Technical indicators can help you make more informed trading decisions. The four popular indicators discussed in this video are:
Simple Moving Average (SMA)
MACD (Moving Average Convergence Divergence)
RSI (Relative Strength Index)
Slow Stochastic
Simple Moving Average (SMA)
The SMA is one of the most basic but important technical indicators. It represents an average of the last "X" closing prices, giving insight into the price trend, and indicating bullish or bearish trends.
To set it up SMA, go to the Overlays and select Simple SMA. Adjust the period if necessary (default is 5; typically, a 21-period or 55-period moving average is preferred).
There are a few ways to use SMA for trading:
Support & Resistance: the SMA often acts as a dynamic support or resistance level.
Support: when the price falls to the moving average, buyers often step in, pushing the price higher.
Resistance: when the price rises to the moving average, it may act as a ceiling, and sellers may enter.
Two essential trading signals to check are:
Buy Signal: when the short-term moving average crosses above the long-term moving average.
Sell Signal: when the short-term moving average crosses below the long-term moving average.
A common strategy for dual SMA crossovers is using two moving averages (e.g., 21-period and 55-period) for buy and sell signals.
MACD (Moving Average Convergence Divergence)
The MACD is another important indicator that uses two moving averages and their convergence/divergence to generate buy and sell signals:
Buy Signal: when the MACD line crosses above the signal line (from red to white).
Sell Signal: when the MACD line crosses below the signal line (from white to red).
The MACD consists of a blue line (fast moving average), an orange line (slow moving average), and red/white histograms that show momentum. The blue histogram indicates an uptrend; an orange histogram indicates a downtrend; a zero line: when the MACD crosses the zero line, it signals a potential trend reversal.
RSI (Relative Strength Index)
The RSI is an oscillator that measures the speed and change of price movements, showing whether a product is overbought or oversold. The two key levels on RSI are: 70% level (overbought): when the RSI is above 70%, the product is considered overbought and 30% level (oversold): when the RSI is below 30%, the product is considered oversold.
Two essential trading signals to check are:
Sell Signal: when the RSI crosses back below 70% from overbought territory.
Buy Signal: when the RSI crosses back above 30% from oversold territory.
Slow stochastic
The slow stochastic is similar to the MACD and RSI, combining the features of both to identify overbought and oversold conditions. The two key levels are: 80% level (overbought): when the stochastic is above 80%, it signals an overbought condition and 20% level (oversold): when the stochastic is below 20%, it signals an oversold condition.
Two essential trading signals to check are:
Sell Signal: when the stochastic moves from above 80% to below, indicating overbought conditions.
Buy Signal: when the stochastic moves from below 20% to above, indicating oversold conditions.
Combining indicators
Many traders combine multiple indicators to increase confidence in their trades. For example:
Using MACD and RSI together.
Using RSI and Slow Stochastic together.
Combining Moving Averages with price action.
Conclusion
Technical indicators are powerful tools to help improve trading decisions, but they should not be relied upon exclusively. Always combine them with fundamental analysis and the principles of support and resistance.
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