Combining different oscillators is a great way to improve your accuracy when timing the market. Using multiple oscillators can also help you avoid some of the problems of using just one.
Combining different oscillators is a great way to improve your accuracy when timing the market. Using multiple oscillators can also help you avoid some of the problems of using just one.
Many oscillators will give you great buy and sell signals on occasion. But in addition to that most if not all indicators will give off many fake signals. Even the best indicators out there will give you large amounts of false signals.
Weeding out false signals is definitely the number one reason why you should combine indicators. If you combine the MACD and the RSI indicators and you would not enter until both of the indicators give you a buy signal.
So if the RSI gives you a signal but the MACD does not you should not enter the trade. If that was your strategy. That would help get rid of the false signals you can get from using just the RSI or just the MACD.
Those two are just an example; there are literally thousands of different indicators out there that have been known to give off accurate signals. Some work better than others; some are used differently than others.
For instance the MACD gives you specific buy and sell signals. When it crosses up it is said to be a buy signal when it crosses down it is said to be a sale signal. The ADX on the other hand does not give you buy and sell signals but rather tells you how strong a trend actually is. So combining them could be useful.
If a stock is up trending with a strong trend according to the ADX and the MACD crosses over. That would also be an example of combining oscillators.
But be careful when combining Oscillators. Many new traders will make the mistake of combining too many different indicators. This could lead to you never getting an entry signal or cause you to enter a trade too late.
That opens the question, how many oscillators are too many? It depends, everyone trader has a different belief on this subject. Personally if you are trying to use more the 3 indicators I would say you are using too many.
For more information about Oscillators visit http://www.stocks-simplified.com/Oscillators.html
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