Welcome to the top five technical indicators for profitable trading. By the
end of the video you'll have a good understanding of how people use
technical indicators to trade with, with the examples we provide. Technical
indicators can be very confusing and daunting for beginner traders. They don't
have to be, and in this video give you a basic understanding of them as useful
technical indicators to help you make profit in the markets. Firstly, all the
indicators we are going to show you or created from basic candlestick data. They
all take their information from the basic price action. The open, high, low and
close data. If you need to learn more about the basics of candlesticks then
please click here and watch our three-part candlesticks series here is
some of the most common mistakes traders make with technical indicators. Don't
overload your screen of indicators. Only display the indicators on the charts
that you'll actually use. A lot of traders overload the charts with
indicators as an excuse to over trade. Remember, indicators are an indication of
something happening in the market. They aren't a crystal ball trying to predict
the future. Don't blame the indicators when a trade doesn't work out no matter
which indicators you use you will still need to take losses in trading. The two
types of indicators. There are two main types of markets trending and range
bound or sideways markets. A trending market looks like this where the market
is moving in one direction, a range bound or sideways market looks like this, where
the market is moving up and down within a specific range indicators tend to be
suited to either trending or range bound in sideways markets. Indicator one: RSI
the Relative Strength Index compares the magnitude of recent gains to recent
losses in an attempt to determine overbought and oversold conditions of
instrument. As you can see from the chart, the RSI ranges from 0 to 100. An
instrument is deemed to be overboard once the RSI approaches a 70 level
meaning that it may be getting overvalued and is a good candidate for a
pullback or reversal. Likewise, if the RSI approaches 30 is an indication the
instrument may be getting oversold and therefore likely to reverse. Traders will
often use the RSI either coming back out to its overbought or oversold areas as a
signal or partial signal to enter a trade. As we can see, the RSI is often
accurate when indicating when a market will reverse. A
trader using RSI should be aware that large rallies and drops in the price of
an instrument will affect the RSI by potentially creating false buy or sell
signals. Traders often combine the RSI with other indicator signals such as MACD
crosses. Indicator 2: MACD. The Moving Average Convergence / Divergence is one of
the most well known and used indicators in technical analysis. This indicator is
made up of two exponential moving averages which help measure momentum and
an instrument. These moving averages and the changing distances between them
become the MACD. Convergence simply means the moving averages are moving close
together, and divergence simply means they're moving away from one another.
When the shorter-term moving average is above the longer-term moving average
this area of the indicator will show activity when the shorter-term moving
average is below the longer-term moving average, this area of the indicator will
show activity. The centre line, of which the MACD is plotted around, indicates
where the moving averages are equal and when the MACD passes through the centre
line this indicates the moving average is crossing. The signal line, here in red,
is a moving average of the MACD values themselves. Typical values for the MACD
are 26 and 12 exponential moving averages, and 9 for the signal line. The
farther apart the moving averages and the greater the momentum, the farther
away the MACD will be from the centre line. Traders use the MACD and signal line
crosses, such as these, to indicate momentum trades. You can see how these
crosses often match up with market moves. Traders also use the MACD crosses to
indicate where momentum is coming out of the market and may use it is a signal to
exit a trade. Indicator 3: Bollinger Bands. A Bollinger Band starts off a simple
moving average it then has two standard deviations plotted away from it. Now
sounds a mouthful, but the important part is because standard deviation is a
measure of volatility, Bollinger Bands adjust themselves to current market
conditions. When the markets become more volatile, the bands widen and move further
away from the average. During less volatile periods the bands contract,
moving closer to the average. The tightening of the bands is often used by
technical traders as a early indication that volatility is about to rapidly
increase as volatility often follows periods of lack of volatility. The market
spent most of the time within the bands and when the price action reaches the
edge of the bands, it is often more likely to reverse and come back into the range.
This is used as a signal by reversal traders to take a trade. This is similar
to the oversold and overbought conditions of the RSI. Indicator four:
Super Trend Indicator. The super trend indicator is an excellent indicator of
trend direction. It can be used as a foundation of a trading system that is
based on trend following. One of the most popular ways to use this indicator is to
enter the market after a pullback. For example, if the market is on a downtrend,
indicated by red, wait for a green pullback and then re-enter the market
once it turns red again. The same can apply in up trending markets. Here we can
see how this indicator accurately tracks market trends. It can be refined through
the settings to match the specific instrument. Indicator 5: Confluence. The
last indicator isn't a new one it's indicated confluence,which means to use
multiple indicators and their signals to take a trade. Here we have the RSI and
MACD we looked at with the RSI moving into overbought
territory here. Remember, that indicates the market will reverse. However, we want
to help us filter out false signals on the RSI so we also look at the MACD to
give us confluence. We can see is indicating the momentum has come out of
the market as far as the market rallying or going up is concerned. And we have an
MACD cross here. A signal to enter this short trade could be waiting for the RSI
sights come back out of the overbought, and also waiting for the MACD cross. We
can see that those combined signals or an indication that captures this trend.
We can use the opposite signals to indicate when the momentum is coming out
of the market and it's more likely to reverse and the market to retrace back
up the opposite direction of our trade, and therefore is an exit signal. In
addition to the RSI and MACD signals we can add further confidence this trade
with a Bollinger Band and the Super Trend Indicator. We can see the market is
at the top of the Bollinger Band here, but we could also wait for the Super
Trend Indicator to change right here before taking the short trade.
And now we have the confluence of four indications. We have an RSI coming back
out of overbought. We have an MACD cross. We have the market
going to the edge of one of the deviations on the Bollinger Band, and we
also have the Super Trend turning back to red. This is the sort of confluence you
should be looking for with technical indicators on various markets to see how
you can find opportunities to take profitable trades. There are hundreds of
indicators a trader can choose from. The five we've spoken about on the best ones
to developed trading strategies from. Take note how the indicators work with
certain mark conditions and see if you can see patterns in the market.
*Click our next video when it appers above*