This time we look at the best and most used trading indicators. At the same time, this article will be an introductory piece to a new series of successful trading strategies.
Why use trade entry and exit indicators in trading? Stock trading is not about opening a trade and waiting for a profit. It is important to have a prepared strategy and business plan. Why do indicators play a major role in trading? The answer is simple, they determine the possible entry and exit of the store. Let’s take a look at the best and most used indicators.
RSI – Relative strength index
It is the most widely used indicator worldwide. It can have several settings through which it gives us signals to enter the store. Most commonly used on 14-candle settings. This means that it will evaluate the market situation for the last 14 candles and give a signal accordingly. It has two zones: oversold and overbought.
If the indicator is in the oversold zone, it may be a good signal to grow, so we should buy. In the case of overbought, we should sell or open a short contract. Divergence can also be used as a signal.
Divergence is characterized by the fact that the graph creates a higher high, but on the contrary values on the indicator begin to decline. In this case, we can see the creation of a bearish divergence, a signal to sell, or even close a trade. The same is true of bullish divergence.
MACD is an indicator that consists of several other indicators. We can find it in several variants at tradingview in the community section. The original and most commonly used consists of 2 MA, or moving average and histogram.
Like RSI, it plots and gives us possible signals based on price developments on the chart over the last days. It does not have certain exact values for the oversold and overbought zones. Its values can therefore rise to extreme levels. It can also be used to enter a store after creating a divergence.
MA – Moving Average
MA indicator is also one of the most used indicators ever. It is based on the average price calculation for the same period. It can be set to any value. Often, the MA 14, 30, 60 or 141 are used. All these settings work on the same principle. For example, MA 14 will show us the average asset value over the last 14 days.
This indicator shows the market momentum. If the volatility is high, even the values on the indicator are extreme. In case the volatility decreases, the values of the indicator will approach the price. It is quite easy to determine when to enter the market after reversing the trend.
CCI – Comodity Channel index
It is very similar to the RSI indicator. With the difference that it does not have an oversold and overbought zone. Divergence is best used to enter the store. It is important to be aware of the frequent extreme values of this indicator. This means that its values can go in one direction without retracement for quite a long time.
This is only an introduction to the indicators. In the next episodes we will explain each of them in detail.