For those who are interested in trading gold, cryptocurrencies, or anything else on a frequent basis, it is crucial to explore the different market indicators. There will always be indicators better suited to one’s style compared to others. Knowing the basic ones is mandatory for everyone.
Relative Strength Index (RSI)
One of the most common trading chart indicators is the RSI. It is often enabled by default on trading charting platforms, simply because it offers a lot of information. This indicator is primarily used to determine if an asset is close to its “true” value. Especially during market corrections or bull runs, the RSI can offer insight as to how long this momentum may last.
Traders looking to enter a new market or position will often look at the RSI first. If the asset they are looking at is already overbought on the RSI, it is not a good time to buy. If it is oversold, the potential for profit increases. Any asset remaining in between these two ranges can be of great interest, albeit it is best to look at recent historical performance first.
Bollinger Bands (BB)
No financial chart should ever be explored without an overview of the Bollinger Bands. It is a tool to indicate the current volatility of a particular asset. In conjunction with the RSI, it can indicate how badly an asset is overbought or oversold, and whether the market is preparing for a potential trend reversal.
Bollinger Bands have three main parts: the upper band, the bottom band, and a moving average line. The outer bands respond to market volatility and accumulation. Assets surpassing the upper band are often overbought, whereas those crossing the lower band are oversold significantly. A good tool for short-term trading, but one best used with paper trading first and foremost.
If one can only use three indicators on a trading chart, the first two should be joined by a Moving Average. It is a great way to smooth out the overall price action of an asset over a period of time, A simple moving average works differently from an exponential moving average.
This is another good indicator to gauge the longevity of current market trends. An MA sloping upward means the uptrend is still in place. An asset sloping downward is getting hammered by bearish traders. For an indicator based on historic trading behavior, it offers tremendous value.
That said, it will not suffice to use one moving average. Two or even three – all of which have different time frames – will help paint a more complete picture. Crossovers are crucial in this regard. If a shorter MA crosses a longer MA in a bullish manner, it is an asset worth buying. A bearish cross means it is time to sell or to avoid trading, for now.
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