Many traders find it simple to trade when the market is trending. This is because traders always flow with the trend and as a result accumulate the profits that come with euphoria. However, it’s not advisable to flow with the trend that you don’t know its genesis and duration. There are indicators that will help a trader to determine when the trend will start, last and end so that a trader can plan ahead.
Traders need to know that these indicators alone do not guarantee gains in the market. A trader needs to put emphasis on other factors like; trading psychology, risk management and proper education in order to enhance profit making chance. Nonetheless, the indicators will be helpful in your trading life especially when combined at ago as any single indicator reduces your reaping probability. Here are the essential indicators;
a) On Balance Volume(OBV)
This valuable indicator obtains a lot of information then makes a compilation into a single line indicator. The indicator has the ability of determining cumulative buying/selling pressure by adding the volume of the days of gains and deducting volumes on losing days.
The observation with the indicator will show how volumes compare with the pricing. You will be quick to visualize a rising price go with a rising OBV and a declining price being accompanied with a falling OBV.
The indicator can make a trader to conclude that when OBV is on the rise but the price isn’t, the price is likely to follow suit sooner or later.
b) Relative Strength Index(RSI)
This oscillating indicator whose movements run between margins of 0 to 100 can provide a trader with more information than other indicators such as MACD. With this indicator, a trader can easily determine whether the prices are OVERBOUGHT or OVERSOLD. When the indicators shows a reading of above 70 then the prices are OVERBOUGHT but when the indicator points below 30 then the prices are OVERSOLD.
The good thing with this indicator is that it mainly supplies the traders with accurate information regarding the status of the prices in the market. However, it doesn’t give a trend trader information on time. The indicator can help a trader to buy when the market nears OVERSOLD and sell when it nears OVERBOUGHT status.
c) Moving Average Convergence Divergence(MACD)
This is another oscillating indicator that keeps fluctuating below and above zero. It can help both trend traders and range market/sideways traders. I can say that the indicator is easy to use as all that a trader needs to see is whether the MACD lines are above or below zero. When the lines stay above zero for a prolonged period then the trend is likely to rise and the vice versa is also true.
This means that the traders should buy when the lines are above zero and sell when the lines are below zero. Alternatively, a trader can use the MACD signal lines which are always two, a fast line that crosses through and over the slow line will signify a trader to buy while a fast line that crosses through and below the slow line is for selling.
d) Trading Volatile Stocks with Technical Indicators
These indicators work on the principles of moving average that can be determined by timeframes. The indicators accommodate both the long-term traders and the short-term traders. However, traders should know that the moving average doesn’t forecast on the trend but tells the status of prices. The moving average can also help a trader to determine both support and resistance to the price.
A trader shouldn’t over rely on this indicator as it can it can send false signals especially when the price is more volatile than the moving average.