Novice traders tend to use complex indicators. They think the complex indicator is the best trade filter tool. But this not how professional traders analyze the data in the stock market. They rely on the simple indicator as they know success lies in a simple approach. Moreover, you need to keep your mind stable before making a trading decision. So, if you use the complex indicator, you might fail to think properly due to the intense calculation process.
In this article, we will show you the perfect way to use the indicators in the stock trading business. After going through this article, you will never think that the indicators need to be complex to earn money.
Leading and lagging indicators
Before you proceed to the use of the indicator, you need to know the key difference between the leading and lagging indicators. The indicator which gives an early signal is known as the leading indicator. And if the indicator generates a signal with a slight delay, you may consider it as a lagging indicator. For instance, think about the 100 periods moving average. The 100 SMA is a very popular indicator but it gives late signals to the retail traders. So, it should be considered as a lagging indicator.
Selection of the time frame
The performance of the indicator is greatly related to the use of the time frame. For instance, if you use a lower period moving average to find the trade signals in the daily timeframe, you might not get the desired results. You need to rely on the higher period moving average to get accurate signals. Moreover, you also need a robust trading platform from high-end brokers like Saxo. Once you have the access to the premium trading platform, learn the use of the indicators in the practice trading account. Soon you will realize that the indicator you choose needs to be coupled with the timeframe or else it will not generate quality signals.
Stop overloading your chart
The rookies often overload their chart thinking that the use of too many tools can help them to earn more money. Indicators work as active trade filter tools. So, if you overload the chart with too many indicators, you will become confused about the market condition. That’s why the elite traders in Hong Kong prefer to use one or two indicators. So, pick your favorite indicator by using the demo account. Try to integrate the indicator with your trading system and see if you can make some real progress in the market. Stop copying the experienced traders and learn to pick your trading tools.
Modify the settings
Every indicator comes with default settings. Though most of the indicators can perform well with the default settings you do have the option to change the settings. If you change the settings, make sure you test the performance of the indicator in the demo environment. Unless you feel confident with the new settings, you should not use the indicator as a trade filter tool. It might take a while to backtest the new functions of the indicator but you must have patience and test its efficiency.
Revising your trading strategy
You might be making a profit with a certain type of indicator but this doesn’t indicate that you will keep on making a profit with the same tools. At times, you have to revise your trading strategy and use different kinds of indicators. Based on the market condition, you have to select your trade filter tools. Unless you systematically do that, you will never learn to trade with confidence. That’s why professional traders always ask their students to have an eye on their existing trading methods. If you feel that the system is getting obsolete, get a demo account to revise your trading method. Take your time and fix the faults in your system.