Systems of Technical Analysis

You can take several technical indicators, make them work together so that would confirm another, and call it a system. To measure the system’s true worth, you have to study indicators’ history, make random tests, try it on a demo platform, and only then try it on the live program. Most of such improvised systems fail, especially if they don’t take into consideration current market situations. If a trader wants to make the system work well, he has to update it frequently and change variables when the market changes. There are some basic rules to designing a good technical analysis system.

Rule 1
Approaches
It’s recommended to choose indicators that process the data in different ways. Thus signal confirmation will be more reliable.

Rule 2
Less is more
Too many indicators in the system complicate it to the point of failing. Two or three indicators are the optimal number for a good system.

Rule 3
Think big
Traders can’t follow their systems blindly. They have to consider a current situation, economic events, trends, supports, etc. The system doesn’t do magic, following it with closed eyes may hurt the trader badly.

Rule 4
Test before you trade
Technical analysis system can be tested: historic testing, demo testing, etc. you can check the performance of various parameters, ratios and oscillators. The purpose of testing is to find systems problems and strong points, and adjust them to the market and to your trading platform.

Don’t be blind, think, try to see the big picture, and then you may become a successful trader. 
 

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