If you are new to trading, you’ve probably heard of some horror stories and complexities involved. From issues related to market volatility and liquidity to regulatory and compliance considerations, a lot goes into online trading.
Trading also has many moving parts that, as a leaner, you may find complex. But your work can get much easier if you take advantage of online trading courses earlier.
One of the many things to prioritize as a learner is technical analysis, which determines the success of stocks, derivatives, and commodity trading. With this knowledge, you predict the price changes of various assets.
Yet still, to understand technical analysis, you should know about crucial trading indicators, which include the following.
On-Balance Volume
Understanding on-balance volume is essential for your success. As the name suggests, on-balance volume determines the buying and selling various assets. Superficially, on-balance volume is arrived at by subtracting the total down volume from the total up volume of assets in a day.
It would be best to understand how on-balance volume works, as it helps you measure the positive and negative flow of assets. Ideally, if the OBV keeps rising, the asset price will continue increasing due to more buyers and vice versa.
Relative Strength Index
You should also know how to use the relative strength index. This, alongside the momentum indicator, can help you determine if assets are oversold or overbought. RSI also determines resistance levels and trend reversal.
RSI values primarily range between 0 to 100. Based on this, an asset with RSI above 70 is considered overbought and can soon reverse. On the other hand, assets with RSI below 30 are considered oversold, and the price can quickly change.
Moving Averages
You’ll probably come across moving averages in your first learning/trading sessions. MA is a staple trading technical indicator mainly used by day traders. You can use moving averages to determine an asset’s future direction. This indicator measures the price of an asset over a given period, mostly 50 or 200 days.
Moving Average Convergence Divergence
Knowing how to read moving averages alongside moving average convergence divergence is crucial. On the surface, moving average convergence divergence signals how fast the price of assets changes. MACD compares two moving averages to determine whether the prices converge or diverge.
Fibonacci Retracement
Knowing the perfect entry/exit points is essential for successful traders. So, you can use Fibonacci retracement, a unique indicator that helps traders ascertain how much the market can move against the ongoing trend. Retracement or pullback describes a situation where the market moves against the trend. Predicting when retracement will occur helps you identify suitable short or long-entry points.
Accumulation/Distribution Line
You should also use accumulation/distribution lines to determine money flow in and out of your investment security. The A/D line resembles the OBV, and you can easily confuse the two. However, unlike the OBV, which relies on the closing price only, the A/D line considers the trading range for a given period. You can also use the A/D line to monitor the divergence of your trading assets.
Stochastic Oscillator
You can only succeed in market analysis once you understand how to use a stochastic oscillator. Traders use the stochastic indicator to measure the current price compared to price ranges in a given period. Plotting the indicator makes it easy to identify real-time price changes.
Bollinger Bands
The Bollinger Band is another essential indicator that will increase your chances of success. Bollinger band is an indicator that provides a range within which asset price trades typically. Bollinger bandwidth increases and decreases according to market volatility. The closer or narrower the bands are, the lower the volatility, and vice versa.
The Bottom Line
Technical analysis should be part of your trading strategy if you are interested in forex, commodities, or share trading. Since mastering all indicators is daunting, you should prioritize the abovementioned indicators to reduce risks.
