As a beginner trader, there are a few essential concepts and processes that you will need to get familiar with if you want to become a successful trader especially with NFP coming up. One of these concepts is a trading indicator. Trading indicators are mathematical calculations used as signals that are interpreted by traders and technical analysts to predict possible future price fluctuations.
There are several different trading indicators, but here are our top five.
Simple Moving Average
A simple moving average is an indicator that attempts to identify and follow the direction and movements of a current pricing trend. This indicator doesn’t use short-term spikes or shifts, but rather looks at the current trend through a longer lens, ultimately to try and predict where that trend will go and what it might look like in the future over a longer period.
A Bollinger band is an indicator that provides trade analysts with the price range that an asset usually trades within. How wide or narrow these bands are for a specific asset reflects its recent volatility, and is useful to predict longer-term movements relating to that specific asset.
Traders can recognise when an asset is trading outside of its standard price range and make informed decisions about whether to buy or sell, depending on its volatility.
A stochastic oscillator is an indicator that essentially picks one closing price of a specific asset, and compares this price to a wide range of this asset’s prices over a while. This indicator helps traders to identify the strength of a trend and its momentum.
Relative Strength Index
A relative strength index indicator is commonly used to help traders and technical analysts to identify possibly dangerous price movements by comparing different warning signals over time. It can also be used to identify momentum and conditions within the market.
The signal expression of a relative strength index indicator is a figure between 0 and 100. When an asset signals near the 70 level, it’s generally considered overbought, and when it signals near or around the 30 level it’s generally considered oversold.
On-balance volume is a momentum indicator that traders and technical analysts use to predict price changes. This kind of indicator uses volume flow to assess future price increases or decreases, as volume is believed to be one of the key forces behind these market shifts.
An on-balance volume indicator shows crowd sentiment towards differing assets and markets and can be useful in identifying if an outcome will be positively bullish or negatively bearish.
Trading indicators can be complex for beginner traders, but the key thing to note as you start figuring some of these indicators out is that you don’t need to know all of them all at once. This will just overwhelm you.
Pick one or two to start with and slowly find your groove. You’ll begin to understand trends and patterns a lot more, and your budding trading career will be better for it!