Determining How Many Indicators to Use on One Stock Chart

By Greg Schnell, Lita Epstein

Technical analysis is about getting multiple indicators confirming a directional trade. If you use ten different indicators on one stock chart, you will never place a trade because by the time they all get in agreement, the best part of the trade will be behind you. If you use too many indicators, another risk is that you will reach analysis paralysis and never place a trade.

Using a combination of three to five indicators and overlays gives you the best strategies.

The idea behind showing all of these different indicators with different companies is that you will have different investing styles based on how often you want to trade. After seeing the weekly charts, do they intrigue you or are you more interested in three-to-five-day trades? There is no perfect strategy. The biggest challenge is to find the trading timeline you like and then pick some indicators that match the way you like to make decisions. The ChartSchool area of explains each indicator in considerable detail with ideas for using the tool.

The world of technical analysis is always changing, and investors are constantly lured into new strategies. Try to build on something that works, and understand when your plan works and doesn’t work. You will make more money investing in strong stocks with a consistent set of indicators than you will trying to find the golden egg. Even when you have the golden egg, you will be tempted to keep searching.

Ideally, you want a momentum indicator and a trigger indicator (an indicator that helps you detect a change in trend). If you want signals to get into trades, are you looking for a low-priced, beaten-down stock that is going to be the next great stock? Perhaps you like to buy stocks breaking out to new highs; a whole world of investors agrees with that idea. You will use different indicators for those two trades. Indicators are great when used sparingly. Hopefully, you agree.