Here’s my answer to the following question which was posted in my comments yesterday by Gary:

I’ve signed up for an evaluation of TC2000, which I was previously unaware of. However, after studying Worden’s videos and Help Contents on individual indicators, I’ve tried to find out if they would recommend where I could find info on how to interpret the combined indicators in regards to buy or sell points. Their reply was that they had none. Could you point out some of the useful indicator combinations that you’ve found to be reasonably accurate for determining buy/sell points?

For information about how to use indicators to determine buy/sell points it’s probably best to read some books on technical trading. A great place to start is Alan Farley’s ‘The Master Swing Trader‘. He gives many good examples of how to build a system using different indicators and/or patterns. There’s also a lot of good info in ‘Trading for a Living‘, ‘Trade Your Way to Financial Freedom‘ and ‘Japanese Candlestick Charting Techniques‘. Finding a set of indicators is one of those things that you just have to test for yourself to see what works for you, and more importantly, what you’re comfortable with. Having said that I’ll answer your question now…

I’m a big fan of visual indicators. They make it very easy to get a quick read on a chart. I can rule out charts very quickly using the combination of indicators that I use. They are: Japanese candlesticks, Daryl Guppy’s ‘multiple moving averages’, Bollinger Bands, stochastic, on balance volume (OBV) and volume.

Probably 90% of the stocks that make my trading candidates list caught my attention because of some candlestick pattern. For example, I might be looking at the results of my scan for hammer patterns. I can quickly scan through the stocks that made hammers and see if any of the other indicators confirm a bullish reversal. The very first thing I do is look at the moving averages. If they’re not sloping higher I just hit the space bar and move to the next stock. (I’d do the opposite if I were looking at my shooting star scan to find shorts.) Things that I’d want to see would be a buy signal on the stochastic, the hammer printing on one or more moving averages or coinciding with the middle or lower Bollinger band. If some of those conditions were met then I’d look at OBV and volume to make sure they weren’t diverging.

Here are a few other scans that I run to find trading candidates — I sort my universe of stocks by %b and then look for signs of a reversal (by looking at the candles and the other indicators) near one of the bands. I do that by looking at stocks that are near the upper band (%b of 1 and higher), middle band (%b of .45 to .55) and near the lower band (%b around 0 and lower). I go through the same process with a scan that filters out stocks that have retraced a certain amount over the last month. I also look at stocks that are making new highs and those that have made new highs in the last 10 days. I’ll usually just put a note on them and watch them each day to see if they give an attractive entry point. Narrowest Range in 5 days (NR5) and NR7 scans often give good candidates too although I’ve usually seen them on one of the candlestick scans by the time I get to that scan. Some of the other scans that I find useful are what I call ’swing high’ and ’swing low’ scans. I have 3 of each of those scans — Swing High 1, 2 and 3 and Swing Low 1, 2 and 3. For example, ’swing high 3′ finds stocks that made a 21 day high 3 days ago, and subsequently made lower highs each of the next three days.

Once stocks make it to my candidates list my entries are typically above yesterday’s high for longs and below yesterday’s low for shorts. Those entry points may vary but the idea is that I want the stock to start moving in my anticipated direction before I get in. I think I basically covered how I exit positions in my ‘breaking it down‘ post. The one big difference is that now I use trailing stops a lot more than I used to. I’ve found that exiting at an expected number, % gain or on a band tag often leaves a lot of money on the table.

Hopefully you have a better idea of the indicators that I use. Please keep in mind that those are just what works for me. If you ask 100 traders you’ll probably get 101 different responses. I do think it’s important not to get too caught up in finding a perfect set of indicators. In my opinion time is better spent working on exits, expectancy, position sizing, etc. I read somewhere (maybe one of Gary B. Smiths articles) that technical analysis just gives traders the confidence to ‘pull the trigger’. I think that’s very true. Any set of indicators is just going to (hopefully) give you a slight edge. But it’s your money management that’s going to make or break you.