Use These Indicators to Simplify Your Trading

Keep it Simple, Stupid!

Coined by the U.S. Navy in 1960, “Keep it Simple, Stupid” is the idea that most systems work best if they are kept simple rather than complicated.

Therefore, simplicity is key.

That’s especially true if you truly want to make the most money.

There’s no reason to make things harder than they have to be, especially when it comes to technical analysis.  In fact, 20 years on, I’m still using the same five technical pivot points I started with.  All I’m doing is looking at Bollinger Bands (2,20), moving average convergence divergence (MACD), relative strength (RSI), Money Flow (MFI) and Williams’ %R (W%R) with drawn trend lines.

Any time those five technical indicators align in either oversold or overbought territory there’s a good chance I’ll see a pivot in the other direction with patience.

Look at a three-year chart of oil, for example.

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Let’s start with the upper Bollinger Band (2,20). Each time the price of oil hits or penetrates the upper Bollinger Band we know our “rubber band” has been pulled too tight.  We also know our chances for mean reversion is higher at this point.

We never want to just trade oil on one indicator, though.

So, we begin to look at other indicators, too.  For example, look at what happens to the price of oil after it hits the upper Bollinger Band, and as RSI touches or penetrates its 70-line to the upside.  We begin to see signs of failure in oil.

Then again, we can’t just rely on just two indicators.

So, we begin to add in Money Flow.  When Money Flow touches or penetrates its upper 80-line, we have confirmation of an overbought situation.  We can confirm one last time with Williams’ %R.  When this indicator touches or penetrates its 20-line, we have further confirmation of an overbought situation.

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