After sharing my trading insights online for so many years,the most frequently asked questions still revolve around technical indicators.

Pursuing the path of technical analysis,learning indicators is the most fundamental and crucial part of the process.

Today,I will compile and summarize the 12 most frequently asked and representative questions about technical indicators that have been raised,aiming to address the majority of friends' doubts in one go.

If you have any further questions about indicators,you can also leave a comment below the article,and we can organize another session to address them in the future.

1.What do you think are the best technical indicators to use?

This question is the most commonly asked,but there is a saying among traders: There are no bad indicators,only those who use them poorly.

We can think of indicators as various types of weapons.The weapons themselves do not differ significantly; the key is the skill of the person using them.

Let me first mention two criteria for good indicators:

1: Simplicity and clarity.In any technical analysis we conduct,the role of indicators is to establish trading criteria.Therefore,to make our trading criteria simple and clear,the indicator must have the characteristics of being simple and easy to identify trends.This way,when we actually operate in trading,we can be straightforward and avoid making mistakes or missing trades.

2: Comfort in use.There is no significant difference between indicators themselves; the best one is the one you are most familiar with and use most comfortably.Familiarity means understanding the logic of using the indicator,as well as its strengths and weaknesses.This way,in actual combat,you can be well-prepared and play to your strengths while avoiding weaknesses.When selecting indicators,do not be overly greedy; typically,two or three indicators,at most three to five,are sufficient for our trading needs.

The indicators I use the most are Bollinger Bands,moving averages,Fibonacci retracement,and candlestick patterns,a total of four.You can choose the indicators you find most useful based on your preferences and proficiency with them.

I have categorized some indicators that I find particularly easy to use and with clear judgment criteria for your reference:

(1) Trend indicators: Moving averages (MA,EMA),Guppy moving averages,Bollinger Bands,trend lines,channel lines,etc.

(2) Oscillators: RSI,KDJ,MACD,etc.

I have written more detailed articles on how to use these indicators,which you can find in the indicator classification section of the article compilation.

Some friends also ask: Do short-term and medium to long-term trading require different indicators?

In fact,the same indicator can be used for long-term,medium-term,and short-term trading,it's just that the trading time frames are different.

For example,using moving averages for trading on a 5-minute chart,entering and closing positions within the same day is considered intraday short-term trading.Using moving averages for trading on an hourly chart or above,holding positions for three to five days,is considered medium-term trading.

Therefore,the type of trading you do,whether short-term or medium to long-term,has little to do with which indicators you use.2.Is it true that all trading systems and strategies are based on technical indicators?

Yes.Trading systems,or trading strategies,are composed of a set of trading criteria made up of technical indicators.

A trading system has a basic framework that includes direction confirmation,selection of entry position and method,setting of stop-loss and take-profit,and capital management.

Below,I will explain an example of a simple trading system composed of technical indicators according to this framework (for illustrative purposes only and not intended for actual trading).

Direction confirmation: A trend reversal is confirmed when the price breaks through a trendline,with an upward break of a descending trendline confirming a bullish position,and a downward break of an ascending trendline confirming a bearish position.

Selection of entry position and method: After breaking through the trendline,wait for the trend to retrace to the 38.2% Fibonacci retracement level,and then enter the market upon the formation of a reversal candlestick or reversal pattern.

Stop-loss and take-profit settings: The stop-loss is set at the low point of the reversal pattern,and the profit-to-loss ratio for the take-profit is set at 3:1.

Capital management: Use 2% of the stop-loss capital as the position size standard.

Please see the illustrative diagram.After sharing my trading insights online for so many years,the most frequently asked questions still revolve around technical indicators.

In the field of technical analysis,learning indicators is the most fundamental and crucial step.So today,I have compiled and summarized the 12 most frequently asked and representative questions about technical indicators to address the majority of our friends' doubts in one go.

If you have any other questions about indicators,you can also leave a comment below the article,and we can organize another session when we have the chance.

1.What do you think are the best technical indicators to use?

This is the most frequently asked question,but there is a saying among traders: There are no bad indicators,only those who use them poorly.

We can think of indicators as various types of weapons,and there is not much difference between the weapons themselves; the key is the skill of the person using them.

Let me first mention two criteria for good indicators:

1: Simplicity and clarity.Whenever we engage in technical analysis,the role of indicators is to establish trading criteria.Therefore,for our trading criteria to be simple and clear,the indicator must have the characteristics of being simple and easy to identify trends.This way,when we actually operate in trading,we can be straightforward and avoid making mistakes or missing trades.

2: Comfort in use.There is not much difference between the indicators themselves; the ones you are most familiar with and use most comfortably are the best.Familiarity means understanding the logic of using the indicator,as well as its strengths and weaknesses.This way,in actual combat,you can be well-prepared and play to your strengths while avoiding weaknesses.

Do not be greedy when choosing indicators; usually,two or three indicators,at most three to five,are enough for our trading needs.

The indicators I use the most are Bollinger Bands,moving averages,Fibonacci retracements,and candlestick patterns.Everyone can select the indicators they find most useful based on their preferences and proficiency with the indicators.I have categorized some indicators that I find particularly useful and easy to judge standards for your reference:

(1) Trend indicators: Moving Averages (MA,EMA),Guppy Moving Averages,Bollinger Bands,trend lines,channel lines,etc.

(2) Oscillator indicators: RSI,KDJ,MACD,etc.

I have written more specific articles on how to use these indicators,which you can find in the indicator classification section of the article compilation.

Some friends also ask: Do short-term and medium to long-term trading require different indicators?

In fact,the same indicator can be used in long-term,medium-term,and short-term trading,it's just that the trading time cycles are different.

For example,using moving averages for trading on a 5-minute chart,entering and closing positions within the day is considered intraday short-term trading.Using moving averages for trading on an hourly chart or above,the position holding period will reach three to five days,which is considered medium-term trading.

Therefore,engaging in different cycle trades has little to do with what indicators are used.

2.Are all trading systems and strategies based on technical indicators?

Yes.A trading system,or rather a trading strategy,is a set of trading criteria composed of technical indicators.A trading system has a fundamental framework,which includes confirming the direction,selecting the entry position and method,setting stop-loss and take-profit levels,and managing capital.

Below,I will explain an example of a simple trading system composed of technical indicators following this framework (for illustrative purposes only,not for actual trading use).

Confirming the direction: A trend reversal is confirmed when the price breaks through the trendline,with an upward breakout of a descending trendline confirming a bullish trend,and a downward breakout of an ascending trendline confirming a bearish trend.

Selecting the entry position and method: After the trendline is broken,wait for the trend to retrace to the 38.2% Fibonacci retracement level,and then enter upon the formation of a reversal candlestick or structure.

Setting stop-loss and take-profit: The stop-loss is set at the low point of the reversal pattern,and the profit target is set with a risk-reward ratio of 3:1.

Capital management: Use 2% of the stop-loss capital as the position size standard.

Wait for the market to retrace to the 38.2% level of the first wave of the uptrend,and then enter in conjunction with the reversal pattern.

After entering,set the stop-loss at the low point of the reversal pattern,and set the profit target to be three times the stop-loss space,with a risk-reward ratio of 3:1,and then the market rises.

3.Can technical indicators be used to predict market trends?

Of course not,no trading technique is used for predicting market trends.Many novice traders believe that certain indicators or combinations of indicators in a specific state can predict the future trend of the market.However,this is not the case.It's easy to understand with just a couple of examples.

For instance,a golden cross of moving averages is thought to signal a rise in the market; or a divergence in the MACD is believed to indicate a reversal.But in practical trading,these are not always the case.

In the candlestick chart on the upper right,after the moving averages cross,instead of rising,the market falls and then experiences a significant drop after consolidation (invalid).This demonstrates that the crossing of moving averages cannot predict whether the market will rise or fall.

Looking below,on the lower left is an illustration of the market reversing after a MACD divergence (valid).On the lower right,the market also forms a bottom divergence after a drop,but the price does not reverse; it continues to fall (invalid).This proves that MACD divergence cannot predict the rise or fall of the market.

There are many such examples,and it's not just individual indicators; combinations of multiple indicators also exhibit the same behavior.You can observe this on charts to understand.

Therefore,technical indicators cannot predict market trends.Sometimes they work,and sometimes they don't.So,how should one trade?Let's discuss this topic.

4.Why do technical indicators sometimes work and sometimes not?What to do when indicators fail?

The role of technical indicators is to establish standards for our trading.For example,we can go long after a golden cross of moving averages,and we can also go long after a MACD bottom divergence.

After going long,sometimes the market moves in a bullish trend,and sometimes it doesn't.What should we do?Think about the effectiveness of indicators with a probabilistic mindset,and I will continue to explain with pictures.On the upper right side,after the reversal of the candlestick pattern,orders are entered to go long,with a stop loss of 22 points.The order is entered,but the market does not rise,resulting in a loss of 22 points.

When the indicator is effective,it earns 51 points; when it fails,it loses 22 points.As long as the success rate of moving average crossovers maintains a certain probability,after a series of trades,the final trading result is profitable.

On the lower left side,the MACD bottom divergence also occurs after the reversal of the candlestick pattern,with a stop loss of 12 points.A 3:1 reward-to-risk ratio is set,resulting in a profit of 36 points.

On the lower right side,the MACD bottom divergence fails.After the reversal of the candlestick pattern,the order is entered with a stop loss space of 13 points.The market does not rise,resulting in a loss of 13 points.

When the indicator is effective,it earns 36 points; when it fails,it loses 13 points.As long as the MACD bottom divergence maintains a certain probability,after a series of trades,the final trading result is profitable.

Think about the effectiveness of indicators with a probabilistic mindset.When the indicator is effective,earn more; when it fails,stop the loss in time to lose less.After a series of trades,if the total profit is greater than the total loss,it is a successful trade.

Furthermore,let's imagine that if the indicator never fails,for example,if the market rises every time the moving average forms a golden cross,and everyone goes long after the golden cross,there would be no one to go short,and the long positions would not be executed.Without transactions,the market would cease to exist.

Therefore,the failure of indicators is inevitably present and is reasonable.

5.What is indicator resonance?What is its function?

Indicator resonance refers to a situation in a market trend where different indicators point in the same direction at the same time.For example,if the moving average points to a bullish trend,and the MACD also points to a bullish trend,this is called dual-indicator resonance.If at the same time,the KDJ or other indicators also point to a bullish trend,it is known as multi-indicator resonance.Indicator resonance serves a dual role of confirming signals twice and filtering out trading signals.Resonance enhances the stability of trading and reduces the frequency of trades.

Let's first compare the trading frequency; the left side only has three opportunities to go long,while the right side has a total of seven trading opportunities for both long and short positions.

Next,let's compare the success rate; the left side has three trading opportunities with two correct and one incorrect,while the right side has seven trading opportunities with three correct and four incorrect.

Upon comparison,it is evident that after filtering,the trading frequency is reduced,and the stability of the trading system is significantly increased,which is the role of indicator resonance.

Let's discuss some precautions for indicator resonance:

Indicator resonance can be achieved with two indicators or three indicators.Using more indicators for resonance,or over-filtering,can lead to a very low trading frequency or a very complex trading system.This can make execution cumbersome and difficult,neither of which is conducive to the execution of trades.

Resonance filtering is a good method to adjust trading frequency.Appropriately filtering to find a trading frequency that suits oneself increases the stability of the trading system,making the execution of trades stronger and more profitable.

6.How to choose different parameters for indicators?Which parameter yields the highest profit?

The selection of indicator parameters should grasp two most basic principles.

(1) Choose parameters that suit oneself.Different parameters of an indicator will have different performances in practice.For example,a small parameter for a moving average will be more aggressive in practice,while a large parameter will be more conservative.Therefore,choosing a large or small parameter for a moving average represents a choice between an aggressive or conservative trading philosophy,and other indicators exhibit similar behaviors.(2) As long as the method is correct,different parameters of indicators can all be profitable,it's just that different parameters of indicators show profitability in different cycles.

The chart shows a 5-minute K-line chart of rebar.In the left image,it is the 260-day moving average.In the rapid decline and deep correction trend,the K-line tested near the 260-day moving average three times,and after being pressured,it continued to fall.In this segment of the market,using the 260-day moving average as a pressure line for trading can yield very high profits.

In the right image,it is the 60-day moving average.The market's rise is relatively slow,and the correction strength is relatively small.In such a trend,using the 60-day moving average as a support line for trading can be profitable.

Let's think about it,if the market in the left image is traded with the 60-day moving average,it would actually result in a loss; in the right image,if the 260-day moving average is used for trading,the market correction is not in place,and there is simply no opportunity to enter.

By comparing the two images,we can clearly see that the 60-day and 260-day moving averages generate profits in different market conditions,each with its own suitable and unsuitable market conditions.How to choose?It varies from person to person.Choose the parameters that match the type of market you want to trade.

Also based on the above reasons,the biggest taboo in selecting indicators is recent preference.You cannot change the parameters just because a certain parameter of the indicator incurs a loss or cannot be profitable in a certain period.

The real situation is that it's not that this parameter cannot be profitable,it's just that the market condition for this parameter to be profitable has not yet appeared.Constantly changing parameters and following the market's changes will only lead to continuous losses.

Which parameter of the indicator is more profitable?This question is actually easy to solve.Use the same segment of the market and use different parameters of the same indicator for backtesting statistics.

For example,backtest the same 5-year market with the 60-day and 260-day moving averages and compare the profitability (based on my experience,under other conditions unchanged,the profitability performance of different parameters of the same indicator in backtesting statistics is close).

However,it should be noted that the trading frequency of the 60-day moving average will be higher than that of the 260-day moving average,and other indicators with different parameters have similar situations.So,rather than focusing on which parameter yields higher profits,it is more about which parameter aligns better with one's personality,thereby indirectly increasing the likelihood of profitability.

7.What to do about lagging technical indicators?

Almost all technical indicators on the chart are calculated from the prices of the candlestick lines,such as moving averages,Bollinger Bands,MACD,and so on.Therefore,there must be a price first and then an indicator,and the lagging nature of indicators is an inherent characteristic that cannot be resolved.

The lag of indicators does not affect trading.As we also mentioned in the previous article,the role of indicators is to establish trading criteria,and it is not necessary for them to predict the direction of the trend and price changes in advance.

No one can buy at the lowest point and sell at the highest point,and trading does not require the ability to foresee and capture all market movements.As long as the trading system has advantages in terms of profit-to-loss ratio and success rate,capturing the segment of the market that belongs to us and making an overall profit is sufficient.

Sometimes the lag of indicators can even help us filter out some false signals.For example,in practical application,using moving average crossovers combined with breakouts to enter the market,some moving averages with larger parameters crossover more slowly and have a stronger lag.In some false breakout scenarios,they will not generate trading signals,which can reduce losses from false breakouts.

Therefore,in some market trends,lagging is not necessarily a bad thing,and the lagging nature of indicators does not affect the conduct of trading.

8.How to operate when two indicators point in different directions?

This situation often occurs in practical trading and is quite normal because different indicators have different calculation methods and usage methods.When using multiple indicators for trading,it is inevitable that the indicators will point in different directions.

The most conventional solution to this situation is to wait and observe when two indicators show different directions,not to enter the market,until both indicators point in the same direction,and then proceed with trading.Additionally,the trading system is exclusive,and it is composed of a fixed set of indicators.In practical application,one must strictly adhere to the rules of the trading system for transactions.

During the execution process,if indicators outside the trading system contradict the direction of the indicators within the system,completely disregard the external indicators and only execute your own trading system.It is even correct to only add indicators required by the trading system on the chart,and after executing the trading system,no longer observe any technical indicators unrelated to the trading system.

9.Will an indicator still be effective if many people use it?

This concern is like worrying about the sky falling.There are hundreds of indicators on trading software,and the same indicator can be used in different ways,with numerous parameters and various combinations among different indicators.Traders also use different time frames for trading,so the randomness in the use of indicators is very high.The probability of many people using the same indicator simultaneously can be disregarded.

Moreover,market trends change randomly,and no single indicator will always match the trend,remain effective,and continue to generate profits.Indicators are always alternating between being effective and ineffective.

Furthermore,whether it is the stock market or the futures market,the market's capacity and depth of transactions are sufficient for us retail traders to use any indicator for trading without worrying that our indicators will become ineffective if too many people use them.

Therefore,when someone asks me about trading techniques,I am always open and thorough in my explanations.I am not afraid that my techniques will become ineffective if too many people learn them because the effectiveness of each person's use will vary.

10.Can the same indicators be used for large and small scales?

The answer is affirmative; the same indicators can be used for trading across different scales.On the left side,at the 5-minute level,the market tested the 5-minute 260 moving average,forming three entry opportunities,and then reversed and fell three times.

On the right side,at the 1-hour level,the market tested the 1-hour 260 moving average,also forming three opportunities,and then reversed and fell three times.

Other indicators have shown similar performance,so the same indicators can be used for trading across different time frames.

11.What if you still suffer losses after learning many indicators?

It's because your trading lacks consistency.Many people's trading behaviors are similar to my early trading,where they learn a lot of trading knowledge and many trading indicators,but their knowledge system is very chaotic,and they jump between different indicators in actual combat.

During this period,if they feel that this indicator is useful,they use it; once the indicator fails,they quickly switch to another one.Each indicator provides different technical levels and stop-loss spaces,and it's also impossible to use unified capital management.The trading results can't be statistically analyzed,and in the end,they are confused and don't even know why they are losing.

What should you do?

(1) Keep a balanced mindset.Learning many indicators but still suffering losses is also a stage of trading.If your knowledge system is chaotic,then organize it well,summarize more and trade less,and you will gradually have the ability to simplify the complex.The mindset at this stage is the most important.

(2) Do subtraction.Choose three to five of the most proficient and most comfortable indicators from what you have learned,and form a trading system according to the framework of the trading system mentioned above.

(3) Review and improve this trading system.Mainly to solve the problem of trading frequency,the problem of consecutive errors and decline,the problem of execution complexity,and the problem of capital management rules.(4) Once all the above issues are resolved,get a feel for the details of trading with a demo account before going into actual combat.Then start executing your trading system with a small amount of capital and small positions,gradually increase the positions,slowly reach the standard position level,and then progressively achieve trading profits.

12.Are there any books on learning technical indicators that you can recommend?

This is a particularly good question because there are so many books on the market for learning technical indicators,and newcomers to trading are often overwhelmed and unsure where to start.Moreover,if one chooses a poor-quality technical book,it can lead them astray.

I have also taken such a detour in the past,buying a lot of books on trading techniques.Some of the content in these books is not objective and does not closely relate to actual trading.Learning from them is not helpful for trading and can even be harmful.

The two books that have been most helpful to my study of technical analysis are "Japanese Candlestick Charting Techniques" and "Technical Analysis of the Financial Markets."

"Japanese Candlestick Charting Techniques" (translated by Ding Sheng Yuan) is undoubtedly the best book on candlestick charts in China.It explains the basic knowledge of candlestick charts from simple to complex,the most classic combinations of candlestick patterns,and the methods of using candlestick patterns.It covers almost all the knowledge and usage methods about candlestick charts,and one book is enough to learn about candlestick charts.

"Technical Analysis of the Financial Markets" is a comprehensive technical book that explains the basic concepts of trends,Dow Theory,and almost all commonly used technical indicators in the market,as well as the methods of using these indicators.Its advantage is that it is very comprehensive,with simple and practical explanations.

For knowledge about technical indicators and trading systems,the content of these two books is sufficient.

I also recommend everyone to read "Trend Trading," which has good content on the structural aspects of trading systems.

Based on the structure of the trading system in "Trend Trading," using the technical indicators from "Japanese Candlestick Charting Techniques" and "Technical Analysis of the Financial Markets," you can combine them to form your own trading system.Lastly,let me say that technical indicators are the most fundamental aspects of trading and are also simple and easy to learn.Do not idolize technical indicators,nor should you expect a magical indicator that can predict market trends.

When we approach and use technical indicators with the most objective and rational perspective,we are not far from making a profit.

That's all for today.I also wish everyone a pleasant holiday.Take advantage of the market break during the holiday to learn more,think more,and summarize more,so as to make more money in the future.