New traders can very easily become overwhelmed with chart indicators. Traders are always looking for the holy grail. However, there isn’t a holy grail indicator. I suggest that new traders start with a few basic ones, then test additional ones. If they work for you, then add them to your toolbox. If not, then remove them. If you don’t, they will just clutter the chart and be confusing. Below is a chart without indicators. The stock is Autozone (AZO) with daily price bars and one year’s worth of data.
Now let’s take the same chart and add price channels. These are offered in most chart packages. I am using the default price channels in TradeStation. The length of time is 20 bars, the upper channel, green, is the highest high in the last 20 bars and the lower channel, red, is the lowest low in the last 20 bars. I also added several commonly used moving averages. I like to use exponential moving averages for the shorter time frames, which smooths out the moving average. The longer time frames I use simple moving averages. The green MA is 8 EMA, blue is 21 EMA, orange is 50 SMA and red is 200 SMA. If your charting package does not have EMA’s then just use SMA’s for all MA’s. Notice how much easier it is to see resistance and support levels with the price channels added and the added MA’s show there isn’t a real trend. Yes, there is some price movement, but look at the channels, they are horizontal most of the time. The shorter time frame MA’s are up and down. AZO has been sideways and choppy for 8 months.
The next chart shows an example of AWK, which is trending. It also is showing the daily price bars and one year’s worth of data. Notice how the channels are moving up and the MA’s are all stacked. AWK has been in an uptrend for the past 8 months.
Hopefully you can see how adding a few indicators can visually help you improve your understanding of the price movement on the charts. There are many more indicators that most chart packages include for you to evaluate. Try them out to see if they help you. Simpler Trading also has indicators to help you become a better trader. Here is just a few of them – SSTT System, Squeeze, VooDoo Lines and Trailing ATR.
I hope this was helpful.