best trading indicators

14 Best Trading Indicators: The Definitive Guide

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Traders new to forex trading are often intimidated by technical analysis. Especially when they first learn about it. People can use different indicators on charts while trading in the financial markets. And choosing the right indicators to suit your trading style and strategy is crucial. 

Trading indicators are part of the tools a trader needs. They provide quantitative information that can help investors in their technical analysis. Some traders even rely on trend indicators to conduct their analysis. As a trader, you can use these tools for your strategy:

  • forex trading;
  • stocks;
  • index trading;
  • cryptocurrencies, etc. 

A good trader knows that profitable trading requires:

  • a clear algorithm of actions;
  • a certain system of rules with a set of specific tools. 

They help conduct a detailed market analysis and make an accurate forecast.

Indicators help you to be “at the right time in the right place.” They can help most accurately determine the best moment to enter the market, both for:

  • long-term trading;
  • strategies designed for quick profits. 

They also help establish an accurate forex exchange rate forecast. As it is the most important step for profitable trading.

Follow us in this guide to discover the best types of indicators in trading. So you can integrate it into your trading strategy.

trend following indicators

Trend indicators help to:

  • determine the trend’s direction;
  • measure the trend’s strength by comparing prices to a set baseline.

Also, these indicators are quite reliable, and most traders use them. The most popular are:

  • Moving averages;
  • Parabolic Stop and Reverse (Parabolic SAR);
  • Average Directional Index (ADX).

Any beginner is strongly advised to open only those positions. They coincide with the direction of the trend. This is why these trend-detecting trading indicators are essential tools for beginners. Read further to know more details about trend indicators.

Moving Averages (MA)

It measures the average price within the range of price bars specified in the settings. Closing prices are usually used in the calculations. But they can instead be the opening price, maximum, minimum, or median price. An indicator is a highly effective technical tool used to:

  • assess the current trend’s strength;
  • determine whether the established trend will continue or reverse.

The SMA is less effective for forecasting in sideways and range-bound markets.

Average Directional Index (ADX)

The Average Directional Index measures the strength or weakness of an active trend. The quality of trend strength should correlate strongly with:

  • the stability of the trend;
  • the ability to generate profits for the trader or investor who follows the trend. 

This trend indicator uses moving averages over multiple timeframes. It creates three lines that cross above or below a bar with values from 0 to 100.

Parabolic SAR

Technical specialists use the technical indicator Parabolic SAR to:

  • confirm the trend direction;
  • generate reversal signals. 

But the signals only apply within the time settings applied in the indicator. The indicator’s data points generate points above or below the price on the main chart panel. Traders apply a trailing stop in the calculations. It can force the indicator to change direction when it touches the price. So it makes a potential trend reversal.

Volume Indicators

volume indicators

These are indicators whose calculations take volumes into account. One of the main indicators in market transactions is the Volume of transactions. The volume of concluded deals characterizes:

  • the activity of involved market participants;
  • strength;
  • intensity. 

In a market with a stable upward trend, the volume increases during periods of quote growth. And it decreases when the price falls. The same happens in a downtrend. The volume increases when the price falls and decreases when the price rises. One of the main features of the volume is that it is always slightly ahead of the price. In the Forex market, as a rule, there is no possibility of showing the direct volume of transactions. That is why traders use the “Volume” indicator. It reflects the number of price changes (ticks) during one bar. The volume indicator shows the activity of price changes. It is usually considered to correlate well with the real volume of transactions. You can read more about them below. 

On-Balance Volume (OBV)

This is a cumulative indicator based on the trading volume indicators. It reflects the relationship between:

  • the volume of transactions;
  • the asset price movement. 

The balance volume confirms the trend and searches for possible price reversal points.

Volume Weighted Average Price (VWAP)

It shows the average volume-weighted price over a certain period. Large institutional investors and HFT algorithms pay attention to this level. Besides, proprietary trading companies using this indicator. They need it to assess the strength or weakness of a particular instrument.

Accumulation/Distribution (A/D) Line

It is an assistant-based trading volume indicator. People designed it to reflect cumulative cash inflows and outflows. It can be possible by comparing closing prices to their respective highs and lows.

Chaikin Money Flow (CMF)

This volume indicator reflects the buying and selling pressure change based on volume and price changes. If it is rising, it means that money is being invested in the asset. If it is falling, then the money is going out.

Volatility Indicators

volatility indicators

These technical indicators measure price volatility. It is the speed of price movement, regardless of its direction. They are mainly used to predict large potential movements to take advantage of them.

When the price of a financial instrument is in a range, these trading indicators detect it. Thus, its user can conclude that there will be few trading opportunities. These volatility indicators include:

  • Bollinger Bands. It measures the “high” or “low” of the price in relation to previous transactions.
  • ATR (Average True Range). It displays the degree of price volatility.

Also, there are Donchian Channel and Keltner Channel. Below we have added more information about volatility Indicators for you to read.

Bollinger Bands

The program calculates them relative to the price of the trading instrument. A 20-day simple moving average (SMA) usually expresses the middle line. The trader can change the type and period of the line. But the given values are the most popular). The SMA serves as the baseline for the upper and lower bands. Traders use them to measure volatility by considering the relationship between:

  • the bands;
  • the price. 

The upper and lower bands are calculated as two standard deviations on the midline value. The trader can also change this value.

Average True Range (ATR)

It is a technical analysis tool. It consists of bands like Bollinger Bands and Moving Average Envelopes. These volatility Indicators consist of an Upper Envelope above the middle line and an Envelope below that. A simple moving average or exponential moving average is used.

Donchian Channels

They are useful for evaluating market volatility. It is a banded indicator. Besides measuring market volatility, Donchian Channels are mainly used to detect possible breakouts or overbought/oversold market conditions when the price reaches the lower or upper bands. This helps to identify possible trading signals.

Keltner Channels

It is a technical analysis tool. It consists of bands like Bollinger Bands and Moving Average Envelopes. These volatility Indicators consist of an Upper Envelope above the middle line, and an Envelope below that. A simple moving average or exponential moving average is used.

Impulse Indicators

Impulse indicators are one of the main tools in trading. This is because they can determine the speed of price movement. They do it by comparing the current closing price with previous closes. An ideal tool for intraday trading, they are usually used by short-term traders.

Among these Momentum indicators, here are the three most commonly used at the moment:

  • Stochastic Oscillator
  • RSI
  • CCI 

These types of indicators in trading are among the most reliable, but you should not rely on them alone. Indeed, they can give frequent false signals. Thus, we recommend combining them with:

  • different types of harmonic patterns;
  • order stacks;
  • other indicators.

You can read more about them below.

Stochastic Oscillator

It helps to identify overbought and oversold signals. It happens by measuring momentum by comparing:

  • a specific closing price;
  • to a range of prices over some time.

RSI (Relative Strength Index)

RSI compares the closing prices of the current and previous candle for:

  • uptrends;
  • downtrends. 

Then it represents the result as an EMA. And then, it calculates the ratio of the uptrend EMA to the downtrend EMA on a scale of 1 to 100. The greater the difference between today and yesterday – the stronger the momentum.

CCI (Commodity Channel Index)

Some traders consider them to be the best trading indicators. They allow you to predict the fluctuations of quotes within a certain price range. The most effective use of this algorithm is in periods of market flatness. It can also be called sideways movement.

Choosing the Right Indicators

Every indicator has its own intended purpose and application. Knowing what each of them does, you can effectively use their combinations. It is useful to build your trading systems and/or solve specific tasks. There are people who still believe that there is some magic. They think that a secret indicator that gives 100% accuracy of signals exists. But we have to disappoint. Alas, there is no such indicator. We do not recommend you endlessly search for their settings. As they are not guaranteed to make you incredibly rich quickly. Thus, read on to build your approach to the use of the best trading indicators.

Understand Your Trading Style and Goals

Your experience and desires determine which set of indicators is the best. Circumstances and abilities also can regulate their usage in your situation.

We believe three factors influence the choice of trading style:

  • Time. How much time are you willing to devote to trading in real life? You probably want trading to become your profession and your main source of income. So you must devote years or even your whole life to it.
  • Experience. Your experience directly affects the types of indicators in trading you choose. The smaller the timeframe, the more complex it is. For example, scalping is a task for an experienced trader. Because the situation can change rapidly. And you need real experience to make decisions quickly and often.
  • Skills. Objectively assess your physical and psychological data. Making many trades daily puts pressure on the body and emotions.

Consider Market Conditions

When choosing the right indicators for trading, consider the current market conditions. Different indicators perform better under specific market environments:

  • trending;
  • ranging;
  • volatile;
  • choppy.

So understanding the prevailing market context will help traders select indicators. They align with the market’s behavior and improve the effectiveness of trading strategies.

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Trading indicators can offer valuable insights, but their accuracy varies. They are not infallible and should be used with other analyses and risk management.

There’s no single most profitable indicator, as success depends on the trading strategy and market conditions. Different indicators suit different traders.

Simple indicators like Moving Averages or RSI (Relative Strength Index) are often recommended for beginners due to their ease of understanding and implementation.

Using too many indicators can lead to confusion. Focus on a few complementary indicators that align with your strategy, typically 2-3 at most. Quality over quantity is essential.

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