MACD says Buy, RSI says Sell. MAs says Enter, ADX says Don’t Enter. Everyday, we do get conflicting trading signals. What should we do then?
1. Depending On Your Trading Strategy
Be clear on your trading strategy and this will impact on which indicators to use and how to interpret them. A trend may be trending and continues to stay overbought or oversold. In this aspect, if you are a momentum trader (or trend follower), you may pay less attention to oscillating indicators but more towards momentum indicators such as moving averages or MACD. By prioritising on certain indicators, this could be one possible way of resolving potential conflicts in trading signals.
2. Rule of Probability
It is all about finding greater weight of evidence before you enter or exit a trade. A trade is probable if most of the following variables support a trading decision:
- Price action / Chart Patterns
3. Price Action Matters
Simple visual interpretation may influence on how you will decide on your trade. A simple Higher-High, Higher-Low, Lower-High, Lower-Low or various chart patterns / cycles may just give you the answer to decide on whether to buy or sell the security. Move to a higher timeframe if required (due to too much short term noise). Be careful at various support or resistance zones.
4. Watch For Divergence
Divergence between price and indicators may suggest potential reversal in the immediate future.
5. Fundamentals and latest developments
It is all about finding a greater weight of evidence before deciding on a trade. Technical analysis may be the primary tool but we can never ignore the fundamentals. Personally, I would think it is important to do a quick check on the company financials and latest earnings. Any latest positive or negative catalyst to push the price up or down?
This post is not an investment advice or endorsement. Please refer to General Disclaimer of the blog.