Recently, the use of indicators has been controversial among traders. People believe traders acquire profits due to their hard work and consistency. However, on checking their profiles on trading platforms, they later realize traders often make it using different indicators. So the big question now is, what indicators do successful traders use?
Using trading indicators with appropriate risk management is a part of any technical trader’s strategy who needs more insight into price trends. Trading indicators are scientific calculations designed as lines on a price chart to help traders recognize specific market signals and directions.
Indicators are frequently used to make traders sure about their short or long-term decisions. So, below are the 5 most effective and simple-to-use indicators that successful traders use in trading the forex, crypto, and even synthetic market.
The Top 5 Trading Indicators You Must Know
1. Moving Average (MA)
One of the best indicators for any strategy is Moving Average. It identifies the direction of a present price trend without intruding on shorter-term price trends. This means the MA indicator weighs the price points of a financial instrument over a specified period and splits it by the number of data points, resulting in a single trend line.
Moving Averages help traders to discover trading opportunities in the overall trend. For example, when the market is ascending, you can use a Moving Average or multiple Moving Averages to detect the trend and the exact time to enter a trade.
Also, with the MA indicator, you can quickly identify the levels of support and resistance and know the previous price action in the market’s history; you can also control possible future patterns. Finally, the MA determines the data usage. For instance, a 200-day MA needs 200 days of data.
2. Stochastic Oscillator
Stochastic is another popular momentum indicator established in the early 1950s. Stochastic primarily identifies the overbought and oversold zones. Traders often need to find a possible profit-taking avenue in their trading strategy; as a result, they use this indicator to locate the point at which the price drop. The Stochastic indicator moves from 0 to 100 levels.
If the price goes beyond the 70 level or 30 levels, a strong price reversal is likely to occur. The excellent aspect of trading with the stochastic indicator is the %K and %D line that indicates entry. Because the oscillator has similar overbought or oversold analyses, when the %K line crosses the %D line on the 20 levels, it shows a strong buy indicator in the trend direction.
3. Relative Strength Index (RSI)
The RSI is used in trending or ranging markets to identify better entry and exit points. When the markets fluctuate, the RSI helps you identify the right direction to trade to a considerable extent.
The Relative Strength Index signifies where the price will reverse and ranges from 0 to 100. The 100 level suggests an overbought market situation, while the 0 level indicates an oversold condition.
When the price moves below the 30 level, you should expect a positive market reversal; likewise, when the price moves above the 70 level in an uptrend, it signifies a negative market reversal. While the Stochastic Oscillator and Relative Strength Index might be considered similar, unlike the former, the latter offers trading opportunities by generating a price deviation.
4. Bollinger Bands
A Bollinger band is an indicator that gives a range within which the price of an asset should trade. The band size increases and decreases to meet present instability. This means that the narrower or closer the bands are to each other, the lower the supposed volatility of the financial instrument and vice versa.
Bollinger bands identify when an asset is trading out of its normal levels and are often used to predict long-term price actions. For example, a commodity is overbought whenever its price moves outside the upper band limits and is oversold whenever it moves below the lower band limits.
Above all, it is a simple indicator that offers a reliable trading entry—the upper and lower line in the Bollinger bands indicator functions as dynamic support and resistance levels. Any rejection from some parts shows a possible entry, while any breakout from the other levels gives profitable trades.
5. Moving Average Convergence & Divergence (MACD)
MACD is a trading indicator comprising a histogram and exponential Moving Average. Also referred to as the king of oscillators, it is used effectively in trending or ranging markets by primarily estimating price divergence. A consistent price divergence signifies a market reversal, while a less apparent divergence shows a market extension.
You need two main things to derive signals from this indicator. First is identifying the lines relating to the zero line, signifying the currency’s upward or downward partiality. The second is to detect a cross under or crossover of the MACD line (Red) to the Signal line (Blue) for a buy or sell trade.
Final Thoughts On The Top 5 Indicators That Successful Traders Use
The important rule to remember when using trading indicators is never to use an indicator alone; instead, try using more than one simultaneously to confirm your bias.
It’s essential to confirm if you’re getting a “buy” signal from an indicator and a “sell” signal from the price action. This is because you have to use various indicators or different time frames to confirm the validity of your movements.
In addition, how you use your technical trading indicators will determine their effectiveness. For example, traders often use multiple indicators with different parameters to boost the probability of a market movement.