Combining them together the chart begins to give better gauge of what the market is likely to do next, at least a better probability of when to stay out of the market.

Figure 3 Stochastics and MACD working together.

In Figure 1, the chart shows the trend is rising (MACD moving upwards). If the trade was taken right now, it would more then likely not be prudent since the market has already moved and the trade is taken too late. Adding the oscillator will show exactly that, the Stochastics is overbought, which means the market is currently exhausted (at 80 and above) and there may not be more buying until some steam is let off (by moving back to the oversold near 0-20 reading).

So by using these two together, the market action becomes more visible. Let’s take another example.

Figure 4 DMI with Bollinger Bands.

The chart above shows a Bollinger Bands overlaid on the price chart. Bollinger Bands (volatility bands) shows the extremes of price movements, normally set to 2 standard deviations (upper line, lower line from the center moving average). One way of using them is when price moves and touchs the upper line, prices are predicted to reverse and move down and vice versa. Combining this with DMI, we will know whether there is a trend or not or which direction the trend is going. Currently the chart shows the DMI lines are converging, indicating there is no trend or that the market is going sideways. This is the beauty combining indicators: it helps to keep you out of the market when things aren't looking to hot.

Keep it simple is a rule that works well in the markets. Combining the two common indicators can be effective. Do more research and make sure to test in the real time to get an idea of how the indicators work to avoid confusion and indecision.