A technical indicator should be selected on the basis of what you want it to tell you – and how it relates that information.

Short term selling is all about oscillations – we presume that price will oscillate – the battle of the bears and the bulls assures that it will do so. The oscillations will look different from time frame to time frame.

Oscillations will also vary in amplitude within the same time frame.

The goal of the short term trader is to locate an oscillation that will PROBABLY move in one direction sufficiently far that a trade may be made. The trade must qualify as a minimum trade at the very least.

In order to get the most from any potential trade it is essential to get into the oscillation’s potential movement as close to its beginning as possible. This is much easier said than done.

This is where our technical indicators some into play.

The things we look for at the trading edge of the chart are:

Price direction (trend) and position at the moment

Likelihood of price changing direction

Most likely point of that change of direction

Potential amount of the anticipated movement

Entry price – stop loss value – potential profit

That is a lot of info to gather in a very short time. We need a few very carefully selected technical indicators to guide us.

For price direction and range we use Bollinger Bands

For Trend analysis we use the MACD – MACD histogram..

For degree overbought and oversold we use our Stochastic oscillators.

For near term price direction and strength of the movement we use our RMI.

For likely point of price reversals and range of price movement we use our SRVs.

In the next several posts we will discuss each one or our technical indicators individually – and how each contributes to our final decision of “to trade or not to trade”.

 

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