The search for the Holy Grail of technical indicators is like the search for the real Holy Grail. A constant search by a lot of people which is always met with dissapointment. One of things you notice about traders is they are afraid to take a losing position. This fear has led traders to focus on minimizing the losing trades. The main way traders look to achieve this goal is by adding multiple indicators to their charts and look for confirming signals. They feel if they can alter their indicators to only give them the right buy signals then they will cut down the losses.
Now obviously this tatic does not work. Most of the time traders suffer from multicollinearity by using multipe indicators that all measure the same thing. So they feel a buy signal in these indicators indicates a strong buy when in reality the indicators just confirm themselves.
Another side effect is paralysis by analysis. By having so many indicators and items to look at the trader tends to lose sight of the big picture. They miss the real action in the price and volume of the chart for what they think is happening in the indicators.
Instead of trying to minimize the amount of losing positions the key item to focus on is trade management. No trader will be able to get away from a losing position, so it is better to learn what to do with that position instead of trying to figure out how to avoid it. Trade management is one of the hardest and most important parts of trading. That is because it is equally hard to manage profits as it is losses. Through a proper risk/reward and position management strategy you can keep your losses small and keep you wins big. Proper discipline is the holy grail of trading. Don’t waste your time trying to find it in indicators.
