Trading indicators are helpful tools that support your online trading strategy. When you know how indicators work and how you can best implement them in your trading plan, you’re better prepared to gain insights that can help you make smart, high-yield trades.
Let’s dive into the world of online trading and the 8 most effective trading indicators available today.
What’s a Trading Indicator?
Trading indicators aren’t signposts telling you the next steps to take in your trading plan. They’re better understood as calculations based on a trading instrument’s past and present price and volume activity. These indicators allow traders to analyze historical performance and predict future asset prices.
Note: indicators don’t provide buy and sell signals. Traders must interpret indicators to determine how they impact and influence their trading style and goals.
The Best Trading Indicators to Use in Your Strategy
Now that we’ve wrapped our heads around what a trading indicator is, let’s look at the various indicators you can incorporate into your trade decisions. Each indicator below provides different perspectives and informs your investment decisions based on multiple factors.
1. Moving Averages (MA)
Moving Averages is an indicator that identifies the direction of a current price trend without the interference of shorter-term price spikes. The MA indicator combines the price points of an instrument over a specified time frame and then divides it by the number of data points to present a single trend line.
Using the MA indicator allows you to study the history of the market. And while history doesn’t determine the future, understanding past market movements might help you plan for potential future patterns.
2. Moving Average Convergence Divergence (MACD)
The Moving Average Convergence Divergence compares two moving averages to identify changes in momentum. The MACD can help traders identify potential buy and sell opportunities around support and resistance levels.
‘Convergence’ signals that two moving averages are coming together, while ‘divergence’ means that they’re moving away from each other. If moving averages are converging, momentum is decreasing. If the moving averages are diverging, momentum is increasing.
3. Exponential Moving Average (EMA)
Exponential Moving Average is another type of moving average. The EMA places significant emphasis on recent data points, making data more responsive to new information. EMAs can help traders identify reasonable market moves when used with other indicators.
4. Stochastic Oscillator
The stochastic oscillator compares a specific closing price of an asset to a range of its prices over time. The primary function of the stochastic oscillator is to show momentum and trend strength using a scale of 0 to 100. A reading below 20 typically represents an oversold market, while a reading above 80 signals an overbought market.
5. Bollinger Bands
A Bollinger Band provides a range within which the price of an asset typically trades. The width of the band increases and decreases to reflect market changes. The closer the bands are to each other, the lower the perceived volatility of the instrument. The wider the bands, the higher the perceived volatility.
Bollinger Bands help you recognize when an asset trades outside its usual levels. They’re used mainly as a method to predict long-term price movements. When a price continually moves outside the upper parameters of the band, it could be overbought, and when it moves below the lower band, it could be oversold.
6. Relative Strength Index (RSI)
Relative Strength Index helps traders identify momentum, market conditions, and warning signals for dangerous price movements. RSI registers on a scale from 0 to 100. An asset around 70 is typically considered overbought, while an asset at or near 30 is considered oversold.
An overbought signal suggests that assets may be in for a price correction. In contrast, an oversold signal could mean short-term declines are reaching maturity, and assets may be in for a rally.
7. Fibonacci Retracement
The Fibonacci retracement is an indicator that can pinpoint how a market might move against its current trend.
Traders who anticipate movement often consider the Fibonacci retracement for confirmation. It helps identify support and resistance that might indicate upward or downward trends, providing direction for applying stops and limits and when to open or close positions.
8. Ichimoku Cloud
Like many other indicators, the Ichimoku Cloud identifies support and resistance levels for various assets. However, it stands out by estimating price momentum and provides traders with signals to help them make strategic decisions. The Ichimoku Cloud is a chart that allows traders to view and analyze all available data in one location.
Using Trading Indicators to Support Your Online Strategy
Trade indicators are helpful tools. But at the end of the day, they’re just that: a tool. As a trader, you can access many tools to help you achieve high-earning, sustainable profits. Trade indicators are one of many.
As you explore the benefits of using trade indicators, remember to never use an indicator in isolation or too many indicators at once. Evaluate your trading strategy, then prioritize a few indicators best suited to help you achieve your goals.
And finally, don’t deviate from your trading plan. A solid, predetermined plan ensures you’re making wise, thoughtful moves without getting swept up in the trading game. Take advantage of the insights trading indicators provide, but never let them influence you to abandon your plan.
Trade Smarter with SignalxChange
Trade indicators help you make smart decisions that align with your strategy and help you manage your investments. But trade indicators aren’t the only –– or primary –– way to see success in investing.
SignalxChange provides the insights, experience, and expertise you’re looking for in our online community. We’re home to newbies, casual investors, seasoned experts, and everyone in between. Join us and learn how to use trade indicators to their full potential while making smart, strategic trades that yield the profits you’re after.
Join SignalxChange today and see how our trading community can support and empower you at every step.
