Technical indicator

1. Moving average

The first tool in this group is the moving averages, more specifically, the moving averages with relatively long periods.

Moving Average is a very intuitive and effective price directional tool, you can use different cycles to track different trend levels. However, sticking too many moving averages on your chart can be counterproductive.

Remember, when a trend is getting stronger, MAs with different periods tend to stretch. When a trend becomes weaker and shows signs of reversal, MAs tend to be attracted to each other.

If you are just starting out then the 50 cycles moving average is a good choice, if you want to follow the short trend, you can use the 20 cycles.


[Illustration of moving average to detect price reversal]

Moving average is a popular tool but to use it effectively is not easy, the signals we receive often have a quite large delay, so if you do not have much experience, you should combine them with other tools (price action, resistance-support ...) to increase efficiency when used.

2. Donchian channel

Turtles traders will probably be familiar with this indicator. Donchian channel lines are drawn based on price action, not elusive complex formulas.

Like the Bollinger line, the Donchian consists of a centerline and two-channel lines, which define the highs and lows of a price range.


[Illustration of using the Donchian channel line to determine the price reversal zone]

When the price from the lower channel breaks the centerline approach the upper channel line shows a bullish reversal signal, and vice versa showing a sign of a bearish reversal.

3. Moving Average Convergence Divergence - MACD

The last tool in the group of technical indicators is MACD, and the signal of a potential reversal that MACD shows is nothing but divergence. Of course, we will see a lot of false signals, but if you use the MACD divergence well, the Trader will have a huge advantage.

Usually, we need 2 highs/lows on the price window corresponding to 2 peaks/troughs of the MACD to determine a divergence zone. However, if possible use 3 tops/bottoms to increase the accuracy of your setup.


[Illustration of using MACD to determine price reversal zone]

Conclude:

Using a group of technical indicators in determining the price reversal zone helps traders not have to spend time drawing horizontal/vertical/oblique lines quite relatively like price action group, besides the visualization. that these indicators provide. However, because there are quite a lot of interference and latency signals, it is necessary to have experience in order to use them effectively. Combining these signals with the price action group signals in Part 1 to increase the accuracy of the setups is a good choice to try.