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Top 4 Most Important Indicators in Trading

In: Business

Trend traders base their trading decisions on the trends in the market. This method captures gains with the use of the momentum of the asset in a certain direction. Trend trading involves a lot of processes and there’s no specific technical indicator that will give you a one-way ticket to success and riches in the market. Together with trading analysis, traders must also be well-equipped with a good risk management tool from MyFXBook and algo trading app to bag profits in the market. Amidst all the trading strategies introduced in the market, there are several trading strategies that are proven effective in different circumstances for a long time.

Moving Averages

You cannot function well in the market if you don’t know how to use this technical analysis tool. Moving averages help in smoothing out price data by making an updated average price. When seen on a price chart, a moving average will create a flat, single line that removes all sorts of variation because of price fluctuations. There are a couple of ways to use the technical analysis tool moving average. The first way is to see the angle associated with the moving average. If it goes horizontally for a span of time, the price is ranging and not trending. A range in trading occurs if the trade is made up of consistently high prices and low prices over a given time.

Moving Average Convergence Divergence (MACD)

MACD is an oscillating indicator used in technical analysis and follows a momentum and trend indicator. One basic strategy used in MACD is to check which sides are found in the histogram located below the chart. If you find the MACD lines above zero for a long time, it is most likely that the trend is going upwards. Meanwhile, if the MACD lines are found below zero, then the trend is going down. This strategy is very effective in pointing out buy or sell signals.

Relative Strength Index (RSI)

RSI or Relative Strength Index is an oscillating indicator just like MACD. However, its movement is margined at zero and 100, making the result different from MACD. To interpret RSI with an overbought, you must ensure that the histogram shows above 70. For an oversold price, it needs to be below 30. Trendlines are helpful in establishing trend direction and determining the direction of the trade signal.

On-Balance-Volume (OBV)

Volume is considered an important indicator in trading. In this case, on-balance volume (OBV) is taking up volume information and then compiling it to create a single line indicator. This indicator is capable of measuring the buy and sell pressure when you add the volume during “up” days and subtracting it during “down” days. If you see that the OBV is rising but the price isn’t rising at all, there’s a chance that the price will follow the OBV and will start rising in the future.

Using indicators will help in simplifying price information, and provides trend signals and warnings on reversals. It can be used in different timeframes making it very helpful for traders of all kinds. Alongside forex trading tools from MyFXBook, you will certainly find the success that you desire.

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