Introduction to Technical Analysis With Indicators

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To become profitable with technical analysis in trading, you must first understand how indicators are used.

And what are trading indicators you ask?

These are mathematical calculations that are plotted as lines on a price chart and can help traders identify certain signals and trends within the market.

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Just like with all the other methods of market analysis, technical analysis relies on these three basic logics: –

  1. Prices are influenced by both economic and political factors
  2. Prices are subject to trends
  3. History repeats.

Accept and apply these three rules when using technical analysis and you will start being profitable with trading indicators.

Below are some of the most common indicators used in most trading strategies and how they work.

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1). Moving Averages

Moving Average Indicators

The moving average is a free line drawn on your chart when it is activated under indicators.

It is an indicator used to show both the average price of an asset, the direction of the asset, and areas of value for entering a trade in the financial markets.

If you plot a moving average on the charts and it points to no definite direction then this indicates that the market is in a sideways trend.

We will discuss how to trade on a sideways market as we continue educating you about trading.

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Should you plot the moving average on the charts and you see it pointing up, translate that to an uptrend.

The opposite is true for a downtrend.

Types of Moving Averages.

There are several types of moving averages but the most common ones in Forex, Stock, and Binary Options trading are: –

  1. The simple moving average (SMA)
  2. Exponential moving average (EMA)
  3. Weighted moving average (WMA)

Other moving averages that you may also want to know about but are not as popular as the first three are: –

  1. The Hull moving average
  2. Triangular Moving Average (TMA)
  3. Smoothed Moving Average (SMMA)

Moving Averages Indicators

Why Moving Averages Are So Important

Moving averages are like the backbone of technical analysis. They are easy to use and they blend easily with other technical analysis tools to form formidable trading strategies.

Talk about oscillators like the RSI, MACD, or Stochastic, or indicators like the Supertrend, Ichimoku Cloud, Donchian Channel, and Bollinger Bands (to name but a few) and you will find moving averages somewhere in between.

They are like the melodious voice of Wizkid on any African beat. They bring out the magic in technical analysis.

P.S. Tomorrow we discuss how moving averages are used in Oscillators and/or how to use them in binary options trading

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