Technical analysis is the process of analyzing charts and patterns to predict how they will change.

Technical trading has been around for a long time and it is based on the idea that history (or in our case, the market) tends to repeat itself.

Hence, when certain patterns and indicators become clear, the price will most likely move in a particular direction.

The reason Technical Analysis studies past price movements, so it becomes a more challenging "art" than a science. When we try to predict future price movements using Technical Analysis, there may be small differences, sometimes leading to different conclusions.

To help you decide when to open or close an order, Technical Analysis is based on mathematical and statistical indicators. If you are a technical trader, you can use chart patterns (bars and line charts), indicators and oscillators, derived from moving averages and trading volume. The most popular chart for Technical Analysis is the candlestick chart.

The main tool for Technical Analysis and it's important to consider is price data, regardless of the time frame chosen.

Speaking of timeframes, technical indicators can be analyzed on timeframes ranging from M1 to 1 year.

Technical analysis can be applied in many different markets, including futures
(futures), stocks, commodities, ... If the market has good liquidity and is not susceptible to external influences, then the Technical Analysis can be applied and fruit.

What are the benefits of using Technical Analysis?

Technical analysis is not any kind of "magic", but it has some of the following practical advantages:
  • Technical analysis can be done quite quickly, just by assessing the direction and strength of a trend;
  • Technical analysis can be applied to any trading instrument and in any desired timeframe (long, medium, short);
  • It is not only used as a standalone method for market analysis or it can also be combined with Fundamental Analysis or any other market timing technique;
  • Using popular indicators (and chart patterns), traders can apply existing tools and find potential trading opportunities;
  • Technical analysis allows us to see a large amount of structured information fed into our screens, giving the trader a sense of control.
Fundamental analysis vs. Technical analysis


While Technical Analysis forecasts price movements using chart models, Fundamental Analysis considers various economic data, such as GDP, interest rates, inflation, and rate. unemployment,...

Technical traders consider price action, in short, medium, and long term timeframes, while fundamental traders consider economic factors, news, and events occurring in the medium or short term.

The skills required for the two types of analysis also differ slightly:
  • If you are a fundamental trader, you must have the skills to read and understand economics as well as statistical analysis.
  • If you are a technical trader, you must be able to work with different charts and indicators.
Now let's go to the main part!

Top 20 most used technical indicators

1. Stochastic indicator

Stochastic indicator developed by George Lane.

This is a very useful technical indicator that basically helps traders determine where the trend ends.

It uses a scale to measure the degree of change in the price of a close to predict how long the current direction of the trend will continue.

The Stochastic indicator follows the theory that:
  1. In an uptrend, the price will remain equal to or above the closing price of the previous period;
  2. In a downtrend, the price will remain equal to or lower than the previous closing price.
It should also be noted that the Stochastic is a momentum oscillation. It consists of 2 lines -% K - fast current and% D - slow current. It works on a scale of 1 to 100.

2. Bollinger Bands indicator


Bollinger Bands were invented by financial analyst John Bollinger and are one of the most useful indicators to use on your chart.

The Bollinger Bands measure volatility as a method of determining trends.

The basic idea of ​​Bollinger Bands is that the price will bounce back, like an elastic band. It uses 2 parameters:
  1. The number of periods on the moving average;
  2. How many deviations do you want the range to be set away from the MA?
Bollinger Bands displays the highest and lowest points reached by an instrument's price. If the bands are far from the current price, it shows that the market is very volatile and the opposite is implied if they are close to the current price.

You should use the BB in up, down, and sideways markets. If you are a beginner, you should gain some solid experience before using them.

3. Ichimoku Cloud indicator


The Ichimoku cloud indicator, also known as the Ichimoku Kinko Hyo or the Kumo cloud, will isolate high probability transactions in the market.

The indicator is relatively new to traders, however, its popularity has increased over the past few years, especially among novice traders.

Ichimoku clouds show more data points and, therefore, provide a more predictable analysis of price action.

Ichimoku Kinko Hyo will incorporate the lines plotted on the chart to measure future price momentum. It will also identify areas of future support and resistance. To many, it might seem like a complicated indicator (perhaps due to their different paths and their special meanings):
  • Kijun Sen (green line): This is the baseline. It is the average of the highest highs and highest lows for the last 26 periods.
  • Tenkan Sen (red line): This is a turning line. It is the average of the highest highs and highest lows for the last 9 periods.
  • Chikou Span (green line): It is also known as the lagging line. It shows today's closing price, calculated from the next 26 periods.
  • Senkou Span (red/green band): The first Senkou line calculates the average of the Tenkan Sen and Kijun Sen lines, drawing 26 periods ahead. while the second Senkou averages the highest bottom and highest high for the last 52 periods, drawing 26 periods ahead.
4. Moving Average Convergence (MACD) indicator


This technical indicator was created by Gerald Appel in the late 1970s. It is used to identify moving averages that point to a new trend, regardless of whether it is an uptrend or a downtrend. The top priority of the traders is to determine the trend because that is how they can make money from the market.

Essentially, the MACD shows the relationship between the 2 MAs of an asset's price.
  1. With the MACD chart, traders can see 3 different numbers that are used to set the instrument:
  2. Periods are used to calculate moving averages faster;
  3. Periods are used to calculate slower moving averages;
  4. The number of bars used to calculate the MA of the difference between the slower and faster moving averages.
MACD is definitely a flexible tool for traders.

5. CCI (Commodity Channel Index) indicator


The CCI indicator measures the difference between an asset's current price and its historical average price.

If the CCI is above 0, this means the price is higher than the historical average; CCI below zero means the price is lower than the historical average.

Assuming the CCI is at 100 or higher, then the trend is holding strong positions and increasing. On the contrary, the CCI is -100, which means the trend is strong and decreasing.

Such information about the direction and strength of a price trend will help traders decide if they want to enter or exit a trade, avoiding the unfortunate trades.

In a way, this indicator can act as a provider of trading signals.

6. Relative Strength Index (RSI)


The Relative Strength Index (RSI) is a momentum indicator, consisting of a single line scaled from 0 to 100 that identifies overbought and oversold conditions in markets.

If it ranks above 70, it shows that the market is overbought, while below 30 indicates that the market is oversold.

Basically, the idea of RSI is to identify highs and lows to enter the market when the trend is reversing. This will give you advantages in both one move.

When the price of a given instrument reaches an overbought level (above 70), a trend is likely to reverse and the price will begin to decline. When the price reaches the oversold level (below 30), the price will begin to increase.

The RSI also indicates when the trend is about to end.

7. Fibonacci Retracement indicator


The Fibonacci Retracement is a predictive technical indicator based on key numbers, identified by Leonardo Fibonacci in the 13th century. Fibonacci retracement levels try to determine where an asset's price may go in the future. hybrid.

The idea is that, once there are signs of a move to a new trend, the Fibo retracement uses horizontal lines to show support/resistance areas at key Fibo levels before the price resumes its old direction.

By drawing a trend line between 2 extreme points and then dividing the distance vertically by the key Fibonacci ratios (which are 23.6%; 38.2%; 50%; 61.8% and 100%) you will create these thresholds.

Many Forex traders pay close attention to these levels and place buy/sell orders to take profits. To apply Fibo levels to a chart, you must first identify swing high and swing low points.

Fibonacci retracement lines have proven to be helpful in creating an effective trading strategy. You can find out here.

8. ATR (Average True Range) indicator


Essentially, an ATR is a volatility indicator that shows the average range over which the price moves over a given period.

It was originally developed for commodity markets by J. Welles Wilder to measure volatility in price changes, however, it is now widely used by Forex traders because of volatility. very popular in the market.

The ATR moves up / down as the price movement in an asset becomes larger or smaller. The ATR is typically derived from the MA 14 of a series of true range indicators.

This indicator has many uses for day traders and can be used as a trailing stop loss.

It is important to remember that the ATR indicator will NOT tell you the direction of the trend. However, it can assist you in your trading strategy by following the rule "high volatility usually follows low volatility and vice versa".

You can use this knowledge to explore breakout trading before they happen. For example, when a market instrument reaches a low level of volatility, it means that if a trend breaks, a major breakout can take place soon after.

If this happens, it is a good sign for Bull traders as the price will most likely go up.

9. MFI (Money Flow Index) indicator


Essentially, an MFI is a technical oscillator that uses price and volume to identify overbought and oversold conditions of an asset.

Traders use it to detect a divergence, which will warn them of a trend change in price.

The MFI moves from 0 to 100.

Compared to other oscillators, such as the RSI (Relative Strength Index - covered in Part 1). The MFI combines both price and volume data, rather than just taking price data. That is why many technical analysts call the MFI "RSI by volume".

This indicator is usually calculated using 14-period data. An MFI above 80 is overbought and below 20 is oversold.

10. Average Directional Index (ADX)


The ADX indicator is another example of a technical oscillator.

ADX is often used to determine if a market is moving sideways or starting a new trend.

What it does best is to help traders decide whether to jump into an ongoing trend.

The ADX ranges from 0 to 100. An indicator below 20 indicates a weak trend and above 50 indicate a strong trend.

Compared to the Stochastic oscillator (explained in Part 1), the ADX cannot determine whether a trend is bullish or bearish. It only measures the strength of the current trend.

Traders use ADX to confirm whether the pair can continue its current trend. Many traders often combine ADX with another indicator - one that can identify a downtrend or an uptrend.

11. SAR (Parabolic Stop and Reverse) indicator


Parabolic Stop and Reverse (SAR) is probably one of the simplest and best technical indicators to use in market.

Parabolic SAR is a trend indicator, developed by J. Wells Wilder and it is used to identify trends as well as price reversals.

It's quite basic and simple to understand. The Parabolic SAR indicator appears as a series of dots, displayed below / above the price, indicating which (potential) direction the price will move.

If the dots are above the price, it means the market is in a downtrend. This indicates to traders that you should be short. On the other hand, if the dots are below the price, then the market is in an uptrend, which means you should buy.

Traders are advised not to use Parabolic SAR in a sideways market as there will be a lot of noise, preventing clear signals from the dots.

12. SMA indicator (simple moving average)


When it comes to the core indicators of technical analysis, the moving averages are likely to top. There are many different versions, but the simple moving average (SMA) is probably the easiest and easiest to understand and build MA.

The SMA is the average price of an asset (such as currency pairs) over a specific period of time. The longer the period of the SMA, the smoother and better the results will be. Basically, the SMA is often used to polish price data and other technical indicators.

It is called the "moving average" because it forms a line that moves along the chart when the average changes.

SMA is often used by traders to identify trends. If the SMA is going up, the trend is also up; however, if the SMA slopes down, the trend is also going down.

13. EMA indicator (exponential moving average)


The exponential moving average (EMA) differs from the Simple Moving Average (SMA) mentioned above in two ways:
  1. The EMA has more weight and significance for the most recent data points;
  2. The EMA responds more quickly to recent price changes than the SMA.
EMA is one of the most popular Forex technical indicators and it is often chosen by traders as the basis of their trading strategy. This technical indicator is used to generate buy/sell signals, based on the position of the short-term EMA relative to the long-term EMA.

A trader typically enters buy orders if the short-term EMA crosses above the long-term EMA.

Traders usually use the 5, 10, 12, 20, 26, 50, 100, and 200 EMAs. For active traders with charts on shorter timeframes (such as 5-15 minute charts). , EMA 5 and 10 are commonly used. Traders looking at higher timeframes will usually choose higher EMAs, such as the 20 and 50 EMA.

After all, the EMA will work best if a strong current trend emerges over a long period of time.

14. OBV (On-balance Volume) indicator


On-balance Volume was launched by Joe Granville in 1963.

Essentially, an OBV is a technical indicator that measures positive/negative volume flow and how volume is connected to the change in price.

The OBV indicator follows the idea that volume will go ahead of price. According to this concept, as the price rises, it absorbs more volume. The volume will also decrease as prices go down.

This indicator helps traders find out whether a particular currency is accrued by buyers or sold by sellers. Not only does it tell us the flow of money, but it also predicts future trends.

The OBV should be used in combination with other indicators, not alone.

More information on the OBV indicator can be found here.

15. Pivot Points indicator


Pivot Points are another technical analysis indicator used to determine price movements (the general trend of the market) over different time periods. Pivot points are also one of the most widely used indicators in day trading.

To put it simply, basically, a pivot point is the average value of the high, low, and closing prices of the previous trading day or trading session.

A pivot point is a price, used by professional traders to determine whether a price is going up or down. Trading above the pivot point will indicate bullish sentiment (bullish); on the contrary, trading below the pivot point will show negative sentiment (bearish).

The basis for this indicator is the pivot point, however, it can also include other support/resistance levels, which are estimated based on the pivot point calculation. These thresholds will help traders know the trend of the price.

16. DMI (Dynamic Momentum Index) indicator


The next technical indicator is called the momentum indicator and it was developed by Tushar Chande and Stanley Kroll.

The DMI is quite similar to the RSI (relative strength index) explained in Part 1 - determining whether an asset is overbought or oversold. The main difference is that the RSI uses a specific number of periods in its calculation, while the DMI uses different periods, taking into account changes in volatility.

The fixed number of periods is usually 5 to 30. When volatility is high, the DMI uses fewer periods; when the volatility is low, it will use more periods to calculate.

Furthermore, this indicator is also used by traders to generate trading signals in the direction of the trend (when the market is trending) and also to provide buy/sell signals (when it is a trending market). the market is sideways).

If the indicator shows below 30, it means the asset is being oversold. If it is over 70 then it means the property is being overbought.

Additionally, DMI is used to interpret buy/sell signals. If the price moves out of the oversold zone, it is a buy signal; If the price moves out of the overbought zone, it can be seen as a signal of short selling.

17. Directional Movement Index (DMI)


The Directional Movement Index (DMI) is an indicator developed by J. Welles Wilder in the late '70s. It helps traders determine which direction an asset's price is moving in.

The indicator can do this by comparing previous highs and lows and drawing 2 different lines:
  • The line moves in a positive direction (+ DI).
  • The line moves in the negative direction (-DI).
If the + DI line is above the -DI, it means that the up move is stronger than the down move.

If the -DI is above the + DI line, the downside movement is stronger than the up move.

These lines can also signal new trends to develop. For example: If the + DI line crosses above -DI, it can be interpreted as the beginning of an uptrend.

Some traders will add the Average Directional Movement Index (ADX) to use it with the DMI indicator.

18. Aroon indicator


The Aroon indicator is a technical indicator that helps traders know when the market is in an up or down trend, or when it is going sideways.

This indicator was designed by Tushar Chande and it assists traders around the world to identify trends that are about to form before they form.

Using two components ("Aroon up" and "Aroon down"), the indicator is designed to show traders when a new trend begins, its magnitude, and changes from behavior. range-bound prices and trend patterns.
"Aroon up" calculates how long it takes for the price to reach its nearest high.
"Aroon down", on the other hand, calculates how long it will take until the price reaches the nearest low.
The Aroon indicator is used by many traders as part of their trend-following trading strategies.

19. Klinger Oscillator indicator


Klinger volume oscillator was developed by Stephen Klinger and it is used to predict market price reversal, by comparing volume to price. (A volume that measures the number of securities units or certain indices traded per unit of time.)

To put it simply, according to this indicator, trend and volume are the main influencing factors in trading.

For many traders, the discrepancy between volume and price may hint at the next story.

For example, if an asset has a large volume and the price tends to go sideways (or go down), then this means any ongoing trend is reversed soon. If the price increases and the volume decreases, this can indicate weak buying power.

The Klinger Oscillator is also considered to be one of the more complex oscillators because it uses the formula for averaging on shorter and longer EMAs.

20. Percentage Price Oscillator (PPO)


The Percent Price Oscillator (PPO) is a technical momentum indicator that basically shows the relationship between two moving averages as a percentage. The moving averages are usually the 20 EMA or the 12 EMA.

Traders use PPOs to compare volatility and asset performance as well as capture divergences, all of which can help determine trend direction, generate trading signals, and lead to price reversals. .

The PPO is a bit similar to the MACD (moving average convergence divergence) indicator, however, the PPO measures the percentage difference between the EMAs. Meanwhile, the MACD measures the difference in absolute value.

Most traders prefer PPO because its findings can compare assets (such as currency pairs) with different price points.

Epilogue

In this 3-part series, we discussed the many types of market trading indicators widely used by professionals.

By using indicators, traders are easily informed when conditions are favorable and, therefore, can make better, more rational, and carefully calculated trading decisions.

After all, the markets aren't entirely random. Many traders and traders use indicators of technical analysis to help them identify patterns and achieve good results.

Indicators also assist traders in assessing the direction and strength of a trend.

Traders do not have to rely solely on one indicator. Most of the time, they combine some key indicators with two or more sub-indicators to get better confirmation to bring about the final victory.