Thankfully, all the complicated aspects of the public trading market can be studied. Plus, with the use of a couple of the best trading indicators, you’ll have the market within the palm of your hand.
Trading indicators are simple and easily formatted. These allow you to determine the market’s current state. Plus, they also help you form a clearer analysis of what’s the best next thing for you to do.
We’ll teach you 7 of the best trading indicators there are out there. And we’ll make sure to help you figure out which of the best trading indicators are best for you.
What are the Best Trading Indicators?
Trading indicators are statistical tools used by investors to analyze and identify the current signs and trends in the market. This is done through plotted mathematical computations and is doable through spreadsheets.
So, do the best trading indicators really work?
These statistical tools have certain purposes that aid traders throughout their trading journey.
But what makes these indicators inaccurate is when people use them for things that are not their purpose. Although doing so may result in some positive outcomes. But there is no denying the amount of inaccuracies this may make.
In addition, they also work great with each other, always remember that you’re allowed to use more than just one.
One of the best indicators for day trading are the Moving Averages (MA). These are namely the Simple Moving Average (SMA) and the Exponential Moving Average (EMA).
Moving Averages are best for price analysis of shares. This indicator constantly updates the average price of certain shares. Doing so will allow you to identify its movement and the pattern it is currently flowing through (if there are any).
Both Moving Averages (SMA and EMA) share the same purpose. The only thing that sets them apart is their focus. To expound further, EMA’s focus more on the recently provided data (prices) while SMA’s focus on the entirety.
Exponential Moving Average
Out of the two types of Moving Averages, the Exponential Moving Average tends to be the more used indicator. And that is why we’ll discuss it further.
One of the most crucial characteristics of the EMA is how it weighs heavier on the most recent data points that have been provided. Meaning to say, the latest prices of your share are of the greatest significance impacting the overall result.
EMA lengths also vary depending on the investor’s needs. There are 10-day, 50-day, and 200-day EMAs. Shorter lengths (ex. 10-day) impact the overall result by being more sensitive to price changes.
When it comes to one of the best indicators for swing trading, the Stochastic Oscillator won’t let you down.
Similar to the Moving Averages, the Stochastic Oscillator takes the price range over a number of periods and measures the current price.
This indicator tracks the uptrend and downtrends that occur within your shares. So you’ll be able to predict whether their prices would be making new highs or new lows.
Just like the Relative Strength Index (RSI), the Stochastic Oscillator is one of the best trading indicators for overbought and oversold predictions.
It also follows the 80-20 rule. This is a basis that states that when the indicator drops below 20, the market is ideal to buy in. But when it rises up to 80, the market is best for selling.
Moving Average Convergence Divergence (MACD)
Unlike the Moving Averages we have previously discussed earlier, the Moving Average Convergence Divergence (MACD) does not only indicate trend direction but also its momentum and trade signals.
This is crucial in determining your share’s strengths and weaknesses when it comes to its price. So you don’t only get to identify its patterns but also its faults.
The MACD indicator has two lines, namely the MACD line and the signal line. These two will help you determine your share’s state as they rise, falls, and sometimes even collide.
Basically, when the MACD line is below the signal line, your share’s prices are falling. When it is above the signal line, the prices are rising.
If you’re into short-term investments, Bollinger Bands would be a very ideal indicator for you.
This indicator follows a statistical chart that distinguishes the quality of the prices and volatility of your security.
To dive deeper, Bollinger Bands identify the buying and selling impulses that impact the counter waves and retracements. These are turning points that are crucial when it comes to analysis, and that is why this indicator reveals them.
This indicator measures just how far prices can travel from a certain point. The sharp and short-term price movements as well as potential entry/ exit points are immediately revealed by Bollinger Bands.
To clear things up, these are called “bands” since they contract and expand in response to the volatility fluctuations of a security.
Relative Strength Index (RSI)
What makes the Relative Strength Index (RSI) one of the best technical indicators for day trading is its various purposes.
It commonly gauges the momentum and trend strength of a stock. RSI does this by moving between 0 and 100 and plotting the recent prices of the said stock.
The RSI is also an overbought and oversold indicator. But instead of the 80-20 rule, it follows a 70-30 basis instead.
Whereas 70 or above is an indication of an overbought share while 30 and below is an oversold sign.
And the last purpose of RSI is to establish divergence. This is done by observing when the indicator is moving in the opposite direction of the price. Meaning that the current price trend is weak and could reverse within a short amount of time.
The last tool in our list of best trading indicators is the Fibonacci Retracement.
If you’ve studied statistics or were very attentive in high school, you’ll remember the Fibonacci sequence. A sequence of numbers that nature and anything in life seems to surprisingly follow.
As an indicator, the Fibonacci Retracement makes use of horizontal lines to indicate when and where resistance and support are most likely to occur.
It follows a set of percentages to signify how much the price has been retracted. These percentages are 23.6%, 38.2%, 50%, 61.8%, and 78.6%.
What do these mean?
The prices of your investments may drop in a percentage that follows the provided set earlier. When it does, it means that it has connected both high and low points.