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Top 5 Technical Indicators To Use In Technical Analysis

Fri May 21 2021 10:06
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No matter what market you are doing technical analysis in. If you use the right technical indicators, then you will be able to get accurate results from your technical analysis. So here are the five best technical indicators. 

Mentioning the five best technical indicators does not mean that the rest of the indicators are not useful. It all depends on a trader and his trading style which indicator is suitable for him. 

Apart from these top five technical indicators, we will also provide you with some other useful information. At the end of this post, you will find a guide that will help you choose the right indicator. 

An indicator is not just a part of technical analysis, but it is an important part of the overall analysis and it affects the accuracy of technical analysis very effectively. So, to get effective results, you need to choose the technical indicators wisely.

What Is A Technical Indicator? 

Technical analysis is incomplete without a technical indicator & a technical indicator is a type of pattern created by various technical information. 

These signals are used to tell a trader what the price trend will be in the upcoming time frame for a particular asset. For stock traders it will be a stock or security and for forex traders it will be the forex currency pairs. 

Why is a Technical Indicator Important? 

Technical indicators are important because you can't do technical analysis without them. These indicators make it very easy for traders to analyze stocks technically. In technical analysis, there is a huge amount of data. 

All this data and information needs to be processed. So, a technical indicator makes it easy to analyze all the information more accurately without making any mistakes. 

Types 

Traders have a choice of different technical indicators and we have picked out the five best ones to help everyone get started in no time. Here, we classify all the indicators into five types. These types are based on the results that technical indicators produce. 

#1. Trend Indicators 

As their name suggests, trending indicators are used to indicate the trend. So, if you are working in a mode to find trends, then technical trend indicators will be very useful for you. Moving averages are the perfect example of trend indicators and many traders use them.

#2. Mean Reversion Indicators 

Mean reversion plays an important role in providing patterns and signals for price prediction. There are various mean reversion indicators used in technical analysis. The most commonly used mean reversion indicator is the Bollinger Band.

#3. Relative Strength Indicators 

Relative strengths along with oversold and overbought levels are very helpful for the traders. In technical analysis, there are many relative strength indicators - stochastics and oscillators are some of the most important RSIs.

#4. Momentum Indicators 

Momentum indicators are helpful if you want to track the rapid price fluctuations that occur in technical indicators. Moving averages also play an important role here, as with the trend indicator. 

MACD is the most important momentum indicator that traders use to measure the momentum of the market.

#5. Volume Indicators 

Price and volume are the most important sources of information in technical analysis. If we don't use volume indicators, then we are missing something useful in the market. Volume indicators tell us more about volume. Bottom line, volume is the best volume indicator you can use.

List of Top 5 Technical Indicators 

Below are the top five technical indicators used by traders. These technical indicators are useful for finding various metrics like trends, relative strength index, etc. You can use any of these indicators depending on your needs.

#1. Exponential Moving Average 

Whether you are a stock trader or a forex trader, moving averages work very well in different trading actions. There are two types of moving averages in the market - SMA and EMA and both are very popular among traders. 

EMA also has a classification in two categories that traders use as indicators. Short term traders use MA of 50 days and for long term trades MA of 100 days is used.

#2. Bollinger Bands 

Bollinger Bands are also important in technical analysis & these indicators are known as Mean Reversion indicators. Using the mean reversion method, Bollinger bands are used to track price movement. From fast price movements to simple price fluctuations, you can track them using Bollinger Bands.

#3. Stochastic Oscillator 

A stochastic oscillator is known as a relative strength indicator and this indicator has a scale of 100, on this scale a value from 0 to 100 is worked out to understand the price movement. Trend and strength is the key metric that we get with a stochastic oscillator.

#4. MACD 

MACD is a momentum indicator and uses different values to figure out if a market is moving up or down. This indicator is used for markets rather than assets. But you can use it for any purpose.

#5. Fibonacci Retracement 

Its name suggests that it uses a retracement method to find out the market movement. If you are also a trader who will use pullbacks, then you can use Fibonacci retracement without any doubt. 

Fibonacci retracement is used to find out whether a market will move after a pullback or not. 

How To Choose The Best One? 

Now as a trader, you may have this question in your mind. Because you need to choose the best technical indicator. You cannot use five technical indicators at once. Therefore, you need one but the best technical indicator for you. Follow the tips mentioned below to get the best technical indicator. 

And, you also need to try a few indicators before you settle on one for your trade. You need to check which indicators suit your trading style the best. For better profitability and trading experience, keep these points in mind.

Trading Experience 

Choose the technical experience according to your trading experience. If you are an experienced trader, then you can go for typical. But if you need an easy to use technical analysis strategy, then choose a simple technical indicator.

Trading Style 

Your trading style can also help you choose the best technical indicator for you. You can look for a technical indicator that suits your trading style.

Purpose 

What is your purpose or goal in performing technical analysis? If your purpose or goal is to find out the trend, then use a technical indicator that can help you find out the right trend.

Summary - Top 5 technical Indicators 

Using a technical indicator is easy, but choosing the right indicator sometimes causes difficulties. But as a beginner trader, you can choose the best technical indicator and the only thing you need to do is to know more about all technical indicators. 

To make it a less complex task, we have listed these five best technical indicators. You can choose one that suits your trading style, experience and purpose. If you have been using only fundamental analysis, it is time to start it with the above indicators.
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