5 Technical Indicator

HomeArticles
5 Essential Indicators Used in Technical Analysis
5 Essential Indicators
Used in Technical
Analysis
Intermediate
1mo ago
7m
TL;DR
Indicators are the weapons of choice for battle-tested technical
analysts. Each player will choose tools that best fit their unique
playstyle to then learn how to master their craft. Some like to look at
market momentum, while others want to filter out market noise or
measure volatility.
But which are the best technical indicators? Well, every trader will
tell you something different. What one analyst will swear is the
ultimate indicator another will dismiss completely. However, there
are some very popular ones, like the ones we’ve listed below (RSI,
MA, MACD, StochRSI, and BB).
Interested to know what they are and how to use them? Read on.
Introduction
Traders use technical indicators to gain additional insight into the
price action of an asset. These indicators make it easier to identify
patterns and spot buy or sell signals in the current market
environment. There are many different types of indicators, and they
are widely used by day traders, swing traders, and sometimes even
longer-term investors. Some professional analysts and advanced
traders even create their own indicators. In this article, we’ll provide
a brief description of some of the most popular technical analysis
indicators that can be useful in any trader’s market analysis toolkit.
1. Relative Strength Index (RSI)

The RSI is a momentum indicator that shows whether an asset is
overbought or oversold. It does this by measuring the magnitude of
recent price changes (the standard setting is the previous 14
periods – so 14 days, 14 hours, etc.). The data is then displayed as
an oscillator that can have a value between 0 and 100.
Since the RSI is a momentum indicator, it shows the rate

(momentum) at which the price is changing. This means that if
momentum is increasing while the price is rising, the uptrend is
strong, and more and more buyers are stepping in. In contrast, if
momentum is decreasing while the price is rising, it may show that
sellers soon might take control over the market.
A traditional interpretation of the RSI is that when it’s over 70, the
asset is overbought, and when it’s under 30, it is oversold. As such,
extreme values may indicate an impending trend reversal or
pullback. Even so, it might be best not to think about these values
as direct buy or sell signals. As with many other technical analysis
(TA) techniques, the RSI may provide false or misleading signals,
so it’s always useful to consider other factors before entering a
trade.
Eager to learn more? Check out our article on the Relative Strength
Index (RSI).
2. Moving Average (MA)
A moving average smooths out price action by filtering out market

noise and highlighting the direction of the trend. As it’s based on
past price data, it’s a lagging indicator.
The two most commonly used moving averages are the simple
moving average (SMA or MA), and the exponential moving average
(EMA). The SMA is plotted by taking price data from the defined
period and producing an average. For example, the 10-day SMA is
plotted by calculating the average price over the last 10 days. The
EMA, on the other hand, is calculated in a way that gives more
weight to recent price data. This makes it more reactive to recent
price action.
As mentioned, the moving average is a lagging indicator. The
longer the period, the greater the lag. As such, the 200-day SMA
will react slower to recent price action than the 50-day SMA.
Traders often use the relationship of the price to specific moving

averages to gauge the current market trend. For example, if the
price stays above the 200-day SMA for a prolonged period, the
asset may be considered to be in a bull market by many traders.
Traders may also use moving average crossovers as buy or sell
signals. For example, if the 100-day SMA crosses below the 200-
day SMA, it may be considered a sell signal. But what exactly does
this cross mean? It indicates that the average price over the last
100 days is now below that of the last 200 days. The idea behind
selling here is that short-term price movements are no longer
following the uptrend, so the trend may be reversing.
Eager to learn more? Check out our article on Moving Averages.
3. Moving Average Convergence

Divergence (MACD)
The MACD is used to determine the momentum of an asset by
showing the relationship between two moving averages. It’s made
up of two lines – the MACD line and the signal line. The MACD line
is calculated by subtracting the 26 EMA from the 12 EMA. This is
then plotted over the MACD line’s 9 EMA – the signal line. Many
charting tools also often incorporate a histogram, which shows the
distance between the MACD line and the signal line.
By looking for divergences between the MACD and the price action,
traders might gain insight into the strength of the current trend. For
example, if the price is making a higher high, while the MACD is
making a lower high, the market may be reversing soon. What is
the MACD telling us in this case? That price is increasing while
momentum is decreasing, so there is a higher probability of a
pullback or reversal occuring.
Traders may also use this indicator to look for crossovers between
the MACD line and its signal line. For example, if the MACD line
crosses above the signal line, that may suggest a buy signal.
Conversely, if the MACD line crosses below the signal line, that
may indicate a sell signal.
The MACD is often used in combination with the RSI, as they both
measure momentum, but by different factors. The assumption is
that together they may give a more complete technical outlook on
the market.
Eager to learn more? Check out our article on the MACD.
Looking to get started with cryptocurrency? Buy Bitcoin on

Binance!
4. Stochastic RSI (StochRSI)

The Stochastic RSI is a momentum oscillator used to determine
whether an asset is overbought or oversold. As the name suggests,
it’s a derivative of the RSI, as it’s generated from RSI values
instead of price data. It’s created by applying a formula called the
Stochastic oscillator formula to the ordinary RSI values. Typically,
the Stochastic RSI values range between 0 and 1 (or 0 and 100).
Due to its greater speed and sensitivity, the StochRSI can generate
a lot of trading signals that can be tricky to interpret. Generally, it
tends to be the most useful when near the upper or lower extremes
of its range.
A StochRSI reading above 0.8 is usually considered overbought,

while a value below 0.2 may be considered oversold. A value of 0
means that the RSI is at its lowest value in the measured period
(the default setting is typically 14). Conversely, a value of 1
represents that the RSI is at its highest value in the measured
period.
Similarly to how the RSI should be used, an overbought or oversold

StochRSI value doesn’t mean that the price will surely reverse. In
the case of the StochRSI, it simply indicates that the RSI values
(which StochRSI values are derived from) are near the extremes of
their recent readings. It’s also important to keep in mind that the
StochRSI is more sensitive than the RSI indicator, so it tends to
generate more false or misleading signals.
Eager to learn more? Check out our article on the Stochastic RSI.
5. Bollinger Bands (BB)
Bollinger Bands measure the volatility of the market, as well as

overbought and oversold conditions. They are made up of three
lines - an SMA (the middle band), and an upper and lower band.
The settings may vary, but typically the upper and lower bands are
two standard deviations away from the middle band. As volatility
increases and decreases, the distance between the bands
increases and decreases as well.
Generally, the closer the price is to the upper band, the closer to
overbought conditions the charted asset may be. Conversely, the
closer the price is to the lower band, the closer to oversold
conditions it may be. For the most part, price will stay within the
bands, but on rare occasions, it may break above or below them.
While this event may not be a trading signal in itself, it can act as an
indication of extreme market conditions.
Another important concept of BBs is called the squeeze. It refers to

a period of low volatility, where all bands come very close to each
other. This may be used as an indication of potential future volatility.
Conversely, if the bands are very far from each other, a period of
decreased volatility may follow.
Eager to learn more? Check out our article on Bollinger Bands.
Closing thoughts
Even though indicators show data, it’s important to consider that the
interpretation of that data is very much subjective. As such, it’s
always useful to step back and consider if personal biases are
affecting your decision-making. What may be a direct buy or sell
signal for one trader might just be market noise for another.
As with most market analysis techniques, indicators are at their best

when used in combination with each other, or with other methods,
such as fundamental analysis (FA).
The best way to learn technical analysis (TA) is through a lot of
practice. Go to Binance and put your newfound knowledge to the
test!

5 Technical Indicator

Uploaded by

Copyright:

Available Formats

5 Technical Indicator

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

5 Technical Indicator

Uploaded by

Copyright:

Available Formats

HomeArticles

5 Essential Indicators Used in Technical Analysis

1. Relative Strength Index (RSI)

Since the RSI is a momentum indicator, it shows the rate

2. Moving Average (MA)

A moving average smooths out price action by filtering out market

Traders often use the relationship of the price to specific moving

Eager to learn more? Check out our article on Moving Averages.

3. Moving Average Convergence

Eager to learn more? Check out our article on the MACD.

Looking to get started with cryptocurrency? Buy Bitcoin on

4. Stochastic RSI (StochRSI)

A StochRSI reading above 0.8 is usually considered overbought,

Similarly to how the RSI should be used, an overbought or oversold

5. Bollinger Bands (BB)

Bollinger Bands measure the volatility of the market, as well as

Another important concept of BBs is called the squeeze. It refers to

Eager to learn more? Check out our article on Bollinger Bands.

As with most market analysis techniques, indicators are at their best

You might also like