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foreign
ERS and welcome back to another in-depth
with Chris episode did you know that
indicators first originated in 18th
century Japan they have continuously
evolved since then and are continuously
evolving today they are something of a
controversial subject at times because
while they can help and give a
Competitive Edge over others in the
market they also most certainly can
provide fomo or the fear of missing out
this is something that is absolutely not
good for us as Traders so it's important
to understand how to pick which
indicators to begin with OR to start
with as we venture out into the
indicator World during our trading
Journey today we're going to talk about
all of that and more but without further
Ado let's get going
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in the trading world today there are
hundreds if not thousands of indicators
from the basic to the advanced level
with the goal of enhancing price action
prediction accuracy this is a fancy way
of saying they will help us be more
accurate in our trading but if we don't
understand what they're trying to tell
us or if we don't understand how to find
the right tool for the job they can
absolutely be more of a hindrance than a
help so it's important to understand how
indicators are classified by their
nature we have lagging indicators which
are indicators that are going to follow
price their signals come after price has
already changed an example of these
would be Bollinger Bands or moving
averages or the macd these are all
indicators that are lagging indicators
and it is important to understand that
in trading historical price patterns or
historical information is still relevant
as we move forward if you know how to
read it then we have leading indicators
and leading indicators are the exact
opposite leading indicators are trying
to help us predict future price
movements and an example of a leading
indicator would be things like the RSI
or the onbalance on balance volume which
we refer to as the obv these are
indicators that are trying to stay ahead
of the curve oftentimes we use lagging
and leading indicate indicators in
conjunction when garnishing our price
reads from the market
we can further categorize our indicators
by subject of what they're measuring we
have volume indicators and as their name
suggests volume indicators measure the
volume levels Dynamic for the underlying
asset since they track the level of
interest for a specific asset through
the buying and selling activity volume
indicators are a great reflection of the
indication of the trend strength some
popular volume indicators would be the
obv as we just mentioned then we have
Trend indicators Trend indicators help
determine the direction of price based
on a historical data by taking into
account different price specific factors
Trend indicators can help Traders
predict whether the market will continue
its momentum or reverse and generate
buying and selling signals among the
most popular Trend indicators there are
things like the macd or the average
directional index which we refer to as
the adx or the superchon indicator
there's a large number in the trend
indicators category then we have the
momentum indicators momentum indicators
help Traders evaluate the strength of
the trend based on whether the trend is
getting stronger or weaker Charters can
predict whether it will reverse or
continue its movement with these
indicators or at least that's obviously
the goal in some of the most popular
momentum indicators are the RSI the macd
or the adx the stochastic oscillator and
once again this is another very large
indicator option or category shall we
say then we have volatility indicators
and by analyzing the price changes
within a certain period volatility
indicators can help Traders evaluate the
state of the market scalpers and more
active Traders employ volatility
indicators as the sole basis of their
trading strategies at times among the
most popular volatility indicators we
have the Bollinger Bands or the donkey
and channel the true range and just so
much more
to figure out what indicators will best
fit your needs it's essential to
understand their primary functions
technical indicators can help us in
three aspects generate trading signals
confirm and alert or predict price
Behavior although some of them can be
applied as a standalone indicator it is
essential to enhance our strategy with
indicators from different categories we
shouldn't employ only a leading or only
a lagging indicator but instead combine
tools that complement each other signals
or further increase the accuracy of
either or for example relying solely on
leading indicators can generate false
signals since they are trying to predict
the price level ahead of time which is a
very challenging task on the other hand
if you use only lagging indicators you
risk not catching an opportunity earlier
as soon as it arises however if you use
a combination of both you can get a more
accurate prediction of where price might
head next we should also keep in mind
that indicators aren't strictly looking
for for a particular category to
function on based on the way they are
applied they can work in a variety of
ways it's up to you as a Trader to be
the artist and know how to use the
paintbrush as you continue to experiment
with all of these things
when combining indicators we want to
make sure that they're covering
different aspects of price analysis so
that we can confirm our trading signals
having the right combination of
indicators in our strategy can be the
difference between a profitable trade
and a losing trade also we want to keep
in mind the risk of overfilling our
strategy with trading indicators can
also be very very harmful we often refer
to this as cluttering up our charts if
we have 15 different indicators on
screen chances are it's going to be very
difficult to get an accurate depiction
of what price is actually doing because
we have so many other things firing off
information about what's going on and we
might miss the truth behind the scenes
of just how prices simply responding and
moving in that exact moment
these five indicators can be a
fundamentally sound place to start
searching and understanding how
indicators work if you're looking to add
them to your trading repertoire let's
start off with the macd which once again
we did mention but we didn't go in exact
details of how it works so there are
different types of moving averages in
the market for example we have SIMPLE we
have exponential smooth and weighted so
with the macd it is a powerful momentum
indicator and it's a more advanced
version of the exponential moving
average the macd is an oscillator that
appears on the chart as two lines
floating without boundaries and a single
line the indicator is mainly used for
trading Trends and generating buy and
sell signals by looking for crossovers
which are referenced based on the Lines
Moving above or below each other we also
have convergences that we look for and
divergences it also can help us get a
sense of the trend strength the macd is
one of the go-to indicators for Traders
because it can be used both as a
momentum and Trend following in
indicator it has been around since the
1970s and has established itself as one
of the simplest yet most effective
technical analysis tools on the market
then we have the RSI something else that
we had already mentioned the RSI is an
invaluable part of the trading arsenal
of virtually all Traders since it can be
used as once again both a leading and a
lagging indicator this simple yet highly
effective momentum indicator can help us
identify overbought and oversold market
conditions which can be extremely
valuable when we get very good at it the
indicator itself has values between 0
and 100 and the trader is meant to get a
sense of the trend's potential Direction
solely by looking at this number if the
RSI is above 70 is it is generally
considered to be in an overbought
territory while as if it is below 30 the
market is regularly considered to be
oversold and the trader might be able to
expect mounting buying pressure then we
have Bollinger Bands which are one of my
honest favorites from the very beginning
Bollinger Bands is really the number one
tool in a lot of Traders toolbox because
it's just so darn simple and it's
relatively clean on your charts the
indicator will give us a range within
three lines that help us understand the
volatility and how far relative to how
far it's been the market is currently
outstretched we can think of Bollinger
Bands as something that's letting us
know if our rubber bands are stretching
more than normal
then we have the obv once again mention
this one this is the on balance volume
the obv is widely popular it's another
powerful momentum indicator and in a
nutshell it's the concept is that price
of the instrument should always follow
the trading volume and that's how the
obv works so for example if the volume
changes the price will as well if not
immediately then shortly after the
interpretation of the obv signal is also
relatively simple and increasing obv
indicates growing buying pressure while
a decreasing obv signals that selling
pressure is piling up with this
information we can then gain better
reads on what's going on in the market
and then finally we have the Fibonacci
retracement this is arguably not an
indicator to some some consider it a
drawing tool but regardless it is
incredibly valuable if you know how to
use it this is ideal for pinpointing the
extent to which a market might reverse
and start moving against the current
current Trend and in that sense we can
even consider it to be a leading
indicator it's one of the most powerful
tools that are usually listed in the
drawing tools toolbox it is something
where we can stretch from the beginning
of a price movement to the end of a
price movement and get drawn out for us
lines where price very well might return
of these lines we always want to pay
attention to 38.2 the 50 line as well as
the 61.8 so the bottom line is there
isn't any one Silver Bullet indicator
out there that completely Standalone by
itself you can completely rely on and
blindly follow and expect to be turned
into a professional Trader I'm sorry to
break the bad news to you but perhaps
I'm helping you because there are a lot
of scam artists out there peddling fake
indicators that will supposedly turn you
into a millionaire overnight I'm telling
you that is just not the case however
indicators are incredibly valuable and
when they are used in conjunction with
outside price action outside trading
knowledge and in conjunction with other
reads possibly from other indicators
they can be very powerful tools and they
can lead you in that sense to the
Promised Land good luck happy trading
I'll see you all very soon
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