It’s easier to set targets than to achieve them. Investors and traders know exactly how challenging is the process of generating more profits while minimizing the risks. That’s why they have their own toolkit that includes all of the strategies to boost their portfolio. But more often, it proves that the market, like crypto currency, is hard to beat.
With asset prices fluctuating in different directions, sometimes without apparent signs, investors may be left clueless on how to approach the prevailing market condition. Guess what might possibly happen if this scenario is not handled properly. Yes, failure is just looming around the corner.
That is why everybody has been using technical indicators to have a reference in predicting price trajectory. Not only does this serve as a guide for market fluctuations, but it is also helpful to position the overall investment in a favourable place. This relates to allocating funds to the assets that have better performance than the others, which is particularly beneficial for those who are diversifying their assets.
However, for novice players who are usually caught between hopes and anxieties, there’s a pressing need to learn the system first. If you’re one of them, this article is right for you. You will learn here the top technical indicators and how to use them to achieve your trading targets.
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Understanding the Use of Technical Indicators
Traders are using technical indicators to gain insight into the supply and demand of assets and market psychology. Such tools form the basis of technical analysis that’s performed to predict price movements. For instance, a trading volume can serve as a metric to know whether an asset price will continue. It can build a strong trading strategy because indicators can be used to generate buy and sell signals. The following are some of the top technical indicators used for such a purpose. Remember, you don’t have to use all of them – just pick a few that would help in making smarter trading decisions.
- On-Balance Volume
If you want to measure the positive and negative flow of asset volume in a given period, you can use this technical indicator. On-balance volume is a running total of up volume minus down volume. The first is about how much volume is there on a day when the price rallied, while the other is the volume when the price falls. Another key thing is when the OBV is rising; it means that buyers are willing to push the price even higher. Conversely, when it’s falling, the selling volume is outpacing the buying volume, indicating low prices. This can essentially serve as a trend confirmation tool, helping to determine whether a trend will continue or not.
- Moving Average Convergence Divergence
This is also called MACD for brevity, and it helps traders to know the trend direction and the momentum of that trend. It also provides trading signals that serve as a basis for traders to decide whether to buy, hold, or sell their assets. For instance, when the MACD is above zero, it means that the price is going upward. Otherwise, below zero level signals an entry to the bearish period. There are usually two lines in the indicator: the MACD line and a signal line. When the first line crosses above the signal line, you can expect the price to increase. If it falls below, the price is expected to drop.
- Stochastic Oscillator
It’s the technical indicator that you should use if you want to measure the current asset price relative to the price range over a number of periods. The logic is that when the trend is moving upward, the price should be making new highs. During a downtrend, the price would likely hit new lows. With this tool, you can track whether such price movements are indeed happening. Keep in mind that the stochastic is moving in either direction very quickly because it’s rare for the price to make constant highs.
- Relative Strength Index
Among the technical indicators available, this is probably the most flexible. It has three major functions. The basic use of RSI is an overbought and oversold indicator. It moves between zero to 100, plotting recent price increases versus recent price losses. When RSI moves above 70, that means the asset is overbought and could decline anytime. Conversely, the asset is oversold and could rally when the RSI is below 30. Hence, RSI levels generally help in gauging momentum and trend strength.
Using technical indicators can give you an advantage as a trader. You would be able to track and predict asset movements and make appropriate decisions. This should be part of your investment plan, once and for all. If you are looking to make more profits, it always requires having the right strategies in place.