Welcome back to our Trading Top Ten series!
Make sure to follow us on Instagram and Telegram as we will be announcing some exciting news about our new Platform! To make the wait a little bit more enjoyable, we are going to briefly talk about our list of Trading Top Ten Indicators that you should take advantage of!
#1 Relative Strenght Index (RSI)
The Relative Strenght Index (RSI) is a momentum oscillator used to identify whether markets are ‘overbought’ or ‘oversold’ and the likelihood of price reversal. RSI evaluates asset price on a scale that ranges from 0 to 100. It is generally accepted that if the price reaches a level above 70 it is considered ‘overbought’ and could indicate a bearish market reversal. On the other hand, if the price reaches a level below 30 it is considered ‘oversold’ and could indicate a bullish market reversal. RSI can be applied to any asset and timeframe, depending on the strategy used.
#2 Moving Average (MA) & Exponential Moving Average (EMA)
Moving Average (MA) and Exponential Moving Average (EMA) are one of the most commonly used Forex Indicators. They provide traders with a clear picture of a trend and its direction. As the average price of the chosen number of candles, it provides traders with the overall sentiment of the price, cutting out the noise from short term price fluctuations. Moving Average is most commonly used as a combination of multiple periods such as 50,100 and 200-day MA. Exponential Moving Average (which focuses more on the most recent price data) is most often used between 12 and 26-day for short-term analysis and between 50 and 200-day for long-term strategies. If the price is above the moving averages it indicates a bullish market, while a price below the moving average means that sellers are controlling the price.
#3 Moving Average Convergence Divergence (MACD)
MACD or Moving Average Convergence and Divergence is another popular trading indicator that combines the signal line, histogram and the MACD line.
The Signal Line provides us with information about the changes in price momentum.
MACD line is based on the difference of the 26 and 12-period EMAs.
The Histogram calculates the difference between the Singal Line and MACD components of the indicator.
In a nutshell, MACD provides us with a clear picture of the divergence, convergence and crossovers, thus enabling traders to find price reversal or market continuation points as a confirmation for their entry positions.
#4 Parabolic SAR
Parabolic SAR (Stop and Reverse) indicator provides us with information that helps traders identify the current trend and potential entry points. If the price is above the Parabolic SAR dots the market is bullish, while the bearish market is when the price falls below the Parabolic SAR dots. Similarly to RSI, Parabolic SAR helps us to establish if the asset has reached ‘oversold’ or ‘overbought’ levels indicating a possible reversal of the trend.
#5 Bollinger Bands
Bollinger Bands are a trading indicator that uses Moving Averages to provide traders with information about the volatility of the assets traded. It consists of an Upper & Lower Band (defined standard deviation) representing dynamic support/resistance levels and a Midpoint (Moving Average). The Upper & Lower Bands provide a clear visual representation of the volatility of the asset - if bands are close to each other the volatility is low while widening of the distance between the bands indicates an increase in volatility of the asset.
#6 Ichimoku Cloud
The Ichimoku Cloud is a trading indicator that enables you to better understand the market context - a bigger picture that includes historical & current price levels, resistance/support levels and momentum. The colour of the ‘cloud’ helps traders to easily identify the trend (bearish red and bullish green) while the size of the cloud implies the strength of the trend (wide cloud indicates strong trend).
It consists of 5 key elements, such as:
The Senkou Span A - midway point between Kijun-sen and Tenkan-sen
The Senkou Span B - midway point from the previous 52 periods
The Tenkan-sen - a moving average of the midway point of the previous 9 periods
The Kijun-sen - a moving average of the midway point of the previous 26 periods
The Chikou Span - a lagging span plotted from the previous 26 periods
#7 Stochastic Oscillator
The Stochastic Oscillator is a momentum indicator that helps identify assets in the overbought and oversold zones, which are likely to reverse in the future. Similarly to RSI, it ranges from 0 to 100, however, the price is considered to be in the ‘overbought’ zone if it is above 80 and ‘oversold’ if it falls below 20. It identifies these levels by comparing the asset closing price to its price range over a specific period.
#8 Fibonacci Retracement
The Fibonacci Retracement is one of the best and most commonly used indicators that can help traders identify their entry and take profit levels by utilising the Golden Ratio (1.618). Traders can utilise various Fibonacci Retracement Levels shown as a percentage of how much the price has retraces. These levels are 23.6%, 38.2%, 50.0%, 88.6%, 127.0%, 261.8%, etc. Once the two price points (usually highs and lows) have been selected by the Trader, the indicator will automatically calculate and create these levels (in percentage) between those two price points. As such it is important to remember that Fibonacci Retracement Indicator will show the percentages within the price range chosen by the Trader.
#9 Average True Range (ATR)
The Average True Range (ATR) is an indicator that measures the volatility of the asset. The most common ATR is based on the 14-period simple moving average based on true ranges. The range is the distance between a periodic high and low of an asset, it can be applied to any timeframe and period. ATR enables traders to make more informed decisions about their exit levels. The increase in volatility can indicate a market reversal meaning that traders can look to exit their positions to protect their capital from expensive losses and lock into the profit they already made. A decrease in volatility tends to indicate market continuation meaning that traders may choose to keep their positions open expecting to secure more profits as the trend continues in their favour.
#10 Standard Deviation (SD)
The Standard Deviation (SD) is an indicator that provides information on the recent price movements of the assets and can help predict their volatility in the future. It is a very useful indicator for traders who trade breakouts or rely on catching price reversals. High volatility is indicated by high Standard Deviation, while low volatility is indicated by low Standard Deviation.
Thanks for joining us this week! We hope that we’ve introduced you to a few new indicators that you may want to start using to become a better trader! Make sure to always try your new strategies or indicators with a demo account first!
Join us next week as we continue our Trading Top Ten educational series!