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, too 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.

A multi indicator strategy should avoid being redundant and should use the best combination of trading indicators in a meaningful way.

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 indicators can be classified into three groups, as follows:

  • Trend-following indicators
  • Momentum indicators
  • Volatility indicator

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.

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.

Bollinger Bands – Trend Following Indicator

The 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

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.

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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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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