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Trading cryptocurrencies, currencies, Forex or CFDs is an art. Although it can be easy to make money, there are many ways to lose money almost automatically. For that reason, the study, preparation and mastery of trading indicators is essential if you want to start your career in this world.
In order to help you in this process, we want to show you the 10 best trading indicators that you can learn to use right now. Of course, we have to mention that despite these signals success is not one hundred percent certain, but they will give you a better chance of success.
We're going to give you a little spoiler: there is no one trading indicator better than another. Simply each one serves for various reasons or for different predictions, plus they are used for various strategies, so professionals combine one or several for the same transaction.
Also, this top works for those who want to trade crypto, forex, currencies, forex, etc.
A moving average is a continuously calculated value of the arithmetic mean of the price of an asset over a specified period of time. In trading, a moving average is used as a technical indicator to analyze the price behavior of a financial asset.
Its main purpose is to provide a clearer view of the overall price trend, eliminating day-to-day fluctuations and highlighting the predominant direction of the market. In the markets, asset values can experience sharp and volatile movements, especially in the digital market.
The moving average helps smooth out these fluctuations, allowing traders to identify more solid and lasting trends. This indicator is especially useful in cryptocurrency trading due to the high volatility rates that characterize these markets, as well as with emerging currencies.
Exemplification of the moving average in Ethereum trading. Credit: Investopedia
The exponential moving average (EMA) is a more sensitive (and for some more accurate) version of the MA, as it places more importance on recent price changes. It is also known as the exponentially weighted moving average.
Unlike the Simple Moving Average (SMA), which assigns equal weight to all data points within the period, the EMA is more responsive to recent price changes, making it more sensitive to market fluctuations and more useful for identifying short-term price trends and reversals.
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Exemplification of EMA in Ethereum trading. Courtesy Investopedia
The stochastic indicator is a type of oscillator used in technical analysis to evaluate the momentum of an asset's price over a given period, usually between 0 and 100.
Values above 80 indicate an overbought market, while values below 20 suggest an oversold market. The main characteristic of the stochastic indicator is that, in an uptrend, prices tend to close near the highest price of the day, and in a downtrend, they close near the lowest price. This comparison helps traders assess the strength or weakness of a market trend and identify possible turning points.
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Exemplification of the Stochastic indicator in trading. Courtesy Investopedia
The Moving Average Convergence Difference (MACD) is an indicator used in the stock market that helps identify changes in the momentum of an asset's price. This indicator is an important tool for traders to detect investment opportunities based on the strength and direction of the price trend.
To calculate the MACD, two exponentialmoving averages are used: a short-term moving average (usually 12 periods) and a medium-term moving average (26 periods).
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Exemplification of the MACD indicator in trading. Courtesy Investopedia
Bollinger bands are a technical analysis tool widely used to measure market volatility and identify possible overbought or oversold situations. Developed by John Bollinger, these bands consist of three lines: a central line, which is a simple moving average (SMA), and two outer bands that are standard deviations above and below the SMA.
The outer bands expand and contract depending on market volatility: they widen in periods of high volatility and narrow when the market is calmer.
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Exemplification of Bollinger Bands in cryptocurrency trading. Courtesy Investopedia
The RSI index is a momentum oscillator that measures the speed and change of price movements on a scale of 0 to 100. An RSI above 70 is generally considered overbought, while below 30 is considered oversold.
An overbought signal suggests that short-term gains may be reaching an expiration point and that assets may be subject to a price correction. Conversely, an oversold signal could mean that short-term declines are reaching expiration and assets could be subject to a rally.
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Exemplification of the RSI index in cryptocurrency trading. Courtesy Investopedia
Fibonacci retracements are a popular technical analysis tool used by traders to identify potential support and resistance levels in a market. Based on the Fibonacci sequence, these retracement levels represent key points at which an asset's price may reverse or stall during a pullback or correction.
By plotting horizontal lines at specific Fibonacci ratios - such as 23.6%, 38.2%, 50% and 61.8% - traders can estimate potential reversal zones within a trending market.
Fibonacci retracements, widely used in the stock, currency and cryptocurrency markets, provide valuable information about price dynamics, helping all traders make informed decisions about entry and exit points.
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Exemplification of Fibonacci Retracements. Courtesy Investopedia
The Ichimoku cloud is a very versatile indicator that defines support, resistance, trend direction and momentum. The cloud, or “Kumo”, is made up of two lines that indicate possible future price action.
The Ichimoku cloud is especially useful for identifying the overall trend, assessing momentum and detecting potential pullbacks or breakout opportunities. Its unique combination of multiple indicators on a single chart makes it a powerful tool for both short-term and long-term traders looking to gain a complete perspective of the market.
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Ejemplificación de una nube de Ichimoku. Cortesía Investopedia
Standard deviation (also called standard deviation) is a statistical measure that quantifies the amount of variation or dispersion of a set of values. It tells us how much the individual values in a data set differ from the mean (average) value of that set.
If a data set consists of numbers very close to the mean, the standard deviation will be low. Conversely, if the numbers are widely dispersed, the standard deviation will be high. In summary,a higher standard deviation indicates higher price volatility, while a lower value suggests lower volatility.
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Typical standard deviation
The Average Directional Movement Index (ADX) is a technical indicator used to measure the strength of a trend. It is usually plotted along with two other lines: the Positive Directional Indicator (+DI) and the Negative Directional Indicator (-DI), which indicate the direction of the trend. The ADX line itself ranges from 0 to 100, with higher values indicating a stronger trend.
Typically, a reading above 25 indicates a strong trend, while a reading below 20 suggests a weak or no trend.
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ADX indicator in Bitcoin trading. Courtesy Investopedia
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