In this lesson
- build a chart from one indicator of each family
- find out why RSI and MACD partly overlap
- get a checklist for choosing and setting indicators
We have been through the whole indicator menu, and now comes the hardest discipline: switching most of them off again. Professor Wick has brought a broom. He keeps on the chart only what answers a different question from the rest – and sweeps everything else off the desk.
Where we start#
When you open a chart, Binance shows three averages, MA 7, 25 and 99, and volume below the chart. Most people then add an oscillator – say RSI, and MACD on top:
It looks professional. But RSI and MACD mostly measure one thing: how fast the price has been moving lately. When RSI shoots up, MACD usually does too. Two panels, largely one piece of information.
One from each family#
A clearer chart comes from picking one member of each family:
- Trend – one line over the candles, say SMA 50 or EMA 25. It answers: which way is it going?
- Oscillator – one, say RSI 14. It answers: is the move overdone?
- Volume – the bars below the chart. It answers: is there interest behind the move?
- SMA 50
- Volume (panel below the chart)
- RSI 14 (panel below the chart, lines at 30 and 70)
It does not have to be this exact trio. What matters is that the indicators do not overlap – and that you know which question each one answers.
A checklist#
- Timeframe. Settings for a daily chart do not automatically fit an hourly one. Pick a timeframe and stick to it.
- One question, one indicator. If you cannot say in one sentence why you have an indicator, switch it off.
- Fixed settings. Write the periods into your trading plan and do not change them to suit the moment.
- Rules in advance. Write down what you will do when an indicator gives a signal – and what when two disagree.
- Less is more. Three lines read in five seconds. Eight lines take half an hour, and then a feeling decides anyway.
How to make indicators part of a whole plan is shown in the course Trading with a plan – and why it pays not to trust them blindly, in the lesson Why indicators mislead.
Tuning the settings is a trap
If you keep changing the periods until an indicator fits a past chart "perfectly", you have tuned it to chance. On future prices it usually fails. Choose sensible settings once and judge them over many trades, not one chart.
Common myths#
- "RSI and MACD confirm each other." They largely measure the same thing, so they almost always agree.
- "Professionals have ten indicators on their chart." Many have one or two – and clear rules.
- "I will find settings that always work." There are none. Every setting is a compromise between speed and calm.
Summary
- One from each family: a trend line, an oscillator, volume.
- RSI and MACD partly overlap – they are not two independent confirmations.
- For every indicator, know the question it answers.
- Settings and rules belong in your trading plan, in advance and fixed.