We are often asked what our favorite technical indicator is so we thought we would share our thoughts on that subject. Before we give you our answer we must stress that there is no perfect technical indicator.
It is very much up to the trader himself/herself to decide what technical indicator is best for his/her trading. This is because if you are a pull back trader then you might like Moving Averages and Stochastic together. If you are a breakout trading you might prefer Bollinger Bands for a Bollinger Bands Squeeze breakout system. So you can see it is up to the trader but nonetheless we will tell you what technical indicator we like the most.
Moving Average is our most important Technical Indicator
We believe certain market conditions need to be traded differently such as trending vs non-trending market and what better tool then the Moving Average to help us determine the trend. If the Moving Average is flat we will trade both sides of the market and limit our targets to resistance for longs and support for shorts.
What good does a Stochastic indicator do if we cannot distinguish a trending market from a non-trending market as Stochastic can stay overbought for a long time in an uptrend. Analysis is far more important than the entry itself and that is why we believe that the Moving Average to be the most important Technical Indicator out there.
Stochastic or Bollinger Bands are great Technical Indicators for entries
When we trade uptrends or downtrends we are looking to buy the pull backs or short the retracements. Here we like to use the Stochastic indicator. Remember no technical indicator will make you money every time.
When trading breakouts we like to use the Bollinger Bands to determine if the volatility has been at extreme low prior to the breakout. This increases the odds that the breakout will have enough momentum behind it to give a good risk/reward on the trade.
Remember it is up the trader himself/herself to figure what technical indicator is best suited for his/her particular trading style.
What good does a Stochastic indicator do if we cannot distinguish a trending market from a non-trending market as Stochastic can stay overbought for a long time in an uptrend. Analysis is far more important than the entry itself and that is why we believe that the Moving Average to be the most important Technical Indicator out there.