Technical Indicators provide an insight on how the market is behaving. For profitable trading is it very necessary to decode and understand these indicators. By the end of the article, you will understand how traders use these technical indicators to trade successfully.
Firstly all the indicators we are going to show you are created from the basic candlestick, their information is sourced or formation is comprised of below.
Basic price action,
– Open value
– High value
– Low value
– Close value
Here is some of the common mistake traders make with technical indicators.
– First don’t overload your screen of indicators only display the indicators on the charts that you’ll actually use. A lot of traders overload the chart of indicators as an excuse to over trade, remember indicators is an indication of something happening in the market they aren’t a crystal ball trying to predict the future. – Don’t blame the indicators when a trade doesn’t work out no matter which indicators you use, you will still need to take losses.
In trading, there are two basic types of indicators markets, trending, and range-bound or sideways market. A trending market is where the market is moving in one direction,
A range-bound or sideways market where the market is moving up and down within a specific range indicator. Let us compare the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of instrument As you can see from the chart the rise range from 0 to 100.
An instrument is deemed to be overboard once the RSI approaches a 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback or reversal likewise. If the RSI approaches 30, it is an indication that the instrument may be getting oversold and therefore likely to reverse. A trader will often use the RSI either coming back out to it’s overbought or oversold areas as a signal or partial signal to enter a trade.
As we can see the RSI is often accurate when indicating the market will reverse a trade using RSI should be aware that large rallies and drops in the price of an instrument will affect the RSI by potentially creating false buy or sell signals. Traders often combine the RSI where every indicator signal such as MACD crosses indicator MACD the moving average convergence divergence is one of the most well known and used indicators in technical analysis. The indicator is made up of two exponential moving averages, which help measure momentum and an instrument.
These moving averages and the changing distances between them become the MACD convergence simply means the moving averages are moving closer together and divergence simply means they’re moving away from one another when the shorter term moving average is above the longer term moving average.
This area of the indicator will show activity when the shorter term moving average is below the longer term moving average. This area of the indicator will show activity, the center line of which the MACD is plotted around indicates where the moving averages are equal and when the MACD passes through the centerline. This indicates the moving average is crossing the signal line here in red is a moving average of the MACD values themselves typical values for the MACD are 26 and 12 exponential moving average and 9 for the signal the farther apart the moving averages and the greater the momentum the farther away the MACD will be from the centerline traders use MACD and signal line crosses such as these to Indicate momentum trades.
you can see how these crosses often match up with market moves. Traders also use the MACD crosses to indicate where momentum is coming out of the market and may use. It is a signal to exit a trade indicator. Bollinger band starts off a simple moving average it then has two standard deviations plotted away from it now sound a mouthful, but the important part is because the standard deviation is a measure of volatility Bollinger bands adjusts themselves to current market condition. When the market becomes more volatile the bands widen move further away from the average and during a less volatile period.
The band’s contract moving closer to the average the tightening of the band is often used by technical traders as a near indication that volatility is above to rapidly increase. As volatility often follows periods of lack of volatility the market spent most of the time within the bands and when the price action reaches the edge of the bands is often more likely to reverse and come back into the range. This is used as a signal by reversal traders to take a trade, this is similar to the oversold and overbought conditions of the RSI indicator for Super trend indicator.
The super trend indicator is an excellent indicator of trend direction, it can be used as a foundation of a trading system that is based on trend following one of the most popular ways to use this indicator is to enter the market after a pullback for example,
if the market is on a downturn indicated by red wait for a green pullback and then we enter the market once it turns red again. The same can apply in up trending market here trend direction can be used as a foundation of a trading system that is based on trend following one of the most popular ways to use this indicator is to enter the market after a pullback for example, if the market is in a downturn indicated by red wait for a green pullback and then we enter the market once it turns red again the same can apply in an uptrending market here we can see how this indicator accurately tracks market trends it can be refined through the setting to match the specific instrument.
Indicator five confluence
The last indicator isn’t a new one, it’s indicated confluence which means to use multiple indicators and their signals to take a trade. Here we have the RSI and MACD we looked at with the RSI moving into overbought territory. Remember that indicates the market will reverse, however, we want to help us filter out false signal on the RSI so we also look at the MACD to give us confidence. We can see the one which is indicating the momentum has come out of the market as far as the market rallying or going up is concerned and we have a MACD Cross. Here a signal to enter this short trade could be waiting for our site, come back out of the overbought and also wait for the MACD cross. We can see that those combined signal or an indication that captures this trend and also use the opposite signal to indicate when the momentum is coming out of the market and it’s more likely to reverse.
The market to retrace back up the opposite of our trade and therefore is an exit signal in adding to the RSI and MACD signals. We can add further confidence this trade with a Bollinger band and the super trend indicator.
we can see the market is at the top of the Bollinger band here, but we could also wait for the super trade indicator to change right. Here before taking the short trade and now we have the confluence of four indications we have an RSI coming back out of overbought and we have a MACD cross with the market going to the edge of one of the deviations on the Bollinger band and we also have the super trend turning back to read this is a sort of confluence. You should be looking for with technical indicator on various markets to see how you can find opportunities to make profitable trades. There are hundred of indicator a trade can choose from the five we’ve listed about the best ones to develop trading strategies from taking note how the indicators work with certain mark conditions and see if you can see patterns in the marks.