Especulador96
Newbie
- Messages
- 8
- Likes
- 1
Technical indicators are common tools used by investors, to a greater or lesser extent. They provide objective information about price behavior, helping to structure decisions, clarify signals, and detect investment opportunities. Although they do not predict the future, they allow for a systematic analysis based on historical data.
There are two main categories of technical indicators:
• Trend-following indicators (such as Moving Averages, Ichimoku Cloud, Bollinger Bands, or Keltner Channels): These focus on identifying and confirming the overall market direction, whether bullish, bearish, or sideways. Furthermore, they help detect opportunity zones, such as support, resistance, or trend continuation points.
• Oscillators (such as RSI, Stochastic, MACD, DMI, or Fisher Transform): These measure the speed and strength of price changes (momentum).
They identify overbought conditions (when the price rises excessively fast) or oversold conditions (when it falls sharply), signaling potential market reversals or corrections.
To make good use of these tools, the following basic concepts will undoubtedly be useful to you:
1. Technical indicators do not have predictive capability.
They are more or less complex mathematical formulas based on the historical record of price (volume or other indicators).
2. Technical indicators must provide clarity.
If our tools or technical indicators do not show a clear and harmonious pattern aligned with the price structure, we are most likely making decisions based on randomness.
In Figure 1, we can observe the correct use of a trend indicator (EMA 20) in conjunction with price action.
In Figure 2, we can see a similar situation, but with the Ichimoku Cloud as the trend indicator, and the MACD (Moving Average Convergence Divergence) indicator in alignment with the price action.
Figure 1: SPDR S&P 500 ETF Trust (Daily Chart) (TradingView)
Figure 2: Walmart Inc. (Daily Chart) (TradingView)
3. Technical indicators provide greater clarity on higher timeframes.
If an indicator shows us contradictory readings across different timeframes (a natural occurrence, as the market is fractal), we should give greater importance to the readings that are harmoniously aligned with the price structure (historical pattern), especially those from the higher timeframe.
Especially intraday timeframes are prone to noise and manipulation, in addition to offering a more limited price record. This translates to less strong participation, lower quality of signals, and lower capitalization. Rumors and news also carry more weight in the short term, considerably inflaming investor sentiment.
4. A good risk-reward ratio increases the effectiveness of signals detected by technical indicators.
If the harmonic fluctuations of price action, aligned with the readings from our indicators, show a risk-reward ratio equal to or greater than 1-2, there is a higher probability rate of executing successful trades, as this generates greater follow-through from investors.
5. We must avoid conflicting signals.
If a trend indicator and an oscillator on the same timeframe send conflicting signals, the market at that moment is likely going through a period of doubt, so it is advisable to wait, or to analyze a higher timeframe that offers greater clarity.
In Figure 3, we observe how conflicting signals generally manifest in erratic or indecisive environments. Specifically, we have a bearish crossover of the EMA 20 and EMA 50, contradicting a bullish crossover in the MACD indicator.
Figure 3: BTC/USDT (4-hour Chart) (TradingView)
6. Confluences of indicators of the same type do not increase the predictive capability of the signals.
It is a very common practice among beginners to overload charts with many oscillators or trend indicators to improve the quality of signals. This ultimately leads to confusion and poor market entries.
7. Oscillator reversal signals against the trend are usually dangerous.
Divergences or oscillator crossovers only show the weakness of the price action at a given moment, but they do not justify an entry against the prevailing trend unless there is a structure, pattern, or confirmation in the price action.
In Figure 4, an oscillator (MACD) signals a bearish divergence and shows numerous bearish crossovers between the MACD line and the signal line. The price, despite showing some weakness, advanced enough to trigger the SLs (Stop-Losses) of aggressive sellers.
Figure 4: SPDR S&P 500 ETF Trust (Daily Chart) (TradingView)
In Figure 5, I show what the correct use of a bearish divergence from an oscillator (Stochastic) in alignment with the structure would look like.
Figure 5: CarGurus (Weekly Chart) (TradingView)
8. Indicators are not essential.
Without a deep study of price action, it is unlikely that an investor can make good use of technical indicators, let alone develop robust systems.
A good technical analyst, when using indicators, must understand them in conjunction with price action.
Conclusions
No single technical indicator is inherently better than another, and each has its own weaknesses and strengths, so their selection is adjusted to the needs of investors.
If we avoid randomness by relying on structure and historical record, our success rate will undoubtedly improve.
There are two main categories of technical indicators:
• Trend-following indicators (such as Moving Averages, Ichimoku Cloud, Bollinger Bands, or Keltner Channels): These focus on identifying and confirming the overall market direction, whether bullish, bearish, or sideways. Furthermore, they help detect opportunity zones, such as support, resistance, or trend continuation points.
• Oscillators (such as RSI, Stochastic, MACD, DMI, or Fisher Transform): These measure the speed and strength of price changes (momentum).
They identify overbought conditions (when the price rises excessively fast) or oversold conditions (when it falls sharply), signaling potential market reversals or corrections.
To make good use of these tools, the following basic concepts will undoubtedly be useful to you:
1. Technical indicators do not have predictive capability.
They are more or less complex mathematical formulas based on the historical record of price (volume or other indicators).
2. Technical indicators must provide clarity.
If our tools or technical indicators do not show a clear and harmonious pattern aligned with the price structure, we are most likely making decisions based on randomness.
In Figure 1, we can observe the correct use of a trend indicator (EMA 20) in conjunction with price action.
In Figure 2, we can see a similar situation, but with the Ichimoku Cloud as the trend indicator, and the MACD (Moving Average Convergence Divergence) indicator in alignment with the price action.
Figure 1: SPDR S&P 500 ETF Trust (Daily Chart) (TradingView)
Figure 2: Walmart Inc. (Daily Chart) (TradingView)
3. Technical indicators provide greater clarity on higher timeframes.
If an indicator shows us contradictory readings across different timeframes (a natural occurrence, as the market is fractal), we should give greater importance to the readings that are harmoniously aligned with the price structure (historical pattern), especially those from the higher timeframe.
Especially intraday timeframes are prone to noise and manipulation, in addition to offering a more limited price record. This translates to less strong participation, lower quality of signals, and lower capitalization. Rumors and news also carry more weight in the short term, considerably inflaming investor sentiment.
4. A good risk-reward ratio increases the effectiveness of signals detected by technical indicators.
If the harmonic fluctuations of price action, aligned with the readings from our indicators, show a risk-reward ratio equal to or greater than 1-2, there is a higher probability rate of executing successful trades, as this generates greater follow-through from investors.
5. We must avoid conflicting signals.
If a trend indicator and an oscillator on the same timeframe send conflicting signals, the market at that moment is likely going through a period of doubt, so it is advisable to wait, or to analyze a higher timeframe that offers greater clarity.
In Figure 3, we observe how conflicting signals generally manifest in erratic or indecisive environments. Specifically, we have a bearish crossover of the EMA 20 and EMA 50, contradicting a bullish crossover in the MACD indicator.
Figure 3: BTC/USDT (4-hour Chart) (TradingView)
6. Confluences of indicators of the same type do not increase the predictive capability of the signals.
It is a very common practice among beginners to overload charts with many oscillators or trend indicators to improve the quality of signals. This ultimately leads to confusion and poor market entries.
7. Oscillator reversal signals against the trend are usually dangerous.
Divergences or oscillator crossovers only show the weakness of the price action at a given moment, but they do not justify an entry against the prevailing trend unless there is a structure, pattern, or confirmation in the price action.
In Figure 4, an oscillator (MACD) signals a bearish divergence and shows numerous bearish crossovers between the MACD line and the signal line. The price, despite showing some weakness, advanced enough to trigger the SLs (Stop-Losses) of aggressive sellers.
Figure 4: SPDR S&P 500 ETF Trust (Daily Chart) (TradingView)
In Figure 5, I show what the correct use of a bearish divergence from an oscillator (Stochastic) in alignment with the structure would look like.
Figure 5: CarGurus (Weekly Chart) (TradingView)
8. Indicators are not essential.
Without a deep study of price action, it is unlikely that an investor can make good use of technical indicators, let alone develop robust systems.
A good technical analyst, when using indicators, must understand them in conjunction with price action.
Conclusions
No single technical indicator is inherently better than another, and each has its own weaknesses and strengths, so their selection is adjusted to the needs of investors.
If we avoid randomness by relying on structure and historical record, our success rate will undoubtedly improve.
