Faster Technical Analysis by Adjusting Standard Technical Indicators: RSI, CCI, Stochastics

Difficulty Rating: 2/4 (Intermediate)

**This is a video tutorial from Indicator Warehouse (for NinjaTrader) featuring Erich Senft explaining how to adjust basic technical analysis indicators to have trade signals sooner.  These standard technical analysis indicators are so common you can find them on any stock chart website or stock charting software.

PRESENTER: Erich Senft,

I know a lot of you are not really interested in trading indicators. And that’s probably because you’ve been left out by Tracy if you could pass let’s face it, indicators always lagging. With a few exceptions, the signals was coming after the price action. But let me show you a little something that might restoring your faith in using indicators. Now as a support and resistance trader, I don’t usually trade the indicator on it’s own. Remember, I don’t mind using an indicator as a confirmation signal or something to help my timing. A standard RSI indicator is 14 periods. The oversold and overbought regions of the RSI (Relative Strength Index) indicator are usually 60% and 40%. Like a lot of indicators, the RSI is measured on a percentage scale. So the higher the market gets, or the more overbought the market gets, most indicators are going to get to 100%. As the market gets lower, or more oversold, most of the indicators are going to get to zero. This is true for RSI, stochastics, although CCI is slightly different because it ranges from a scale of -200 to +200, but the principle is the same. MACD signals overbought and oversold conditions in a different way, but the MACD is used more to indicate momentum and shifts in momentum. However, it is plotted on a zero-scale where the zero-line is the halfway and essentially anything above the zero-line is bullish and anything below the zero-line is bearish.

Adjusting Settings of Technical Indicators

How do you tweak these standard technical analysis indicators so they become more effective for you as a trader?

The first thing to consider is cut the standard settings in half. That would make the indicator just that much more responsive. Remember, there’s a lot of traders out there using the standard settings, and by cutting the settings in half, we’ll make ourselves that much faster than the typical trader. With RSI, we will change the standard setting from a period of 14 to a period of 7. All of a sudden, you will see the RSI graph has become a lot more erratic, OR SO IT WOULD SEEM.

The second part of the key to using an indicator effectively is you need to use it with the TREND. For a lot of these indicators such as RSI, stochastics, MACD, CCI (basically all the standard technical indicators) are all oscillating indicators. What does that mean? Oscillating indicators go high and go low then high and low just like a seesaw (oscillating up and down). This is where a lot of people learn to HATE indicators. The usual complaint by inexperienced traders is that indicators don’t give them a good sell signal because they get a sell signal and the market only moves down a couple of ticks before it heads higher again.

Yes. But WHERE does it take off? It usually takes off WITH THE TREND!

Part 2: How to correctly use technical indicators with the trend

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