Before you make any assumptions, let me tell one thing! If you’re searching for Holy Grail systems or get rich quick technical indicators then you’ll be in rude shock after reading this. First of all there is no such thing as perfect indicator that precisely predicts every turning point in MCX or Nifty. Anyone seeking for highly accurate trading systems are wasting their time, because Holy Grail doesn’t exists. I won’t give you any sure short technical indicator like “buy when it’s red”. But you’ll get more than that, a serious dose of wisdom based on years of trading experience on how to choose best technical trading indicator.
Trading in sense a probabilistic game, it’s all about stacking odds in your favor. Trading edge is the only reason that separates successful traders from losers. In Laymen terms trading edge can be defined as more winning trades and less losing trades over a long period with each trade’s probability rate not less than 60%. Any technical indicator or trading system should fulfill the criteria of trading edge or else it’s a waste of time and money. Check out this article to know more about trading edge.
Before applying any Trading indicator? Ask yourself why!
There’s nothing wrong in searching trading systems or technical indicators for MCX or Nifty, which suits your personality, trading style and preferences. But traders should not completely depend on technical indicators for everything. Before you choose trading indicators or technical trading systems, take these 3 points into consideration.
For what purpose do you need indicators?
You should choose the indicator for Practical purpose. Your choice depends on what you want to do with it. Every technical indicator is based on statistical measurement derived from past price history, each indicator has its own purpose which may or may not fit into your preference. For example – If you want to find trends and trade them, then moving averages are the best choice. Oscillators and Bounded indicators are good to measure momentum behind the price action. Volume is a sentiment indicator which helps to track market psychology in Nifty and MCX.
If you don’t understand the purpose of indicators, then stop searching and learn more about technical indicators before using them on Nifty or stocks. I recommend reading the book – Technical analysis: The complete resource for Financial Market technicians.
Know the statistics about Technical indicator
Technical indicators and fashionable buy-sell systems are everywhere around the internet. A popular technical indicator has no trading edge; hence it is necessary to statistically test them with various limits on MCX, Nifty or stock price charts. Before you choose an Indicator, you should learn the statistics behind them.
It is also important to understand the logic and method behind the technical indicator. Some indicators need more optimization than others, so a trader should have a complete knowledge about the indicator including what pieces of data goes inside it and how it works. Technical Indicators are just tools; you should know how it works and why it works, in order to profit from it. A proper statistical research is necessary before using them on Nifty or stocks.
Remember Indicators can work sometimes and Fail sometimes
This is the reason institutional traders avoid relying on technical indicators, Indicators are derived from price and they’re lagging. When Market structure on Nifty or MCX changes many indicators fail to give accurate information. Over relying on Indicator is a dangerous habit. Moving averages lag, Oscillators may stay in overbought or oversold conditions for years. Every technical indicator has drawbacks. Understand the advantages and disadvantages of your chosen indicator; know when it works and when it doesn’t works.
Which is the best trading indicator?
The best trading indicator is the one you decide for yourself based on experience and research. With improved trading skills and strong intuition, you’ll find the best suitable technical indicator. But it’s an irony most traders sooner or later realize that raw price action is better than indicators. We need to stay open-minded; indicators can and definitely helps us to find a right trading edge with right settings and trading experience. Merging Price action with indicators is one of the ways to find successful trading opportunities. I use 25 period Bollinger band along with price action techniques on my proprietary trading desk on Nifty and NSE stocks. I cover those techniques in my training programs and trading course
