Trading indicators are a set of specific data that can predict certain movements in the price of a trading pair or other parameters of assets. Indicators are used in conjunction with other data sources such as news or financial reports.
What are indicators for?
Different technical indicators belong to different “families”, they are used at different times and show different things. Indicators can help do a few things: identify the direction and strength of the trend; another thing that they can do is help identify support and resistance levels.
For identifying a trend we have moving averages. We have the parabolic SAR, the MACD, the ADX will show you the strength of the trend. Of course, there are a lot more for support and resistance areas. We can also use the moving average, the Fibonacci Retracements, trend lines, horizontal lines, and trading indicators. They also help identify entry and exit points where are we going to enter our trades and where are we going to close our trades, where are our targets for our entry and exit points likewise we can use Fibonacci the Parabolic SAR reversals moving averages crosses.
There are no perfect Indicators
First it’s important to understand and to realize what kind of trader you are. The thing is that beginner traders always ask what is the best indicator to trade with to form the perfect strategy to become rich. But there is no perfect indicator, there is no 100% winning strategy, no Holy Grail. You should stop looking for it and remember that we are all individuals, we have different trading styles, we have different lives, we have different approaches to risk tolerance, and also different goals. Accepting this is the right step to a successful future.
Long Term vs Short Term Trading
You see that some traders look for mid to long-term perspectives. They are interested in entering a trade and holding it open for a prolonged period of time because they make a profit on the price differences from where they open and from where the price is going to reach.
What we are looking for at a four-hour time frame. Each candle is showing how the price changed each four hours. That’s a long period of time and even this price target like in the picture is going to be far away because you know these are four hours. For four hours, we need some more time for this trade.
Versus here on the flip side, we have FTT trade. Some traders actually prefer to trade on shorter time-space spans and make a profit on small price fluctuations. Basically, here we can see that we are leaving the area of resistance. The price was in the oversold area. We are looking at the 30-minute time frame, so this is how much the price changes every 30 minutes and our trades duration is going to close in an hour and a half.
Trend Indicators vs Oscillators
Why did we enter these trades, and how did we choose our trading indicators?
Indicators are divided into two main parts. We have trend indicators and we also have oscillators, they are also referred to as momentum indicators. Trend indicators are going to help us identify the direction of the trend and the strength of the trend as well as reversal points.
Moving Averages Trading Indicators
A few things that you should know when you are looking at the moving averages: the bigger the angle of the moving average pointing down or pointing up the stronger the trend. Another thing is that if you are using more than one moving average on your chart and they have different periods as we can see here the 10, 50, 100 and 200 from short period to the long period. The further away from that the moving averages are from each other, the more spread out they are with the distance between them the stronger the trend.
During a flat, a non-trending market when the price is moving sideways uh the moving averages as you can see are most often going to be intertwined with the price chart.
Trading indicators – MACD Pro
Another popular trend indicator is Combo. Actually, the one that we used for analysis is the MACD and the Powerbox SAR along with the exponential moving average across the MACD and the shift of the Parabolic SAR. It will show us trend reversal points. These areas can be used actually for entry points and likewise for exit points. You want to remember that when the moving averages on the MACD whenever they are spread out from each other when they are there far away from each other and the Parabolic SAR is far away from the price we have a strong trend.
When the lines start approaching each other on the MACD and likewise whenever the parabolic SAR is getting near the price chart, this means that the trend of the movement is losing momentum and similarly with the moving average during a flat. As we can see in non-trending markets the MACD lines are going to be continually intertwined and likewise, we’re going to see the parabolic SAR is going to be practically right on top and right below the price chart, therefore, these indicators are not the best choice during arranging market conditions.
Read about Olymp Trade indicator MA (Moving Average) Tutorials
Paralysis of Analysis
The thing with too many trading indicators is that it clutters the chart which can cause confusion and wrong price interpretation. Because some trading indicators may cancel each other out and may lead to trading mistakes, this is what’s called Paralysis of Analysis. Try to minimize your indicators amount to two or three depending on your needs and your trading strategy.
For example, like price action traders they rely on support and resistance levels along with candlestick patterns, and they may not even need an indicator other than maybe perhaps a moving average while on the flip side there are traders that really need more data to base their trading decisions.