How to Choose the Right Technical Indicators for Personal Trading

In trading analysis, technical indicators are an important tool that many traders rely on. There are objective reasons behind this. After all, is there any other more intuitive reference besides indicators? However, when using indicators to screen trading varieties, there are often some limitations that require users to pay attention. Generally speaking, technical analysis methods are based on historical data such as price and volume, using statistics, mathematical calculations and charting to predict the possible future direction of the market. So, how can we find indicators that really fit our trading habits? Here are a few indicators that have a good auxiliary role in practice for reference.

The first thing to mention is the golden section. This mathematical law, discovered in BC, has added a lot of theoretical color due to its ingenious relationship with the Fibonacci sequence and its consistency in many places in the real world. In the actual operation of many traders, it can indeed be felt that it has a high reference value for anticipating support and resistance positions in longer-term cycles. The golden ratio is usually referred to as 0.618, and the ratios derived from it, such as 0.382 and 0.236, are also of analytical significance.

Generally speaking, the golden section tool is more suitable for unilateral markets with a clear trend. Whether it is an upward or downward trend, as long as the stage highs and lows of a market can be determined, under the assumption of trend continuation, the 61.8% pullback position may often become a potential target area for market correction. There are two points to pay special attention to when using this tool:

The first is that the selected band should be appropriate. If the band is too short or too long, the measurement results may be distorted.

The second is the choice of starting and ending prices. Whether it is the lowest and highest price or the opening and closing price, it is necessary to maintain the same standard, otherwise it may also cause prediction bias.

Another indicator that is more suitable for trading analysis is the RSI. Its applicability is mainly reflected in the fact that it is an indicator that does not involve volume, purely reflects the strength of the market's buying and selling forces, which makes it widely adaptable. In practical applications, many users feel that its reaction speed is more sensitive than the similar function of the MACD indicator, and it has a certain precursor role, although the stability of the signal may be slightly weaker. The RSI is called the Relative Strength Index. It uses 50 as the dividing line between long and short. Values above 70 are often regarded as overbought areas, and values below 30 may enter oversold areas. However, simply observing the value is of limited significance, and it can be better used from the following two angles:

First, it is relatively accurate to judge the top or bottom divergence in combination with the price trend. For example, when the price hits a new high and the RSI indicator fails to hit a high synchronously, a top divergence is formed, which often indicates that the upward momentum is weakened and the possibility of subsequent price adjustments is increased.

Second, using RSIs with different parameter combinations, such as observing 14-day and 21-day RSIs simultaneously, the effect is usually better than a single parameter. When used in combination, you can pay attention to the positional relationship between the indicator lines of different periods. When they cross or fit, if they can be confirmed by other indicators, it can often provide more valuable reference.

Finally, a more general indicator SAR is introduced, which is usually called stop loss and turn indicator. There are generally four basic application principles for SAR indicators:

When the price breaks through the SAR curve from below, it can be regarded as a buying reference signal.

Second, when the price breaks through the SAR curve and continues to rise, the SAR curve also follows the upward movement, indicating that an upward trend may be forming, and the SAR curve will form a dynamic support for the price. Traders can consider taking a position or looking for a correction opportunity.

The third and fourth principles are basically the opposite of the first two, and they are more intuitive to understand.

Usually, SAR indicators are preset in common analysis software, and there are often color changes at trend turning points, so it is a relatively intuitive operation reference tool and is not complicated to use.

Trading analysis technology is extensive and profound, and it cannot be summarized in a few words. But as long as you find an indicator that really suits your analytical thinking and operation style, no matter how simple or complex it is, I believe it can provide useful help for your trading decisions.