Combining Technical Indicators to Make Smart Financial Decision

Stock Market DiagramAs we progress through the different ways in which we can use technical indicators to improve our understanding of stock price movements, you might start to notice how it is that the indicators become increasingly subjective. This is because of the way in which all of these formulas are simply tools for evaluating the overall trends, as opposed to absolute laws of the market. It is therefore only through contextual interpretation that we can come up with a reasonable conclusion about how it is that a technical indicator might show us an opportunity. Otherwise, we might find ourselves buying into a false trend that doesn’t really make sense.

Looking at the historical success rate of swing trading strategies that rely entirely on the use of technical indicators on their own, there is a fairly uncertain picture of the outcomes. Over the short term, testing a strategy that relies on the Bollinger Bands or Stochastic Oscillators to exclusively trade the position in accordance to what the indicator would define as a trend will generally create only a few opportunities, with a general tendency towards taking a slight loss on the position. However, over time, back-tested portfolios can show as some highly favorable yearly returns. Continue reading