Traders and even many researchers believe that using a technical indicator in order to know the buying and selling signals is tough. However, reading a technical indicator is more of an art rather than a science. The complexity to understand the technical indicators is because the same indicator may exhibit different behavioral patterns when applied to different stocks. For example, if the indicators work well for HCL then it might not work in the same manner as Tata Motors. But, if analyzed carefully, you can be an expert in reading an indicator over time.
There are various indicators that are used by the technical analysts. These days, technical analysis software programs come with several built-in indicators. Such software also allows users to create their own indicator.
It is said that choosing a technical indicator is a difficult task. Even though there are hundreds of technical indicator, but only a few offer a different perspective and are worthy of attention. The indicators that have stood the test of time are the ones that usually merit the most attention are those.
Thus it is suggested while choosing an indicator, you need to be careful and moderate. You must focus on two or three indicators and learn their particulars inside and out. You must also try to use such indicators those are compatible with other technical indicators. Avoid using those indicators that move in unison and generate the same signals. It is recommended using two indicators that are good for showing overbought and oversold levels. Say, for example, you can use Stochastics and RSI together. Both these indicators measure momentum and have overbought/oversold levels.
The technical analysts searched for the two most compatible technical indicators that can perform well in the technical analysis of the stocks and found Moving Average Convergence Divergence and Stochastic Oscillator. The analysts believe that this combination is the complete package as the comparison of closing price to its price range over a certain period is done by stochastic as well as the formation of MACD with each other. If used to its fullest potential this active amalgamation is extremely effectual.