Greetings traders and welcome back. Thank you for joining me again
as always as we dive into another In Depth with Chris episode.
In today's episode, we're going to talk about technical indicators.
Now we are aware, hopefully, that technical analysis has been a crucial component,
hand-in-hand with fundamental analysis, when analysts are
trying to get an edge over where the market may go in the
future. A big portion of technical analysis is simply paying
attention to the historical path that price is taken, and getting an
idea of how it acted in the past so
We know how it may act in the future based on the similar
circumstances if they present themselves again. Well, technical
indicators are the advancement of technical analysis.
It's the computer helping more easily represent some of this information to us.
That's what we'll be focusing on today, and we will be
using the charts to apply a few of the most common indicators,
so make sure you stick around, especially if you plan on passing the Gauntlet Mini.
Without further ado, let's get going.
Technical indicators have been used extensively in both the
equity and Forex markets for quite some time and are used
on a daily basis, even right at this very moment.
They focus more on the historical information,
and when used in conjunction with fundamental analysis, can
create a very powerful combo. The additional computing abilities
that have been provided to us as technology has continued
to grow, has continued to give us the potential to gain these
leading-edge opportunities over the market.
So what is an indicator?
Well, a technical indicator is a mathematical approach to
understanding how the price of an asset might move. The inputs
include historical price, volume, or open interest in the case of derivatives.
The indicator is generally plotted over a chart, and the trend
is used by traders to estimate how price could behave in
the future. Most of these indicators can be customized
based on the needs of the trader themselves, which means
if we feel that we want the indicator to respond sooner, we
can usually do this just by adjusting or lowering a setting,
or perhaps changing the setting a tad higher in certain areas.
Now while these indicators are a simple way to identify the trend when used correctly,
most of them need to be tested to assess their capabilities,
so we don't encourage just throwing it on the chart and going
live right away. Definitely recommending using a demo account
before you go live with a new indicator.
One way to check the accuracy of these indicators is
by using back testing, as well as using forward testing with the demo account.
If both results are in agreeance that we have something that
may be in fact profitable,
then we are probably in a good situation to go forward with the go ahead.
In the technical indicator world, there's four main styles
that we can be on the lookout for that most indicators will
fall under one of these four categories. We have the trend indicator.
The trend indicator is going to show whether or not there
is a trend in whatever asset we are currently analyzing. It
helps us understand if a signal that we're attempting to take
is potentially a good choice or a bad choice by letting us
know if it is in agreeance with the current trend, or the
current directional overall bias that a market is exhibiting.
Then we have the momentum indicator.
The momentum indicator is usually going to consist of a more
advanced version of a trend indicator.
The momentum indicator helps quantify the strength of a particular
read. It helps us determine whether an asset is over bought
or over sold. The RSI, commonly known as the Relative Strength
Index, is a good example of a momentum indicator. Another good example would
be the MACD, which is the Moving Average Convergence Divergence.
These are two extremely popular momentum indicators.
While we're on it, the trend indicator example would
be something as simple as a moving average.
A moving average could be, simply put, a trend indicator,
and then when we get more complicated with things like the RSI
and the MACD, we're now working our way into the momentum indicator category.
Then, we have the volume indicators. Volume indicators are
a little bit less common, but the idea here is it's paying
attention to the volume of trades that are taking place in
the market and how frequently a particular asset is being bought or sold.
This is often complemented
well with trend and momentum indicators when used in conjunction.
They help substantiate the results from the other previously
mentioned indicators. A volume oscillator is an example of a volume indicator.
However, it's not a commonly found indicator out there,
so your platform that you're using may not have it.
Finally, we have volatility indicators. Volatility indicators
measure the deviation of price from its historical average.
Higher volatility indicates that price has been fluctuating
quite a lot and can be expected to settle down in the future
potentially. Bollinger Bands are one of the most commonly
used volatility indicators, and Bollinger Bands are relatively
easy to understand as well, so those of you that are looking for a easy start into the
volatility indicator world, I can't recommend Bollinger Bands enough,
and we will take a look at them here in just a moment.
The top three most widely used and popular indicators out
there can be summed up as the moving average, the Relative
Strength Index, and Bollinger Bands like we previously mentioned.
Now, we're going to take a switch on over to the charts to
take a look at what the moving average looks like,
so this is what we'll be talking about in a moment.
Remember, the moving average would be an example of a trend indicator.
The first thing we need to do is add a moving average to
our Finamark platform here, and to do that,
we're just going to go to the top center, give our "show indicators
options" button a click, and we're going to scroll down the
center, and we're going to see simple moving average.
It is also worth noting that there is something called an
exponential moving average.The difference between these two
is, the simple moving average is going to be a static math
problem averaging the period that you have it set to, whereas
the exponential is going to weigh more recent price heavier
than farther away in the past price.
We'll do a simple moving average for now to keep things
simple. We'll give that a click, and now we have a moving average on our charts.
The moving average is going to once again be an average of
whatever period we have it set to, and in this case, the default
setting can be seen if we come over here to our section 1,
and we give this cogwheel here a click, we'll see that the
period setting is 14. What that means is, if we go back to our Moving Average
on the chart, it means that 14 periods,
that means 14 candles are being averaged together in 14 period
sections to create this historical average.
As price rises, we'll see the moving average rise, but when
price is actually above the moving average, the market is
said to be in a bullish trend. When price is below the moving
average, the market is said to be in a bearish trend.
moving averages themselves generally aren't used as a reason
for entry just by itself, but you will see traders use a
series of moving averages and use strategies such as
a moving average cross, which we have discussed in other videos,
so be sure to check them out, but let's go back and see what
our other indicator options are.
We can check off the moving average, and move on to the Relative Strenght Index
Remember, the Relative Strength Index is going to be a
momentum indicator. To add the RSI to our charts,
we need to go to the "show indicators options" button yet again,
but this time, we're going to click "add new section" down here
on the right side because the RSI is not an indicator that by default overlays price.
Once we do that, in the center column, we'll be given even more
options to choose from. Because they're alphabetical order,
we're just going to scroll down and find the R's where we'll
see "Relative Strength Index". Give that a click, and we are now set up with the RSI.
We see that we have this crazy line that's going between a green line
and a red line on the Finamark platform. Your platform,
if you're using a different platform, may look different but
the idea here is that it's going to be ranging between a
reading of 70 and a reading of 30.
The concept is, as we see this line reach or go above the
70 mark on the RSI indicator,
we are said to be in a condition where the market is over bought.
The market being over bought is an indication to us as traders
that we should be on the lookout for an increase
in selling pressure in the future because it isn't something
that the market will most likely be able to sustain, being
in this situation of a very high period of being over bought.
The opposite holds true when we work our way down below
the 30 mark. At or below the 30 mark, the market is said to be over sold.
When we look at the market, as we can see over here on
the left, when we had this period where the market fell quickly,
abruptly, and quite heavily.
We look at the RSI, and the RSI indicates that because we had
such a large fall, the market is being considered by the RSI as over sold.
Well, what happened after that? The market began an accumulation
phase, and then ultimately began working its way upwards.
When the market is over sold, we want to be on the lookout
for buyers to be entering in the market because it's becoming
more appealing if the market is this far down
in theory. Once again, the opposite holds true. If the
market is over bought, we want to be on the lookout for those
sellers coming to the market, potentially getting ready to
push price downward. With the moving average checked off as
well as the Relative Strength Index, that leaves us our third
most popular indicator out there, and this is my favorite
in the bunch that we are currently analyzing, and that is the Bollinger Bands,
so let's go ahead and take a look at this.
Once again, the Bollinger Bands are going to be a volatility
indicator. It is attempting to measure volatility in the market
by paying attention to that historical price data like we talked about.
Adding the Bollinger Band to the chart is quite...
The process of adding the Bollinger Band to the chart is
very similar to adding a moving average because it does overlay
price. After we have our "show indicator options" panel open,
it's at the very top. Bollinger Bands.
We give it a click, we close the indicator options window,
and there we have it. Once again, depending on which platform
you're on or whatever you have your settings set to, your
Bollinger Bands, may be a different color or look different
entirely, but what they are measuring and how they work should
be the same unless you're using some janky software. At that
point, I can't help you.
What we have here is a volatility measurement.
The idea is, we're expecting price to maintain inside the
Bollinger Bands over 90% of the time.
It is said that over 90% of price movements should be
maintained inside of these bands. So what does that mean to us as traders?
Well, that means if price is outside of the Bands, we have an expectation
that at some point in the future, it will be entering those
bands yet again and falling back down into them.
This means that we can use that information to either find reversal scenarios,
if the market is rising too quickly, we can consider the
market to be expanding too fast beyond that average and we
are expecting it to suck back down into the bands, or we can
use the expectation of needing that strong bullish pressure in order to create that
outward push, and we can ride that momentum as well.
There's two very opposing ways to use Bollinger Bands,
which makes them very versatile and a lot of fun, in my opinion.
If we find something like we have over here, where we have a pin bar.
We have this little candle right here that is pin barring
just on top of, after just barely breaching the bottom Bollinger
Band, then we see a very strong bullish rally pushing the
market upwards from this point. If we see something like this,
this by price action standards is already a logical situation
to look for a buy in the market.
When we couple that with the fact that it was already
extending outside the Bollinger Bands, this can give us an
extra layer of confirmation, and we can use this as that reversal
scenario. Now, on the opposite side of the coin, when we look
over here, when we have Bollinger Bands where they are,
the price is kind of exceeding the Bollinger Bands and we are pushing above
or below the Band, and this case we pushed above the Bollinger
Band, and we had a lot of strong price action here.
There was no pin bar, there was no Harami, there was no type of
reversal price action being displayed, and as such, we have
a indication of strong bullish pressure going on here with
the same concept being applied, just a very different expectation.
Because we have this strong bullish pressure pushing us outside
of the Band and we have no indication that we're looking
to fall back below, we can use this as a justification to
buy, and when this happens, a very good thing to do in my opinion
is to take a look to the left and make sure that there is
something in conjunction to what we're wanting to do supporting our theory.
That means, if we're breaking through an area or a range, at
the same time that we are now riding outside the top of the Bollinger Band,
this can be a very logical situation to look into buying because
at this moment, this is a very strong bullish read.
The thing to remember here is, Bollinger Bands are a measure
of volatility, and the majority of the time, we are going to
be contained inside of them, which means if we are looking
to ride some of the momentum on the outside of the band, we
shouldn't be looking to hold our position for an indefinite
amount of time, but instead, I prefer to use it more as a scalping
opportunity for some type of an intraday trade.
However, if you scale the charts out, obviously this
theory could be applied to higher time frames as well,
and you could see each of these candles representing, say
a week period of time individually, if that's what you have
yourself set to. The idea is, get comfortable with the
Bollinger Bands. Make sure you practice both back testing
and forward testing on a demo account before we end up going
live, and that is the same concept to be applied to everything.
To sum up our discussion today, technical indicators can
provide an amazing amount of value to a trader, but it is
up to the trader using it to determine exactly how much value
they are providing. If you understand the indicator and you
mesh well with the reads that it's giving you, as well as
turning that information into an appliable entry or exit
from the market, or just an appliable read in general, then
technical indicators are going to be for you.
When we apply technical indicators and technical analysis
in conjunction with fundamental analysis, we're really completing
a complete picture. Fundamental analysis is going to be
a discussion for another day,
but as far as the indicators go, all of the indicators that
we discussed and showed on screen today,
we have individual videos that are more in-depth on each
one, so make sure you check it out, especially if you are
going to be working your way into the Gauntlet Mini.
Until next time folks, thank you for joining me as always.
It's always a pleasure. Please do me a favor and click
the like and subscribe button down below, and I will see you
guys in the next one. Have a good rest of your trading day everybody.
Cheers!