What are the trading indicators?
Whether you are trading commodities, shares or forex, it is beneficial if you make use of technical analysis tools as a part of your trading strategy while placing an order in the financial market. Trading indicators are the results of mathematical calculation which are plotted as lines or patterns on a price graph. and can help investors to determine specific trends and signals within the financial market.
There are various types of indicators employed in trading, such as lagging indicators and leading indicators. A lagging indicator uses the past trends and reflects momentum, whereas the leading indicator is a projection signal which anticipates the price movements of the future.
Top 9 trading indicators
- The exponential moving average (EMA)
- The moving average (MA)
- Moving average convergence divergence (MACD)
- Stochastic oscillator
- Relative strength index (RSI)
- Bollinger bands
- Ichimoku cloud
- Fibonacci retracement
- Standard deviation
A trader can utilise risk appetite and knowledge as a factor to determine which of the trading indicators mentioned will suit his situation best. The chief point to remember is that these indicators are not ranked according to their preference. It is just the list of some famous ones used by traders frequently.
Moving average or MA
The simple moving average or MA is a technical indicator that is used to determine the direction of the present price trend that too without the intervention of short-term price heads. The SMA indicator takes the total price factors of financial tools over a particular time interval and then divides this by the total number of data points to confer a single trend line.
The data considered depends on the entire length or data of the moving average. One can also study the level of resistance and support and can also monitor the history of previous price action. It reflects that MA estimates the likely future patterns.
Exponential moving average or EMA
The exponential moving average is another class of moving average. It exerts greater weight on the latest data points, thus making the information more responsive to new data or information. When EMA is combined with other indicators, then it allows investors to confirm the important market moves and estimate their lawfulness.
Stochastic oscillator
A stochastic oscillator is a technical tool that compares the price range with a particular asset over some time, which helps us to evolve our momentum and the strength of the trend. It is generally marked with a scale where the pointer points out in between 0 to 100. If the arrow points out anything between 0 to 20 that represents an oversold market and if it is above 80, then it shows an overbought market. Also, if the oscillator indicates the presence of a strong trade then a correction factor is not required.
Moving average convergence divergence or MACD
Moving average convergence is the technical tool that identifies the variation in the value of momentum by comparing two different moving averages. It allows investors to determine the possible sell and purchase opportunities around resistance and support levels.
Convergence reflects that the two concerned moving averages are heading towards each other, whereas divergence reflects that these averages are shifting away from each other. The convergence of the moving average reflects the decrease in momentum while divergence of the moving average reflects the surging of momentum.
Bollinger bands
Bollinger bands can be employed in all the assets of financial markets, such as future, commodity, equity and indices. It can be used in many time frames, from daily, to hourly, monthly or weekly and monthly.
It is a technical analysis tool. Specifically, they are a type of trading band or envelop. Trading envelopes and bands serve the same purpose; they provide related definitions of low and high, which can be used to make accurate trading approaches, in pattern identification, and for much more.
Relative Strength Index or RSI
Relative Strength Index or RSI is a form of momentum oscillator, that estimates both the speed as well as the changes of recent price movements of a stock or security.
RSI is also used to identify the general trend, oversold and overbought conditions as well as divergence.
The six different ways to use the Relative Strength Index are as follows:
1) Normal overbought or oversold
2) Relative Strength Index divergence
3) Exit only
4) Extreme Setting
5) Mid lone crosses
6) Trend Pullbacks
Fibonacci retracement
It is used as a technical tool for calculating the aspects of the financial market. The estimation of this provides resistance and support areas for the present price actions.
The vital of these are the levels .618 however the .50 level also provides a firm area, but it is not considered as the Fibonacci percentage technically.
Ichimoku cloud
The Ichimoku cloud indicator helps you identify the buy and sell signals. By using Ichimoku tools in your trades, you will be able to identify the various aspects related to your trade. Hence you can harvest most of the profit from the market.
Ichimoku Indicator Elements
1) Ichimoku cloud
2) Baseline
3) Turn line
4) Delay
Ichimoku indicator interpretations
– When the candles are in the Ichimoku cloud, that reflects that the financial market is going through the process known as consolidating, and it is not a good time to buy or sell.
-the trend will continue in that direction until the five lines are parallel
– The upper band of the Ichimoku cloud can be used as a layer of resistance.
– The lower band of the Ichimoku cloud can be used as a layer of support.
Standard deviation
A standard deviation is a technical tool that allows investors to estimate the size of price shifts. Consequently, they can determine the extent to which the volatility can affect the price of the asset in future. It cannot anticipate whether the amount will go down or up.
The tool also compares present price shifts to past price shifts. Many investors consider that the large price shifts follow small price shifts, and a small amount shift follows the larger amount of movements.
Meta Trader
Meta Trader is an advanced trading tool that provides various indicators to guide your trading. There are various brokers providing trading on MetaTrader. One among these is T1markets providing excellent features and services that too at an affordable price. The minimum trading charge for the broker is $250. It provides MetaTrader 4 for trading which is compatible with both web and mobile. Visit the site of the broker for more details.