Trading indicators can enhance your trading analysis by showing hidden things in the market. They follow price and apply various formulas to provide insights that are crucial in trading. Some indicators are popular while others can provide value and important information. Indicators are useful in any financial market, such as Forex pairs, commodities, indices, stocks, cryptos, and so on. In this guide, we will list some of the most popular trading indicators that are also super useful in financial trading, ensuring you have the proper tools to navigate the complex structure of financial markets.
Financial Trading Indicators Explained
Technical indicators are mathematical formulas that follow price and calculate certain things based on their formula. Some of these indicators analyze price momentum, like the RSI indicator, which shows how strong the current price is. Momentum oscillators are used to find oversold and overbought zones. Apart from these tools, there are moving averages that follow price and show the average price for a user-defined period. Indicators are super important in technical analysis as they can provide traders with crucial insight into price movements, and technical traders often use several of them combined for more accurate signals.
Highly Popular Indicators
From thousands of indicators, there are a few as popular as RSI, Bollinger bands, and Stochastic RSI. Let’s super briefly explain each of them.
Relative Strength Index (RSI)
RSI is widely popular among technical traders as it provides overbought and oversold conditions and allows traders to find entry and exit points on the price chart. RSI can also be used to spot divergences, meaning when the market makes higher highs and RSI makes lower lows, it might signal a reversal.
Bollinger Bands
Bollinger Bands are another popular indicator that is used for trend detection.
They provide an easy-to-spot dynamic support and resistance zones and allow traders to track volatility and price extremes. Traders use Bollinger Bands mostly for breakout trading but they can also be used for swing trading purposes.
Stochastic RSI
Stochastic RSI is a hybrid of two indicators, the stochastic oscillator and RSI. It takes RSI values between 0 and 100 and applies a stochastic formula measuring where the RSI is relative to its recent range. It is known for generating faster signals than standard RSI.
Trend-following Tools
Trend following indicators are suitable for spotting and following trends in the market. The most popular trend indicators include moving averages and MACD.
Exponential Moving Average (EMA)
Among trend indicators, the number one tool is a moving average. There are several types of moving averages and Exponential Moving Average (EMA), is most popular for its tendency to react to current prices more. EMA is more useful in trend trading than simple moving average (SMA) as it is more responsive to recent price action, which is important for detecting trends early.
MACD
MACD is another popular indicator that is very useful for detecting trends. Moving average convergence divergence combines trend + momentum analysis all in one easy tool. When its histogram is above 0, it indicates bullish momentum in the market, and if the Main line is also above zero, it might indicate a strong upward price impulse.
Momentum and Volatility Tools
Momentum analysis is crucial to determine how strong the current trend is. By using momentum indicators, traders can measure the strength of market pulse and increase their win rate. Most popular momentum indicators are ATR (Average true Range), and Stochastic oscillator.
Average True Range (ATR)
ATR is a powerful tool to set dynamic stop loss levels based on volatility. ATR directly shows what the average true price movement was, which can provide important information about how large the next price swing might be, therefore providing a powerful measure for stop-loss placement.
Stochastic Oscillator
Stochastic is a very popular and useful tool in financial trading. It can indicate not only overbought and oversold signals (oscillates between 0 and 100), but also provides strong divergence signals.
In fact, the indicator is very accurate when used as a divergence indicator. Traders use 20 and 80 levels as overbought and oversold signals.
Volume-based Indicators
When it comes to financial markets, volume can show different things. By analyzing the volume, traders can measure the strength behind every move. Popular volume-based tools are On-balance volume )OBV) and the volume indicator itself.
On-Balance Volume (OBV)
OBV is a powerful tool to confirm breakouts. If the OBV is moving up for some time and price is also moving up, it can indicate a valid uptrend. The opposite is true for the downtrends.
Volume
The volume is built into all trading platforms. Modern platforms such as MetaTrader 4 and 5 also offer tick volume tools that can be toggled to always be present on the price chart, which is very useful for always seeing the volume behind every candle.
