7 Top Technical Indicators For New Traders
Trading indicators are the heart of successful Forex trading strategies. Understanding the technical indicators is something every trader should master.
What are Technical Indicators?
One of the most important things forex traders have to learn and master is the two types of market analysis – fundamental analysis and technical analysis. Today, we will be focusing on technical indicators.
trading indicators are chart analysis tools that can help traders better understand and act on price movement. As a new trader, it may be overwhelming to analyze data on the price chart, but trading indicators are of great use to simplify and provide signals to help you in making the right decisions.
There are different types of trading indicators. Let’s explore 7 of the best trading indicators.
Moving average (MA)
The MA – or ‘simple moving average’ (SMA) – is an indicator used to identify the direction of a current price trend, without the interference of shorter-term price spikes. The MA indicator combines price points of a financial instrument over a specified time frame and divides it by the number of data points to present a single trend line.
Exponential moving average (EMA)
The EMA is one of the most popular forex technical indicators and it’s often chosen by traders as the basis of their trading strategy. This technical indicator is used to produce buy/sell signals, based on the position of the short-term EMA, in relation to the long-term EMA.
The Stochastic Indicator follows the theory that: 1) when there’s an uptrend, prices will remain either equal to or above the previous period closing price; 2) when there’s a downtrend, prices will remain either equal to or below the previous closing price.
Moving average convergence divergence (MACD)
Moving Average Convergence Divergence (AKA MACD) basically shows the relationship between two moving averages of an asset’s price.
With the MACD chart, traders can see three different numbers, used for setting up the tool – 1) periods used to calculate the faster-moving average; 2) periods used in the slower moving average; 3) the number of bars, used to calculate the MA of the difference between the slower and faster moving averages.
The basic idea of the Bollinger bands is that prices will bounce back, just like an elastic band. It uses two parameters: 1) The number of days for the moving average and 2) How many deviations you want the band to be placed away from the moving average.
Bollinger bands show the highest and lowest points the price of an instrument reaches. If the bands are far away from the current price, that shows that the market is very volatile and it means the opposite if they are close to the current price. It’s advisable to use them in uptrends, downtrends and ranging markets. If you are a beginner, you should gain some solid experience first before using them.
Relative strength index (RSI)
RSI is mostly used to help traders identify momentum, market conditions, and warning signals for dangerous price movements. RSI is expressed as a figure between 0 and 100. An asset around the 70 levels is often considered overbought, while an asset at or near 30 is often considered oversold.
Fibonacci retracement levels are a predictive technical indicator, based on the key numbers, identified by Leonardo Fibonacci back in the 13th century. The Fibonacci retracement levels try to identify where the price of an asset may go in the future.
The idea is that once there’s a trend movement to a new direction, retracements will use horizontal lines in order to showcase the areas of support/resistance at the key Fibonacci indicator levels before the price continues in the original direction of its trend.
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