Tuesday, 7 February 2017
Loose the creepy charts
Posted by Fort Financial Services at 02:06
Is your trading platform looking a bit messy? Don’t worry. Believe it or not, we’ve all been there. The true fact is that trading is about learning new things everyday. And those charts just make us feel cozy when we start trading.
However, not every line that we draw is actually useful and overtime, we should become a more confident version of ourselves. You know what matters and what really doesn’t change anything. Time to clean up. I’ve put together 5 elements of technical analysis that you shouldn’t cut loose:
1) Moving Averages (SMA + EMA)If talking about trading basis, moving averages cannot be avoided. Even if they are as simple as it gets, there are proven to be extremely useful. These indicators help you smooth out price movements to identify a trend or define resistance/support levels. There are two basic applications: Simple Moving Average (SMA) and Exponential Moving Average (EMA). SMA is the simple average of an asset over a specified time frame, while an EMA displays a bigger weight on recent prices.
2) Moving Average Convergence Divergence (MACD)The MACD is a combination of difference moving averages that turned out to be a hell of a trend and momentum indicator. It uses two exponential moving averages, which cover two different periods of time. You can use this genius chart to get a better understanding on timing to open or close a position and of course, feel in which direction prices are moving. Probably, the most common setting is a mix of a 12-period EMA and a 26-period EMA, although it can vary depending what instrument are you actually trading.
3) Stochastic OscillatorThe stochastic oscillator, another famous technical indicator that will provide you with extra precision on momentum. This indicator is displayed within a range 0 to 100, with overbought area starting above 80 and oversold below 20. An upward trend would show the price getting closer to the range top, and vice versa with a downward trend.
4) Bollinger BandsThe indicator is composed by 2 lines above and below the price line. It helps you identify whether the price is heading into a flat phase or about to become extremely volatile. Some traders even rely on this chart as their only trading tool, based on the concept that everything that goes down, has to go up eventually. True, false… Up to you.
5) Relative Strength Index (RSI)The relative strength index also provides with overbought and oversold signals for a certain asset. The index is plotted on a range 0 to 100. As the line moves to the north, you can detect overbought conditions and vice versa when it heads to the south.
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