Trading is a skill that you need to develop through experience. However, there are many trading indicators to help you craft a strategy to make important decisions while trading. Key indicators are risk management tools that help to get a better insight into the price changes in the market. Here are the best trading indicators that you must know about.
Simple Moving Average (SMA) key indicators
This trade indicator considers the average of many price points over a certain time for creating a trend pattern. This trend shows whether the asset value is improving or declining. The amount of data needed to find the trend depends on the time range you are considering. For example, you need 100 days of data for a 100-day SMA.
Fibonacci retracements
This indicator finds out the level of a market shift against a trend. It is useful when there is a temporary dip in the market. The traders will find a new trend depending on the retracement strength. You can calculate it by dividing the highest and lowest prices over a period. The figure is then placed in ratios following Fibonacci numbers.
Bollinger bands
These show how volatile an asset’s price can get within a specific time frame. To calculate it, the moving average of the asset is considered where standard deviations are applied to the top or bottom of the current price. The market is thought to be overbought if the upper band limit is consistent for a certain time; whereas, it is oversold if the bottom limit is reached.
Relative strength index (RSI) key indicators
You can get warning signals of drastic price movements and market conditions using this index. Its value ranges from 0 to 100, If the asset has a value of 70, then it is ‘overbought and a value of 30 is ‘oversold’. The overbought is an indication that short-term gains have reached maturity.
Standard deviation key indicators
With this indicator, you can calculate the cost of price moves. It finds out whether the volatility of the market will affect future prices or not. You can then compare the current price data with historical data to come to this conclusion.
Moving Average Convergence and Divergence (MACD)
It tells the trend direction and its momentum. You will get different trade signals with this trade indicator. The price shows an upward trend when MACD is greater than zero; it is expected to go downward if MACD is less than zero. You will have two lines on the graph: the MACD and signal lines. The price is likely to fall if the MACD line goes below the signal line. The price will probably increase if the MACD line goes above the signal line.
Conclusion
To be a good trader you must be able to forecast prices and other trends using historical information and different tools. If you understand the forces that drive the market then you can be successful as a trader. Learning about the trading indicators will help you to reduce your losses and opt for more profitable ventures.
