The Hindu Business Line : Pricey confluence

As a beginner in Technical Analysis, I believe that it should be a confluence of pattern, and not just one particular indication that should be used to draw inference about the trends. There are a variety of tools such as moving averages, RSI, stochastic indicators, ADX and DI that help in this regard. Please let us know about the three simple, but important parameters, the confluence of which, according to you, should help a beginner understand the price trends better and with good degree of ease. — Vinay

Confluence from various technical indicators would generally lend credibility to a particular view. The only problem with this approach is that there could be occasions where you may lose out on an opportunity by waiting for confluence.

The timing of the entry will be the key factor differentiating an average trader and a successful trader. The timing of the entry will also determine the quantum of money you make in a trade. Hence, do not get too involved in waiting for the confluence from different indicators.

We will also like to highlight that it is not necessary to have knowledge or expertise over a multitude of indicators.

There is no correlation between the number of indicators you are aware of and use, and, the returns you will generate from an investment. It would be better to concentrate on a handful of indicators and try to grasp its mathematical construct.

This will help you to interpret the behaviour of the indicator at different stages of a trending market and take suitable action with confidence.

From your question, it appears as though you are keen to identify a trending market. To identify a trending market, you do not need any of the indicators mentioned in the question.

The simple definition of a trend is a series of higher highs and higher lows for an upward trend or a series of lower highs and lower lows for a downward trend. A simple examination of price action would give an idea of the trend.

Settle for a set of three moving averages spanning varying periods. As long as the three moving averages are sloping upwards and the share price is trading above the three moving averages, the market is in an uptrend and look to identify entry points on retracement. Use a few indicators such as the MACD or stochastic indicators to make entry decisions in a trending market.

We would recommend books written by Bill Williams (www.profitunity.com) for identifying and capitalising on a trending move. Always try to enter trades in the direction of the long-term trend. If the long-term trend is up, try to take long positions on weakness in the shorter time frame.

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