Classic mistake of a beginner — misunderstanding of technical analysis indicators and principles of operation of individual indicator. The consequences of errors:
wrong interpretation of the indicator signals;
late perception of the signal and opening of unlucky position (late closure);
wrong combination of indicators that only clutter up the chart;
improper settings of the indicator and oscillator (different mutually exclusive settings), which do not fit the specified timeframe.
Oscillators and indicators: the essence and differences
Oscillators and indicators are technical tools that complement each other. Visual display of both types of instruments are the same: graphics, line (or multiple lines as, for example, stochastic), but in the code different purposes are laid down. By themselves technical tools is a set of code that expresses a specific formula based on historical data.
Types of indicators:
trend indicators. Track the current market situation, show the global trend in the market, help to identify the trend direction and its strength. Great helpers for beginners who do not have time to follow the market volatility. Example — Parabolic SAR, MA Scalper;
volumes. Indicators that allow you to see the big players, able to influence the market. Help to distinguish a false breakout from the pressure of market bears and bulls. Example — Volumes, OBV;
oscillators. Indicators that show overbought or oversold condition of the asset, limiting zones. It is determined by the potential reversal of the trend. Example — stochastic, relative strength index (RSI), “Momentum”.
Therefore, the oscillators can be called a sub-set of indicators. Although we have identified the difference: the oscillators and indicators show the price trend. But the oscillators are giving a forecast on the potential change of the direction, indicators – indicate the point of entry. The two signals confirm each other. Experienced traders recommend strategy to use one indicator from each group: the oscillators will warn of a possible signal, trend indicators – to signal the entrance, the volume indicators to confirm the accuracy of the signal.
Oscillators and indicators are useful to predict trend reversal points and confirm the accuracy of the signal. For manual simple strategies with the speed of market entry 3-5 trades per day one classical oscillator (e.g., stochastic) and 1-2 indicators are enough, that will point out entry points. A combined tool can be made on the basis of simple indicators and oscillators (in the basic content is not included). Example – Trend Magic (based on ATR and CCI). The accuracy of its work and selection of parameters are tested on a demo account, after which its work is honed in the real market on a cent account.