Top 10 Technical Indicators Every Trader Should Know

Traders also analyze MACD histograms. They represent the difference between the MACD line and the signal line. If the histogram bars grow, it means that the momentum is strong. If the histogram bars decrease, it means that the momentum declines. If there is a divergence between MACD and price, you can expect a trend reversal.

MACD is very versatile and can be used in different conditions. You can also use it for different timeframes. You can also combine it with other indicators, especially with RSI or support and resistance levels to make your trading even more accurate. For example, if you see a bullish MACD crossover, and it is confirmed with an RSI breakout above 50, you can consider it as a strong entry signal.

MACD is very efficient in trending markets but if there are sideway movements or the markets are choppy, it can give false signals. This is why you better use it in combination with trend analysis. You can also use MACD to measure the strength of trends. Check the distance between the MACD line and the signal line. If the distance is big, the trend is strong. But if the distance narrows, the trend is weak and there may come a reversal.

ADX Indicator

The Average Directional Index (ADX) measures the strength of a trend, regardless of its direction. The ADX indicator was developed by Welles Wilder. It helps you to see whether the market is trending or ranging. You shall know it to select the right strategy.

ADX values the range from 0 to 100. If the value is below 20, it means that the trend is weak, or there are sideway movements. If the value is above 40, the trend is strong. You can use ADX in combination with the +DI and –DI lines, which show trend direction. A +DI above –DI means that there is a bullish trend, and –DI above +DI means that the trend is bearish.

ADX can help you if you use a trend-following strategy. It helps to reduce false signals and boost profitability. Also, if you know that a strong trend started, you can benefit from the market momentum and exit your positions before the trend ends.

You can use this indicator in all markets, such as stock, forex, commodities, and crypto. It works for different timeframes, this is why day traders and swing traders also use it. We recommend you to combine this indicator with MACD, moving averages, or RSI to confirm the trend strength and boost your accuracy.

This indicator also can help you to adjust your stop-loss placement and position sizing. If the trend is strong, you may place wider stops, and if the trend is weak or the market ranges, you can place tighter stops.

Even though ADX can be very useful, it doesn’t show trend direction. This is why you shall use it with directional indicators or price analysis. This will help you to optimize your strategy, avoid false signals, and determine profitable moments to trade.

Ichimoku Cloud

The Ichimoku Cloud is a very useful indicator. It can help you to see the trend direction, support and resistance levels, and to determine a momentum. This indicator was developed by Goichi Hosoda. It combines several moving averages and a cloud structure. It helps to see the complete image of market conditions.

The indicator consists of five lines: Tenkan-sen, Kijun-sen, Senkou Span A, Senkou Span B, and Chikou Span. The space between Senkou Span A and B forms the cloud and shows potential support and resistance areas. If the asset price is above the cloud, it means that there is an uptrend. If the price is below the cloud, it means a downtrend. If the cloud is thick, the trend is strong.

Ichimoku Cloud is used to identify trade entries and exits. If the price moves above the cloud, and the Tenkan-sen crosses above the Kijun-sen, it means that the price is expected to grow soon. And when the price moves below the cloud, and a Tenkan-sen moves below the Kijun-sen, the price is expected to drop. Then, you can also have a look at the Chikou Span to compare the current price with past levels and get a confirmation of the trend.

This indicator works for all types of markets, such as forex, stocks, commodities, and crypto. You can get many signals from a single chart, and this can help to improve your strategy rapidly. Ichimoku Cloud can also help you to forecast the momentum shifts. For example, the cloud can tell you about the support and resistance in the future. With this information, you can forecast the trend reversals or breakout levels. And if you combine this indicator with volume indicators and oscillators, you can even improve the timing of trades.

Ichimoku Cloud is a very good indicator, but it may be difficult to use for beginners. You need to understand how each component works and what it means. If you learn how to do it, you will know all about market trends and momentum, and you will be able to plan trade setups better.

On Balance Volume (OBV)

On Balance Volume (OBV) is a volume-based indicator. It measures buying and selling pressure. This indicator was developed by Joseph Granville. It adds volume on up days and subtracts it on down days to create a cumulative total. This can help you to see whether volume supports price trends.

If the OBV goes up, it means that buyers dominate, and the price of the asset may rise soon. If it goes up, sellers are in control, and the asset price may drop. You can use OBV to confirm trends, see possible divergences, and forecast reversals.

When OBV moves in the opposite direction of the price, you can expect divergence. For example, if the asset price grows, and OBV falls, it shows that the momentum is weakening, and a reversal may approach. If the asset price is declining but OBV grows, it signals that there is accumulation, and soon, a bullish move may come.

We recommend you to use OBV in combination with trend-following indicators. Even though price may provide signals, but if the volume supports those signals, it is better.

You can also use OBV to see whether the market is in an accumulation or distribution phase. For example, if there is a consolidation, and the OBV grows, it signals that smart money is accumulating. You may expect a breakout soon. And on the contrary, if OBV falls, and the market is in a side movement, a decline may be coming.

OBV can be used in different markets and for different timeframes.

Stochastic Oscillator

The Stochastic Oscillator is a momentum indicator. It compares the closing price of an asset with the price range during a specific period. The indicator was developed by George Lane. It can help you to determine whether the asset is overbought or oversold.

The indicator ranges from 0 to 100. If it moves above 80, it means that the asset is overbought, and you can expect a downward reversal. If it moves below 20, it means that the asset is oversold. You can expect an upward reversal.

This indicator works well in range-bound markets. It can help you to see potential entry and exit points when the market reaches extreme levels.

You also shall pay attention to the divergence between price and the Stochastic Oscillator. If price forms higher highs while the oscillator forms lower highs, the momentum is weakening, and a reversal may come soon. When the price forms lower lows, and the oscillator forms higher lows, you can expect a bullish divergence.

You can adjust this indicator to your trading style. But don’t forget that fast settings give more signals but also produce false signals. This is why we recommend to combine this indicator with other instruments, such as support and resistance indicators.

Parabolic SAR

The Parabolic Stop and Reverse (SAR) is a trend-following indicator. It indicates entry, exit, and stop levels. This indicator was developed by J. Welles Wilder. It appears as dots above or below the price chart that indicate the trend direction.

When the dots are below the price, it signals an uptrend. You can buy the asset. When dots are above the price, it indicates a downtrend. You may sell the asset or take short positions.

Parabolic SAR works well in trending markets. It helps to manage trades and shows potential reversal points. You can combine this indicator with moving averages, ADX, or MACD.

This indicator can also help you to determine exit positions for trades. If the dots move closer to the price, it signals the trend exhaustion. You can get ready for a reversal.

This indicator is very easy to use, but it also generates a lot of false signals. This is why you'd better combine it with other indicators, such as trend or momentum indicators.