All You Need to Know About Technical Indicators
Traders are divided into two major groups: fundamental and technical. This grouping is based on the types of analysis they use. Fundamental analysis relies on economic data and news. While technical analysis checks the signals via technical indicators.
A wide range of indicators provides traders with a vast number of signals. Nevertheless, it’s crucial to know what indicator to apply in different market conditions. Here is the complex guide that will help you quickly learn about all of the useful indicators and build a solid trading strategy.
Technical Indicator: Definition
Before we start, let’s define what a technical indicator is. A technical indicator is a set of mathematical calculations that use historical price movements to predict future price direction.
Technical tools are famous among investors, as they give reliable signals regarding the entry and exit points, along with the direction of the trend and its force. They ease the process of market analysis and help with possible profit. You should know that indicators serve different aims as well as to be aware of when and how to implement them.
How Do Forex Indicators Work?
A technical indicator is a tool that calculates previous price movements. It can use prior open, close, high, and low prices for a specific period of time to predict the future rate direction. Traders don’t have to do any calculations, and the indicator is applied automatically.
Still, to read the indicator’s signals, you need to practice a lot. Some technical tools provide several signals, and you should keep them in mind. It may sound complicated. However, if you choose what indicators suit your trading strategy best, it’s enough to be equipped with only three to five of them.
Technical indicators can be used for different securities such as stocks, currencies, commodities.
It’s worth mentioning that technical indicators can be used for different securities such as stocks, currencies, commodities. Moreover, most of them work perfectly well for stocks, for example, and currencies. Technical indicators have different settings you should know about to use them efficiently. Usually, they differ regarding the timeframe you trade on.
Most of the popular indicators are set by default in trading platforms, for instance, MetaTrader. So, it’s enough to do several clicks to put an indicator on the chart.
Let’s consider how to do this using MetaTrader 4. Click “Insert” window. Choose “Indicators”. After you can choose from trend indicators, oscillators, volumes, and Bill William indicators. Each of the groups includes different instruments.
Trading Indicators: Types
There are many types of technical instruments. However, we would like to highlight three of them. Those are overlays, oscillators, and Bill Williams indicators:
- Overlays are applied directly to the chart. So, they interact with the price. Overlays are so-called trend indicators. Thus, you can see the current trend, its force, and its direction.
- Oscillators are another type of technical tool. The indicators usually appear below the price chart in a separate window. Oscillators provide perfect entry and exit points. However, they can also give signals about the trend direction and its strength.
- Bill Williams Indicators. These indicators serve the same aims as the previous ones. For convenience, experts mark a group of indicators developed by Bill Williams, a famous trader who invented his own trading theory and six famous technical instruments. All of them will be discussed later.
Trend indicators or overlays are used to define the direction and force of the current trend. The trend is your friend. Have you heard of this phrase? The trend is one of the most important patterns you should be able to determine on the chart. If you find a trend, you can be sure you will find useful entry and exit points. There is a wide range of trend indicators, and we will mention the most effective of them.
Trend indicators are used to define the direction and force of the current trend.
Oscillators are another big group of technical indicators that mostly helps find entry and exit points. They are momentum instruments. Usually, their signals are based on bouncing between specific levels. Let’s look at those that will provide the most reliable signals.
Oscillators help find entry and exit points.
Bill Williams Indicators
The third famous group of symbols is Bill Williams’ indicators. Although lots of traders invented their indicators, only the Bill Williams’ indicators are in high demand.
Bill Williams indicators are widely used by traders all around the world.
To conclude, there is a wide range of forex indicators that can help you determine a trend, its force, find perfect entry/exit points, and support/resistance levels. However, to find the tools that will match your trading strategy, you need to practice. It’s better to do it on a free Libertex demo account. The whole range of indicators and real market conditions will help you build a strong strategy.
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