combining indicators properly, beyond just stacking them

[jeremyy]

beginner mistake: 5 indicators all saying 'buy' = strong signal. ive done this myself. the reality: many indicators are mathematically derivative of the same underlying price data. stacking them is just measuring the same thing 5 ways.

for those who use 2-3 indicators successfully: how do you choose indicators that genuinely add information rather than redundantly confirming?

[Dean]

rule i use: each indicator must measure a different dimension. example combo: 1) trend (moving average direction), 2) momentum (RSI or MACD), 3) volatility (ATR or bollinger bands). these measure orthogonal aspects of price. stacking 5 momentum indicators all measures one dimension - youre fooling yourself with false confluence.

[Hudson]

+1. the trend/momentum/volatility framework covers most useful indicator categories. anything beyond one indicator per category is redundant. RSI + MACD doesnt give you 2x momentum signal - they're measuring similar things differently.

[quietstorm]

is volume considered an indicator dimension? im not sure where it fits

[christianm]

volume is a separate dimension worth adding for some traders. complete framework: trend + momentum + volatility + volume = 4 orthogonal dimensions. note: in forex, volume data is broker-specific (tick volume not true volume), less reliable than equity markets. but still useful as one of multiple signals. on stocks/futures, volume is critical.

[zacharyy]

this whole 'orthogonal dimensions' framing makes indicator selection sound scientific. its still just lines on a chart. all dimensions are derived from the same price data, just transformed differently.

[mattlive]

partly right but the orthogonality concept is still useful. yes all indicators derive from price, but different transformations expose different patterns. RSI tells you about velocity, ATR tells you about magnitude, moving average tells you about direction. theyre not the same information presented differently.

[coldvision]

my actual combo: 200 EMA (trend), 14 RSI (momentum), 20 ATR (volatility). thats it. 3 indicators measuring 3 things. when they align, signal is strong. when they conflict, dont trade. cleaner decision-making than 8 indicators all saying maybe.

[aaronm]

going from 8 indicators to 3 was a relief my chart got readable again. my decisions got clearer. less can be more in trading. always

[Nicholas]

trend + momentum + vol. 3 max.