People often ask me: Which indicator is the best to use? Which parameter of the indicator is the best to use?

My previous answer was: Choose the indicator you are familiar with, and they all work well. I thought my answer was a piece of nonsense, so today I will directly talk in detail about the 3 indicators I personally use, as well as my suggestions for choosing indicators.

I will provide some practical examples to illustrate the use of these indicators, which will be convenient for everyone to understand.

1. Indicator 1: EMA (Exponential Moving Average)

Many people commonly use SMA, known as the Simple Moving Average; however, I prefer EMA, the Exponential Moving Average.

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Why is that?

Because in the calculation method of EMA, the price of the later k-line has a greater weight in calculating the average price.

In fact, for us traders, there is no need to study the specific calculation method too clearly. Just remember that EMA is closer to the current market situation, more sensitive in trading practice, and the smoothing of the moving average is better.

In the same market segment, with the same parameter of 120, the market retraces to EMA120, but does not retrace to SMA120. Comparing the two, EMA is more sensitive.

In practical trading, many traders like to wait for the k-line to retrace to the moving average before entering the market. EMA is closer to the market situation, and there are more trading opportunities.Let's discuss how to choose the parameters for moving averages.

I find the 90, 120, and 150-day moving averages to be quite effective, which aligns with my moderate trading style. I neither favor aggressive market movements nor overly slow trends.

Smaller moving average parameters, such as 15, 30, and 60, are very close to the market action and perform best in rapid rises and falls. They can generate profits in fast markets and have a high trading frequency. However, they can severely underperform in slow trends, leading to consecutive stop losses.

Larger moving average parameters, such as 200, 300, and 500, are more distant from the market action and perform best in slow, oscillating uptrends or downtrends. They may miss out on some quick market movements and are slow to react, taking a long time to signal a trend change, resulting in a low trading frequency.

In the same market trend, an EMA300 might only offer one opportunity to enter a long position, whereas on an EMA60 chart, the price frequently crosses the moving average, switching between long and short positions.

In the same hourly candlestick chart, larger parameter moving averages have a lower trading frequency, while smaller parameter moving averages have a higher trading frequency. Everyone should choose based on their own trading situation. If you have more time to monitor the market, opt for smaller parameters for a higher trading frequency. If you have less time to watch the market, choose larger parameters for a lower trading frequency.

If you prefer fast markets, choose smaller parameters; if you prefer slow markets, choose larger parameters.

By now, you should understand why I believe the best moving averages are EMA90, 120, and 150. In essence, I am selecting moving average parameters that offer a relatively balanced mix of trading opportunities, market movement speed, and trading frequency.

2. Indicator 2: ZigZag Indicator

Why is the ZigZag indicator useful?Because: "Simple" + "Convenient" + "Easy".

The first simplicity:

After loading the "Z" indicator on the chart, the indicator automatically recognizes the highs and lows on the chart, and the turning points of the market trend are clear at a glance.

It can even help us identify some combinations of K-lines, such as: head and shoulders pattern, double top and double bottom patterns, and even rectangle consolidation, triangle consolidation. This makes our trading much simpler.

On the left side of the chart is a head and shoulders pattern, which is very clearly marked, and on the right side is a triangular consolidation structure, which is also easy to find according to the inflection points.

The second convenience:

For example, in actual combat, drawing trend lines and finding important support and resistance positions, the most difficult point is the subjective choice of the trader, such as: when connecting trend lines, how should the two adjacent points be selected? Different choices will result in different trend lines, and different trend lines will lead to different trades. Therefore, how to choose has become the most headache thing for traders.

With the "Z" indicator, it is very clear, when connecting trend lines, connect the inflection points of the "Z" indicator.

In the chart above, there are inflection points, so it is very convenient to connect the first point and the second point together to form a downtrend line.

The third ease:The ZIGZAG indicator can very simply mark a trend in the market, helping us to confirm the trend, and it can also easily identify the first wave, second wave, third wave, etc., in the market trend.

(1) The first step in trading is to determine whether the direction is to go short or long.

The high and low points of the "Z" indicator's turning points can be understood as the starting and ending points of the first wave of the trend, which also helps trading to confirm the direction, and this method is very simple.

(2) Confirming waves in the market trend.

Everyone is familiar with the Elliott Wave Theory, but counting waves has the saying of "a thousand people, a thousand waves." Each person has their own subjective standard for counting waves, and different people can count different waves for the same market trend.

By using the "Z" indicator, it is very clear to identify the waves on the chart, which is consistent and convenient for trading.

In the chart above, there are two high points before the starting point on the left, which one should be used as the end point of the first wave?

With the "Z" indicator, this point is very easy to confirm. The waves in a downtrend on the right are also very clearly marked by the "Z" indicator.

The above three points are the reasons why I think the ZIGZAG indicator is easy to use.

3. Indicator 3: Fibonacci RetracementThe primary applications of the golden ratio are twofold: one is the retracement ratio of the golden ratio, and the other is the extension of market trends using the golden ratio.

The retracement ratio is generally used for entry into the market. According to Dow Theory, an uptrend progresses in a pattern of: rise → retracement → rise, while a downtrend follows a pattern of: fall → retracement → fall. The golden ratio can measure the proportion of market retracements.

Once the market reaches the retracement ratio, one can combine entry technical indicators to enter the trade.

Market extension is generally used for exiting the market. According to the extension theory of the golden ratio, the golden ratio extensions of 161.8, 261.8, and 423.6 are all considered resistance levels for future market development. When the held orders reach these levels, it may be considered to close the positions or adopt a strategy of reducing positions.

In the left chart, the market retraces to the 50% golden ratio level, where it stops falling and turns from a decline to an increase; in the right chart, the market moves downward to the 161.8 golden extension level, where it encounters support, stops falling, and turns to rise.

What are the advantages of using the golden ratio?

It is easy to use. One simply needs to identify the first wave of the market's launch, draw the golden ratio lines, and wait for the market to retrace to an entry-level retracement ratio. Typically, the levels of 38.2%, 50%, and 61.8% are used.

In practice, I usually use it in the following way: for example, once the market has established a bullish trend, set up alerts at the retracement ratios of 38.2% or 50%. After the software triggers the alert, then pay attention to the market and proceed with the next steps of operation.Or simply place entry orders directly at the 38.2% or 50% retracement levels. Once the market has retraced to these levels, the orders are executed automatically, requiring minimal attention to the market, making it suitable for part-time traders.

Simplicity and directness are the keys to why I find the Fibonacci retracement "easy to use."

4. What makes an indicator "easy to use"?

Firstly, there is no absolute standard for what is "easy to use"; what is suitable is what is "easy to use."

Do not mythologize the concept of "easy to use."

"Easy to use" means that the indicator and parameters can generate profits, but it does not mean that it can capture all market movements, nor can it predict trends.

In the example above regarding the Exponential Moving Average (EMA), I chose a moderate style by selecting the 120-day moving average, automatically forgoing opportunities in markets that do not align with the 120-day moving average. I can only profit from trends that match the 120-day moving average.

I believe that the "easy to use" parameter of 120 may be considered "not easy to use" in the eyes of a trader with a quick temper who trades fast markets. In his perception, the smaller 30-day parameter is what is "easy to use." Choosing an indicator that is "suitable" is very important.

Secondly: The simpler the indicator, the more "easy to use" it is.

After my fifth year of trading, all optimizations of my trading systems involved subtraction, reducing the number of indicators and decreasing complexity, using only the most basic functions of the indicators.Abandoning those complex indicators is quite painful. I had previously studied the Gann Master charts for a year, using them because they were complex, as I had invested a significant amount of energy in this indicator, and it was very hard to let go.

However, the use of this indicator was very cumbersome; each time I had to open the "Gann Master charts" software separately, set different values at the starting point, adjust the angles, and it couldn't be used on mobile phones, which made it very inefficient and the results were just average. After much struggle, I gave it up.

After giving up, I started to pursue simplicity. Now, with the charts right in front of me, I just need to take a glance, and I know exactly how to trade according to my trading system next.

A simple and concise trading system has reduced the probability of human error during the execution process, and trading has started to become profitable.

When setting up a trading system, everyone must consider the convenience of execution.

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