Do Not Trust Standard Indicators When Trading In The Stock Market

Do Not Trust Standard Indicators When Trading In The Stock Market

Ready-made and now famous indicators are potentially one of the biggest causes for so many people losing so much money in the stock market. Common technical indicators like MACD, RSI and Stochastics, come usually as standards on most technical analysis softwares. Since they are so easy to use and already there to just grab and drag them into your current stock, they might make you believe that they are very reliable and accurate. But this couldn't be more far from the truth.

If you have been trading for a while and stumble upon this article, I guess you have probably experienced that feeling first hand. It usually starts with a stock selection that you really like or one that someone else recommended to you. Then what you do is: you open your favorite (and usually expensive!) technical analysis software, click on the desired indicator and drag it to your stock. Then, all the data is instantly calculated and some results show up.

Next, you scroll back a few months maybe even a few years, to check this indicator's accuracy. And you soon conclude that is reliable! When this indicator is over determined level, it is definitely a green light for you to buy. And, when this indicator is below certain predetermined level, then you either should stay away from it or short it. That works really well looking in retrospect, but you know that is a completely different story when using this same "oh-so-reliable" indicator when the trade is taking place TODAY!

The problem is that you are just glancing over a stock, looking into more than 5, maybe 10 or 20, years' worth of data and then easily concluding that this indicator is reliable. What you do not realize is that your brain is tricking you into believe that this data is accurate, when in fact it isn't. The indicator might have its strengths and uses, but there are so many other factors to consider when trading that just using an indicator like that won't be enough. So, study indicators but also study a proper position sizing and money management since they will have a greater impact in your performance.

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