What Indicators Do Professional Traders Use?
Professional traders who depend on technical analysis always use indicators to identify trading opportunities. The top 3 most used indicators are:
- Moving averages
- Bollinger bands
- MACD
Technical indicators are essential tools that allow traders to find numerous opportunities and make consistent profits. Although some professional traders do not rely on indicators to make trades, most of them wonder which technical indicator is the most accurate, especially beginner forex traders.
As a new trader, you may find it quite challenging to decide which indicator to use while trading. You will be required to understand them in-depth and practice using the indicators.
Another thing you may want to do is to understand what indicators professional traders use and how to apply them.
If this is your goal, this page will provide you with more information about indicators and inform you about the indicators professional traders use to execute trades.
What are Trading Indicators?
Trading indicators can be defined as technical tools that help traders understand what is happening in the market. The patterns formed by technical indicators are primarily based on historical data. Forex traders then use that information to predict future price movements.
The indicators also help them come up with a better trading decision.
When using an indicator, it is important to know how it is calculated to apply it correctly in your trading. Some are very specific to professional traders as they require a deep understanding of the market.
In most cases, professional traders use indicators depending on what they look at or understand about the market. For example, it could be trends, volume, or momentum.
Types of Technical Indicators
If you want to understand why professional traders use indicators, it is crucial to know the types of indicators available. Here they are;
Leading Indicator
The leading indicators show a change in current trends in the market. They lead price fluctuations or movements, allowing traders to catch new trends before it is too late.
Lagging Indicator
Traders use this indicator after price actions have occurred. Because of this, they are great indicators to show trend changes, including trend strength and weakness.
Momentum Indicators
Momentum Indicators help traders understand an asset’s price speed and direction. This also allows them to spot overbought and oversold conditions in the market. Examples of momentum indicators are the relative strength index and oscillators.
Volatility Indicators
Trend Indicators
Volatility is the rate at which prices rise and fall. Therefore, volatility indicators show price movements that occur in the market. It shows when there is high or low volatility.
Trend indicators show traders the direction in which assets are trading. It could be downward, upward, or flat. Moving averages are an excellent example of trend indicators.
Volume Indicators
Volume indicators help traders know at what volume assets are trading for. It is a suitable indicator for current market sentiment as it helps to indicate the change or continuation of asset prices.
Technical Indicators for Professional Traders
Moving Averages
Moving averages is a popular indicator in forex trading. It is one of the best indicators for day trading 2022 types of technical indicators that can be used at any time frame.
Professional traders use this indicator to understand more about technical analysis. It helps them know market trends so that they may determine if they can open or close trading positions.
The moving average indicator uses the short-term MA and long-term MA to show whether trends will move upward or downward. Moving averages types available include;
- Exponential moving average
- Weighted moving average
- Simple moving average
Relative Strength Index
It is also a common indicator among professional traders. It helps them determine the strength of prices. It does this by comparing the magnitude or strength of recent gains and losses at a given period.
RSI is among the best indicators for swing trading as it tells you two important things that are happening in the market. It shows when stocks are overbought or oversold making it easier to understand when to trade.
Moving Average Convergence Divergence
Some professional traders believe that the MACD is the most accurate leading indicator in trading. The MACD makes use of two EMA, and one is usually subtracted from the other to form a divergence.
Traders using MACD mostly use three main parameters: moving average convergence/divergence, signal length, frequency, and periodicity. In the default mode, they are represented by 26, 12, and 20, respectively.
Stochastic Oscillator
The stochastic oscillator is one of the famous indicators in the stock market. It is almost similar to the relative strength index as it helps investors to know when assets are oversold or overbought in the market.
This indicator uses numbers between zero and 100. When the stochastic oscillator goes above 80, stocks are overbought. When it goes below 20, it signals that stocks are oversold.
If stocks are overbought, that suggests high volatility, and most likely, there will be a decline ahead. On the other hand, when stocks are oversold, it is usually a potential opportunity where traders can profit.
On-Balance-Volume (OBV)
This momentum indicator takes advantage of trade volume to know if price movements will be strong in the future. When there are sharp movements in trade volumes, that may result in a decrease or increase in prices.
The main goal of using this indicator is to identify stocks that have a sharper increase in volume and its prices are generally flat. According to Granville, the indicator’s creator, the longer stock volume rises and the price stays intact, the tighter the “spring.” The thing is that the spring will let loose and pop in a particular direction.
Bollinger Bands
Bollinger bands are another indicator some professional traders use to determine whether stocks in the market are overbought or oversold. It is also one of the most accurate intraday trading indicators as it shows volatility that occurs over time.
Bollinger bands use three lines, which are usually plotted on trading charts. The lines used include;
- Simple moving average
- Upper band
- Lower band
These three lines help traders read charts easily and understand how prices move. Professional traders believe that the stocks could be overbought when the centre line gets close to the upper line and vice versa.
Parabolic SAR Indicator (PSAR)
The parabolic indicator is also a popular trading indicator used mainly by professional traders. It is a suitable indicator for determining price momentum and how it has changed.
The parabolic SAR indicator is an improvement of the moving average crossover strategy because it uses a more advanced approach in showing signal changes.
How to Use Trading Indicators
Using trading indicators can help boost results when trading. First, it is wise to know how indicators work before applying them in your trading strategy. Many professional traders who rely on indicators have practised using them. That is why they are getting better results.
It is also essential to consider the type of trader you are because not all indicators can be used in every situation. Many trading indicators can give you false signals, which will make you lose your trades.
How to Use Trading Indicators
Using trading indicators can help boost results when trading. First, it is wise to know how indicators work before applying them in your trading strategy. Many professional traders who rely on indicators have practised using them. That is why they are getting better results.
It is also essential to consider the type of trader you are because not all indicators can be used in every situation. Many trading indicators can give you false signals, which will make you lose your trades.
Conclusion on Indicators used by Professional Traders
As a beginner trader, it is essential to look at what professional traders are doing or using. This will help you learn the forex market more. Above are some indicators professional traders use.
Interactivecrypto can help you know more about these indicators to allow you to know which technical indicator is the most accurate.
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