Chapter 30 · Advanced Indicators
Combining indicators without repeating yourself
Four questions, one tool each, and how to tell whether two indicators are actually saying the same thing.
The four families
Adding a sixth indicator to a chart does not add a sixth opinion. Almost all of them are transformations of the same five numbers — open, high, low, close, volume — so most combinations are one view, repeated, wearing different colours.
Four questions, and one tool for each
| Question | Family | One reasonable choice |
|---|---|---|
| Which way? | Trend | 200-day and 50-day averages |
| How strong? | Trend strength | ADX |
| How fast, and is it fading? | Momentum | RSI, read for divergence |
| How far does it move? | Volatility | ATR |
| How much agreement is behind it? | Volume | Volume vs its own average |
That is five readings from five genuinely different inputs. Adding Stochastic to RSI, or CCI to both, adds nothing — all three are computed from the same closes and move together.
A test for redundancy you can actually run
- 1Plot the two indicators on the same chart over a year.
- 2Mark every point where each gives its signal.
- 3If they mark the same days, one of them is decoration.
- 4Keep the one you understand well enough to know when it fails.
Worked: a checklist that resolves rather than accumulates
| Check | Reading | Verdict |
|---|---|---|
| Price vs 200-day | 452 vs 405 — above | Primary trend up |
| ADX(14) | 31 | A real trend is present |
| RSI(14) | 58, no divergence | Momentum intact |
| Volume on the last advance | 1.6× its 20-day average | Participation confirms |
| ATR(14) | Rs 12 → 2× ATR stop is Rs 24 | Stop at 428, size 416 shares |
Five checks, five different inputs, and each one produced a decision rather than a feeling. Note that the last check is the only one that produced a number you can act on — the others decide whether to act at all.
When indicators disagree
- Disagreement is the information. Trend up, volume falling means an advance without participation — that is worth knowing, not worth resolving by adding a third tool.
- Adding indicators until they agree is how people talk themselves into trades. Stop at four.
- If two must be weighted, prefer the one from the higher timeframe and the one measuring participation over the one measuring price alone.
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