indicator

10 important and practical indicators

To be successful in financial markets and become a professional trader, you must have sufficient mastery of the techniques and principles of analysis of such markets. Today in Ded9, after examining the concept of Indicator. We will introduce you to ten different types of it.

What is an indicator?

An indicator is a statistical index that is used by stock market analysts to measure the current state of stocks or predict its price trend in the future.

Indicators can be into two general categories: Economic and Technical. An economic indicator is a statistical measure for measuring growth or recession in fundamental analysis.

Technical indicators are also for predicting changes in stock price trends in technical analysis. There are other categories such as Leading Indicator and Lagging Indicator. The leading indicator predicts the future price of stocks while the Delayed Indicator examines the stock price trend in the past. In the following. We will review 10 of the most important indicators available together.

Introducing 10 very important and practical indicators

Trading indicators, if used in conjunction with risk management tools, will have a very beneficial effect on your analysis and forecast of stock price trends. Therefore, indicators can be used in financial markets such as the Forex market, commodity exchanges and stock exchanges. In other words, traders can identify market trends and signals by examining indicators. The best indicators available are:

  • Moving Average (MA)
  • Moving Average (EMA)
  • Stochastic Oscillator
  • Convergent Moving Average (MACD)
  • Bollinger Bands
  • Relative Strength Index (RSI)
  • Corrective Fibonacci
  • Ichimoku Cloud
  • Standard deviation
  • Directional average index

In the following, we will briefly explain each of the mentioned indicators.

1- Moving Average (MA)

Moving Average is an indicator that, by eliminating short-term price fluctuations (noise), allows analysts to identify the direction (up or down) of the stock price trend. This index actually calculates the average stock price over a given period of time. The data used in this indicator depends on the time of its implementation. For example, the calculation of a long-term indicator requires the collection of information over a period of 200 days.

Calculating the MA index will help you to study the Support & Resistance levels of a stock price and market history, in other words, it can be used to predict the stock price pattern in the future.

2- Moving Average (EMA)

The moving average is actually an MA indicator that focuses on recent prices and thus responds better to new information. Simultaneous use of this indicator with other indicators helps traders to identify important market movements and evaluate their accuracy. The 12- or 26-day version is used to assess short-term price fluctuations, and the 50- or 200-day version of the indicator is used for long-term price.

3- Stochastic Oscillator

A random oscillator is an indicator that compares the cost of an asset with its price range in other periods and is used to determine the momentum (Momentum) and trend strength. This indicator fluctuates between 0 and 100 on a numerical scale; Numbers below 20 actually indicate oversold and numbers above 80 also indicate overbought in the market. However, a strong trend will not always lead to a correction or a resurgence of prices.

4- Divergent moving average (MACD)

Moving Average Convergence Divergence is an indicator that detects price changes in an asset by comparing two moving averages. The MACD Indicator helps traders identify buy and sell opportunities near support and resistance levels.

Convergence means that the two moving averages are close to each other. Divergence is the distance between the two moving lines. If the two moving averages are pulled towards each other, a price decrease signal is issued, and if the moving moving average lines move away from each other, then it can be concluded that the stock rate will rise.

5- Bollinger Bands

The Bollinger Bands Indicator gives analysts the price range of a stock in trading, in fact the bandwidth increases or decreases to indicate recent fluctuations. When the Bollinger Bands narrows, it indicates that the price fluctuations of an asset are decreasing. While the widening of the bands indicates an increase in price fluctuations.

Using the Bollinger Bands indicator is very useful for identifying that an asset is trading outside its normal range. In addition, it is commonly for predicting long-term price movements. In other words, if the stock price trend is always moving towards the upper band, it can be that the market is in a state of saturation. The continuous movement of the price trend towards the lower band will indicate the saturation of market sales.

6- Relative strength index (RSI)

The Relative Strength Index is often used by analysts to identify momentum, market conditions, and warning signals of dangerous price movements. Like a random oscillator, the RSI fluctuates between two levels of 0 to 100, with a level above 70 indicating extreme buy (saturation) and a level below 30 indicating extreme sell (saturation).

The buy saturation signal in a stock indicates that the short-term price increase is likely to reach a maturity point and the asset will be on the way to price correction. Conversely, the sell-off signal means that the price will decrease in the short term. It will reach a peak and the asset will rise again in price.

7- Fibonacci correction

Using the Fibonacci correction indicator, analysts can determine the degree of movement of a market compared to its current trend. Correction also occurs when the market is experiencing a temporary downturn, called a pullback.

Traders who believe that the stock market is about to move usually use the Fibonacci indicator to prove their claim. This index will help analysts in identifying the levels of support and resistance that show the downward or upward trend of stocks. In fact, analysts find out where to limit or when to open and close a trading position.

8- Ichimoku Cloud

The Ichimoku indicator, like many other indicators, identifies support & resistance levels. The term Ichimoku has gone into English as the One-look Equilibrium Chart. Meaning that analysts can learn a great deal from the chart at a glance and understand the stock price trend. In other words, this indicator will identify the market trend and the current levels of support and resistance of stocks and will also predict the price trend of that asset in the future.

9- Standard Deviation

The standard deviation indicator helps traders to measure the volume of price movements of an asset. They can also use the SD index to determine the impact of fluctuations on the future prices of that asset. This indicator is not able to predict the uptrend or downtrend of stock prices, but will help traders identify the impact of fluctuations.

The standard deviation actually compares the current price mobility of an asset with its price history. Some traders believe that large price movements always follow small price developments, and small price movements usually follow significant and large price movements.

10- Directional Mean Index (ADX)

The Average Directional Index measures the strength of a price trend on a scale of 0 to 100. If this index is higher than 25, it means that the price trend will be strong, while a number below 25 indicates a weak price trend. Through this information, traders can ensure that the price of an asset continues to fall or rise.

The ADX index is usually calculated based on the average price movement over a 14-day period and depends on the preferred frequency of traders. Keep in mind that the ADX index will never indicate the potential progress of a trend, but only the strength of the trend. A decrease in the price of an asset increases the directional average index, which indicates a sharp downward trend.

Important points to know before using the indicator

The first rule in using trading indicators is that you should not be content with one indicator or use a large number of indicators at the same time, instead you can choose a few options in line with your goals and focus on them. . You should also use technical indicators in addition to assessing price movements over time.

Keep in mind that a certain signal must always be in several ways. For example, suppose you buy from a signal indicator and receive a sell signal from Price Action information. In which case you must use different indicators at different time intervals to finalize the signal. The final point to consider is that you should not deviate from your business strategy and personal goals when using the indicator.