There are so many trading indicators out there that can be effectively used for day to day trading.
The indicators that are on the market come with different analytical tools that enable traders to derive various different signals from them. While the variety in the market is great, it does not mean that all traders would be comfortable using just any kind of indicator. There are some that are too complex or simply unsuitable for particular application areas. Others, however, are too valuable that they are basically inevitable in the trade. A good indicator can be the best resource you will ever need to take you through your trading. Here are some 5 best trading indicators you should know.
1. Accumulation/Distribution Indicator
This indicator is one of those that focus on the demand and supply forces in the market. The indicator tracks the trends in the market that are caused by the interest in particular assets. Generally, the indicator follows the momentum of the market by establishing the selling, accumulation or buying trends of investors. By accurately showing these trends, it becomes possible to know the volume and price trends in the market. Practically, the indicator is a line in the chart which confirms momentum trends. Uptrends and downtrends are calculated through the multiplication of the money flow multiplier with the volume of the period under investigation
2. Moving Average Convergence Divergence
Commonly known as the MACD, this indicator is a great technical analysis indicator that has precision and accuracy. The MACD is also a momentum indicator that uses the trends to come up with insights about the market. There are two moving averages on the MACD chart which mark the signal ends of the indicator. The indicator line indicates the sell and buy positions. In general, the MACD can indicate:
- Dramatic rises, and;
In the instance of a divergence from the indicator line, the trend is said to be ending. Crossovers are bearish signals and they are marked by a fall below the line. Dramatic rises are an indication of overbuying.
3. Average True Range
The ATR indicates volatility. This indicator employs the consistency of a moving average to determine the best time to commit to trades or when to leave the market. The indicator has a pretty straightforward working mechanism even though the mathematical formula behind it is a bit detailed. In basic terms, the indicator shows low volatility when the ATR is low and high volatility when the indicator is high. The indicator is used on a daily basis and it is fairly easy to compute. The ATR can be used for longer trading periods even though its reliability decreases as the period of observation is extended.
4. Relative Strength Index
The RSI is a technical indicator that shows the speed and price changes in an asset. This indicator is one of the best when it comes to showing whether an asset has been overbought or oversold. The RSI is also an indicator that can be used for both short-term and long-term needs. The indicator has a scale of 0 to 100 which basically shows the value of an asset. Assets on the higher side of the scale are either overvalued or they are overbought. On the other hand, assets on the lower side are undervalued or oversold. The RSI can either be used by itself or alongside other indicators to provide reliable signals.
5. Rate of Change Indicator
The rate of change indicator momentum oscillator that specializes in indicating price changes. It is called the rate of change indicator because it gives a percentage change of price of one period in relation to another. The indicator can show crossovers, rises and divergence signals. This means that traders are able to see when assets are overbought or oversold thus enabling them to maneuver the market when necessary. The oscillator is especially great for short-term signals.
Of the many indicators available in the market today, the above indicators are some of the best which should be on your radar in 2018. These indicators are in line with current market trends and their data is reliable. The indicators are also versatile enough to be used for various market scenarios.