their own set of weaknesses. If you only use a single indicator to monitor the market, there may be certain price trends (or hazards) that you aren't noticing.

By combining multiple technical indicators into a single trading strategy, you can limit your risk while still earning strong returns. Below, we will explain how to create a multi-indicator strategy.

A multi-indicator strategy should avoid being redundant and should use the best combination of trading indicators in a meaningful way. We also have training on Average True Range Indicator.

A multi-indicator strategy has the danger to become redundant because many times traders use indicators that show the same type of information. To avoid being trapped by this trading fallacy you need to understand that technical indicators can be classified into three groups, as follows:

  1. Trend Following Indicators allow you to determine whether an asset is currently overbought or oversold. Many trend following indicators, such as Bollinger Bands, attempt to create a clear “channel". A clear channel will tell you whether prices are close to breaking out or returning to normal.
  2. Momentum Indicators, such as the Relative Strength Index (RSI), allow you to determine the direction and strength of a current price trend. As an asset begins to build momentum, opening a new position will become less risky. Looking at Moving Average indicators also help you gauge momentum.
  3. Volume Indicators help traders identify the (strong) relationship between price and volume. Increases in trading volume almost always result in an increase in price. However, these events do not always occur at the same time, which is why volume indicators are good for advanced forecasting. The On Balance Volume (OBV) and Money Flow are two of the most useful volume indicators.

As you can see, while these categories of indicators are trying to determine the same thing—whether prices are about to increase, decrease, or remain stable—the angle they each offer is unique. Looking at the market from multiple different angles can help you develop a more accurate, realistic, and actionable perspective.

Essentially, if you trade with a multi-indicator strategy that uses the RSI indicator, MACD indicator and the stochastic indicator you are basically using 3 types of technical indicators that belong in the same category.

best strategy multiple indicators

These are all momentum indicators that are going to display for you the same kind of information in one way or the other. In the above figure, you can notice how all indicators follow each other simultaneously.

This is not good!

The problem with using unfitting technical indicators is that you might actually think the trade signals are stronger if all indicators point in the same direction.

The fix to the overemphasizing information from using indicators that belong to the same group is quite simple. Avoid using technical indicators that display the same kind of information. The best strategy multiple indicators combine indicators that show a different type of information.

Best Strategy Multiple Indicators

Now comes the fun part.

Moving forward, we’re going to highlight what indicators to use for the best strategy multiple indicators.

We’re going to use a momentum indicator, trend-following indicator and a volume indicator that support and complement each other.

RSI Momentum Indicator

We won’t spend any time explaining how the RSI is plotted because we live in the computer age and they do the work automatically for us.

The Relative Strength Index is a momentum indicator and a leading indicator at the same time. A lot of traders like the RSI indicator because it’s easy to use.

best combination of technical indicators

We use the RSI indicator to identify possible overbought and oversold conditions in the market.

Next, we’re going to mention our second indicator.

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See below …

OBV – Volume Indicator

The second indicator used for our strategy is the OBV indicator.

The OBV indicator is based on the idea that both the volume and the price activity are equally important. In this regard, the OBV combines both price and volume to show you the total amount of funds going in and out of the market.

multi indicator strategy

The screenshot above shows how your chart setup should look if you followed the above instructions.

The main idea behind the On Balance Volume indicator is that the market price will follow where the volume flow is going.

Now, all we’ve got to do is to name our last technical indicator that will complete the multi indicator strategy.

Ichimoku Kinko Hyo (Ichimoku Cloud)

The Ichimoku Cloud is another popular trend indicator. Ichimoku Kinko Hyo will plot several different lines on a chart that make it easy to identify future instances of strong support or resistance.

On the indicator’s chart, there will be a blue line (Kijun Sen), a red line (Tenkan Sen), a green line (Chikou Span), and a red/green band involved (Senou Span). In order to get an accurate movement reading, each of these lines will need to be accounted for.

ichimoku cloud indicator

The blue line (the base line) will plot the average of the highest high and the lowest low over the past 26 trading periods. Similarly, the red line (the turning line) will plot the average of the highest high and the lowest low over the past nine trading periods.

The lagging green line will plot the closing price 26 periods in the past. This will help provide you with a better perspective for monitoring trends. 

  • The first band will be calculated by averaging the blue and red lines together.
  • The second band will be calculated by averaging the highest high and the lowest low over the past 52 trading periods. 

The last step is to take the trend line and shift it 26 periods ahead. Once all of these lines are plotted together, you will have a wide-reaching view of the market. From here you will be able to decide whether there is a trend strong enough to justify opening a new position.

Bollinger Bands – Trend Following Indicator

Bollinger bands is the best trend following indicator that measures the volatility of any given market. It’s also the third indicator of our best strategy multiple indicators.

Buying and selling based on the Bollinger bands can be a very effective trading strategy especially if used in combination with other technical indicators.

best indicator

Finally, your chart setup should look similar to the above chart.

Without further ado, let’s see how you can efficiently trade using multiple technical indicators and how to make consistent profits the smart way.

Multi Indicator Strategy

For our strategy, you will need to use three to four technical indicators in order to successfully trade. These indicators include the Relative Strength Index, the Ichimoku Cloud, Bollinger Bands, and On Balance Volume. Collectively, these indicators account for the trend, momentum, and volume aspects of trading that all traders should pay close attention to.

Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of the trading strategy. For this article, we’re going to look at the buy side.

Note* This strategy can be used on any time frame so go ahead and apply it to your preferred time frame.

Step #1: Price needs to Break and Close above the middle Bollinger Band

The first step is quite easy!

Actually, the whole strategy is so easy to understand that you’ll be able to trade it right away.

So the first trade confirmation we need is for the price to break and close above the middle Bollinger band. Once this trade condition is verified, we can check the other indicators for adding more confluence to our trade signal.

most accurate intraday trading indicators

Now, let’s see what the RSI indicator has to say about the price action.

See below …

Step #2: Wait for the RSI indicator to trade above the 50 level if it doesn’t already

Everything we do at Trading Strategy Guides is logical! We always try to make sense of how to correctly interpret the action of any given technical indicator.

During this step, we seek to find an agreement between what the Bollinger Bends is saying and the RSI own price reading. So, the breakout can be confirmed if the momentum is behind the move.

Usually, a RSI reading above the 50 level is considered as a positive momentum while a RSI reading below the 50 level is considered negative momentum.

best technical indicators for day trading

Note* Not all the time you’ll see the RSI breaking above the 50 level at the same time as price breaks above the middle BB. Sometimes, we need to wait longer for the bullish momentum to show up.

Step #3: Wait for the OBV indicator to rise. Buy at the market once you see volume confirming the price.

The last trade condition before pulling the trigger is again easy to understand. We want to trade on the side with the smart money. In this regard, we look for evidence that the trade we want to take as real buying power behind it.

We can notice that the real volume only showed up later. It’s important to have patience and wait for the exact trade conditions to be satisfied before getting into a long trade.

best combination of indicators for day trading

The next important thing we need to establish for our scalping strategy is where to place our protective stop loss.

See below …

Step #4: Hide your Protective Stop Loss below the lower Bollinger Band

Knowing where to place your protective stop loss is as important as knowing when to enter the market.

The logical place to hide your protective stop loss is below the lower Bollinger band. A break below the lower BB will invalidate our trade idea, and we want to minimize our losses.

best forex indicator combination

Last but not least, we also need to define a take profit level for our multiple indicator strategy which brings us to the last step.

See below …

Step #5: Take Profit when the price breaks below the lower BB

Our take profit strategy only looks at one indicator to signal us a possible exit zone. If we wait for confirmation from multiple indicators then we might as well give back some of our profits.

In this regard, the best way to take profits is when we see the price reversing. A break below the lower Bollinger Band is a good signal for a possible reversal, so we want to cash out our profits.

best momentum indicator for day trading

Note** the above was an example of a BUY trade using multiple technical indicators. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.

trading indicators list

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We choose these indicators because, as a group, they can help protect you from each other’s weaknesses while also maintaining each of their own strengths. If these indicators ever give contradicting buy or sell signals—something that does occasionally happen—it will be up to you to decide if you are willing to open a riskier position.

On the other hand, when each of these indicators confirms the signals being sent from the others, you can be much more confident with your trades. If you do end up finding multiple “green lights” at once, feel free to be a bit more aggressive with your trades.

Conclusion

You have to take the necessary time and learn the meaning of each technical indicator. No indicator will give you 100% win rates so don’t be the one chasing fairy tails. In the $6 trillion Forex market, no one can ever predict the market with exact certainty. Here is how to apply technical analysis step by step.

However, if you follow our best combination of technical indicators you can improve your chances of winning more often than losing trading the market. You have to keep in mind that all indicators are based on the past price so only a multi indicator strategy can help you predict the future.

Thank you for reading!

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best combination technical indicators

With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow.