How To Combine Trading Indicators

To effectively combine trading indicators, start by understanding the purpose of each indicator and its specific insights. Consider the current market conditions and identify key areas of value, such as support and resistance levels. Use entry triggers based on indicator combinations to determine optimal entry points for trades. Implement proper risk management techniques to protect profits and limit losses.

The goal is not to use as many indicators as possible, but to find a focused set that provides meaningful insights.

combining trading indicatorsCombining trading indicators in a thoughtful way can help you cut through the noise and gain a clearer picture of trends, momentum, and volatility.

In this article, we will guide you through best practices for combining indicators, from understanding their classifications to avoiding redundancy and maintaining objectivity.   We’ll delve into popular indicators such as RSI, ADX, Bollinger Bands, MACD, Stochastic, and DMI – explaining their unique benefits and how they can work together seamlessly for more confident decision-making.

By striking a balance in analysis and unleashing indicator potential while avoiding common pitfalls like overfitting or data snooping bias – you’ll be well on your way to achieving success in the markets.

Key Takeaways

Combining indicators from different categories that complement each other can help understand price better.

The right combination of indicators can improve decision-making and optimize trading.

Indicators should be categorized by their purpose: market condition, area of value, entry trigger, and trade management.

Best indicator combinations involve knowing the purpose and using one indicator from each category.

Unleashing Indicator Potential

You can unleash the full potential of your trading indicators by combining them in a purposeful way. This means that instead of using a bunch of random indicators, you should select ones that complement each other.

rsi bollinger band combinationBy doing so, you’ll have a better understanding of market conditions and be able to identify trade entry signals more easily. Combining indicators allows for trade optimization because it gives you multiple perspectives on price action.

For example, if you use the RSI to measure momentum and Bollinger Bands to measure volatility, you can see how these two factors interact with each other. This information helps in determining whether a trend is likely to continue or reverse.

Avoiding Redundancy

Don’t fall into the trap of using too many indicators that say the same thing, like adding unnecessary sugar to an already sweet dessert.

moving average parabolic sar
Moving Average + Parabolic Sar = 2 Trend Indicators

Combining indicators is a powerful tool in developing effective trading strategies, but it’s important to avoid redundancy. When you use multiple indicators that provide similar information, you risk overemphasizing certain aspects of price action and missing important clues.

Striking Balance in Analysis

Achieving the perfect balance in analysis involves understanding the purpose of different technical indicators and knowing how to use them to complement each other. It’s important to avoid redundancy and select only one indicator from each category: market condition, important price locations, trade entry signal, and risk management.

To strike a balance in analysis, you can combine technical indicators that provide different insights into price action.

Here is an example of three complementary indicators: the moving average (MA) for market condition, stochastic oscillator for crossover entry signal, and RSI for oversold/overbought.


The MA measures historical prices and indicates whether the market is trending up or down.

The stochastic oscillator helps identify entry signals with a crossover of the two lines.

RSI provides a trade entry signal by determining if there is potential buying or selling pressure by measuring overbought or oversold stocks..

By combining these three technical indicators with different purposes but complementary insights into price action, you can create a well-rounded strategy that can help optimize your trading decisions.

Indicator Category Purpose
Moving Average (MA) Market Condition Measures historical prices to determine trend direction
Stochastic Oscillator Trade Entry Signal Crossover of lines is a trade entry
Relative Strength Index (RSI) OS/OB Determines if current price is oversold/overbought based on recent price changes

Remember to always backtest any strategy before implementing it and avoid overemphasizing information from redundant indicators that may lead to confusion and wrong trading decisions.

Maintaining Objectivity

Maintaining objectivity in analysis requires one to be aware of the potential biases that may arise from personal emotions or beliefs. These biases can cloud judgment and lead to irrational decisions.

When combining trading indicators, it’s important to approach the process with a clear mind and focus on the objective information provided by each indicator. Avoid overemphasizing information from redundant indicators, as this can lead to missing other important pieces of information.

To maintain objectivity when combining trading indicators, start by categorizing them according to their purpose: market condition, area of value, entry trigger, and trade management. Use only one indicator from each category and avoid having more than three indicators on the chart.

Keep in mind that different indicators have different purposes and should be used based on your specific needs as a trader. By following these guidelines and focusing on objective information rather than personal biases or emotions, you can effectively combine trading indicators to improve decision-making and optimize trading performance.

Exploring Indicator Types

When exploring different indicator types, you can gain a better understanding of how each type serves a specific purpose in analyzing market conditions and identifying potential entry and exit points.

Momentum indicators fall under the category of market condition indicators and help traders identify whether the market is trending or ranging. Trend-following indicators also belong to this category and are useful for identifying the direction of the trend.

Area of value tools like moving average and stochastic fall under their own category and assist in identifying potential buying or selling pressure.

Entry triggers like RSI and Donchian channel serve as objective ways to enter trades while trade management indicators like pivot points, ATR, and chandelier stop can help manage trades by setting exit points or trailing stop loss levels.

Understanding these various classifications can aid in selecting complementary indicators that provide a comprehensive view of price action.

To best utilize technical indicators when combining them, it’s important to keep in mind that less is often more when it comes to indicator usage on charts. Traders should aim to pick one indicator from each classification to avoid redundancy while still having access to all necessary information for making informed trading decisions.

Harnessing Momentum

You should use momentum indicators in combination with other types of indicators to confirm your trading signals and avoid false breakouts.

The RSI is a popular momentum indicator that measures recent price changes and identifies overbought or oversold conditions. However, combining it with other indicators like the ADX and Bollinger Bands can provide more comprehensive information about market conditions.

To combine the best indicators for momentum trading, look for indicators that complement each other and provide different perspectives on market trends. For example, the ADX finds trends while the Bollinger Bands measure volatility, which can help identify potential support or resistance levels.

You can also use price action analysis to confirm your momentum signals by looking for trendlines and rejection at outer Bollinger Bands. By combining these different types of indicators, you’ll have a better understanding of market conditions and be able to make more informed trading decisions based on reliable data.

Using a trend indicator can help you identify whether an asset is trending up or down. You can use this information to open positions that are with the trend’s direction, increasing your chances of success.

You can combine trend indicators with other technical analysis tools like MACD to confirm your trades. For example, if a moving average shows an uptrend and the MACD is showing bullish momentum, it could be a good time to buy.

Utilizing Volatility Indicators

Utilizing volatility indicators such as Bollinger Bands and Average True Range (ATR) can provide insights into potential price movements. The Bollinger Bands consist of a moving average with an upper and lower band that represent two standard deviations away from the average. When prices move towards one of these bands, it indicates increased volatility and a potential trend reversal.

The ATR indicator measures market volatility by taking into account the range between high and low prices over a given period. This information can be used to set stop loss levels or determine position size based on expected market movement. Combining technical indicators such as these with price averages can help traders identify potential support and resistance levels during volatile periods.

Frequently Asked Questions

What trading indicators work well together?

The effectiveness of indicator combinations in trading depends on factors like the chosen strategy and the prevailing market conditions. It’s important to test and adapt combinations based on individual preferences and objectives.

How do I combine RSI and MACD?

Combining RSI and MACD involves utilizing both indicators together. RSI helps identify overbought or oversold conditions, while MACD provides insights into trend direction and potential reversals.

How do I combine RSI and EMA?

When combining RSI and EMA (Exponential Moving Average), traders can utilize RSI for detecting overbought or oversold levels, while EMA can be used for validating trend direction or as an entry/exit trigger. This combination enhances analysis by incorporating both momentum and trend-following elements.

What is the best combination of indicators?

The best combination of indicators varies based on individual preferences, trading style, and market dynamics. It is crucial to experiment, backtest, and refine combinations to find the most effective ones for specific strategies and market conditions.

What is the most successful trading indicator?

There is no universally “most successful” trading indicator as effectiveness depends on various factors. Different indicators excel in different situations, such as Moving Averages for trend identification or Relative Strength Index (RSI) for momentum analysis. Traders should assess indicators based on their relevance and performance within their specific trading strategies.

What is the best indicator to combine with RSI?

When combining RSI with other indicators, popular choices include MACD, Stochastic Oscillator, or Moving Averages. These indicators complement RSI by providing additional insights into trend strength, momentum shifts, or potential entry/exit points.

What is the fastest leading indicator?

The fastest leading indicator depends on the context and time frame used. Examples of fast leading indicators include the Parabolic SAR, which helps identify potential reversals, or the Average Directional Index (ADX), which gauges trend strength.


Striking a balance in analysis and maintaining objectivity will help you make better decisions that fit your trading plan. Exploring indicator classifications such as momentum, trend, and volatility will give you a deeper understanding of market movements. By harnessing momentum and embracing trends, you can optimize your trading strategy to maximize profits.

Utilizing volatility can also lead to lucrative opportunities. In conclusion, combining trading indicators requires careful consideration and implementation. But with practice and patience, it can greatly improve your decision-making abilities as a trader.

Remember to stay objective, use all available tools at your disposal, and most importantly – trust your process!

Author: CoachShane
Shane his trading journey in 2005, became a Netpicks customer in 2008 needing structure in his trading approach. His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed less time in front of the computer without an adverse affect on returns.