Technical indicators can be both a blessing and a curse.
Too many indicators on the screen can lead to too many signals / false signals and it can also look like a complete mess on your screens too!
Now, technical indicators are one set of tools in a traders arsenal to decipher what the markets are doing but having a larger macro and global economic view — or the bigger picture is just as important.
It is important to note that in the professional world, technical indicators would be used to confirm a trading bias and to pinpoint an optimal entry level/timing.
We have filtered through some of the best technical indicators available for free to give you a head start in picking up some new (or old) tools that professionals use to filter the markets and find optimal market timing.
Support levels are areas of the market where the price has tried to go down but reversed. These are important levels because if the support level is untested, there is a good chance that price may penetrate and continue further down.
Support levels are plotted after the price action but help us predict future movements.
2. Resistance Line
Resistance levels are the same as support levels but price reverses after the price has tried to go higher.
One thing to note is that when price penetrates a resistance level it turns to support; when price penetrates a support level it becomes resistance.
3. Trend Lines
Trend lines are important, there is a popular saying – the trend is your friend until the bend at the end.
The beauty of trend lines is they show you an on-going trend support level (bullish) or an on-going resistance level (bearish). If the trend breaks the trend line and continue, the shift if the trend has transferred from bullish to bearish and vice versa.
If we draw an uptrend/downtrend we can also draw a parallel line which will create a channel.
Channels are an additional tool technical analysts use to show that the trend is trading in a particular direction. It also gives a clear indication of when the trend is broken.
5. Pivot Points
Pivot Points are types of support and resistance levels are commonly used by professional and market makers that identify the direction areas where the price movement can possibly change. The main reason why they are so wildly used is that they are objective – meaning everyone that uses them will be looking at the same levels.
6. Double Top
You will usually find a double top after there is a move upwards, they are formed by two highs at a certain level but they do not go any higher.
A double top is a strong signal that the trend may reverse.
7. Double Bottom
The double bottom is the opposite way around than the double top. This pattern is also a trend reversal indicator.
A double bottom is formed after two valleys or “bottoms” have been formed after a downward trend.
8. Head & Shoulders
The head is the second peak and is the highest point in the pattern. The two shoulders also form peaks but do not exceed the height of the head. With a head and shoulders formation, traders put an entry order below the neckline just like the double top/bottom formations.
9. Hammer Pin Bar
The hammer pin is a bullish reversal pattern that usually forms at the end of a downtrend. Combined with a significant support level, this pattern is usually very strong.
The long lower shadow indicates that sellers forced prices lower, yet the buyers were able to overpower the selling pressure and closed near the open.
10. Shooting Star
The shooting star is a bearish reversal pattern that usually forms at the end of an uptrend. Combined with a significant resistance level, this pattern is usually very strong.
The long higher shadow indicates that buyers forced prices higher, yet the sellers were able to overpower the buying pressure and closed near the open.
11. Engulfing Candlesticks
An engulfing bar is a two bar setup that usually acts as a reversal signal it but can also be a continuation signal. It is formed when a candle fully engulfs the previous candle. It can engulf more than one candle but one is the minimum we look for. The more bars it engulfs the more powerful and reliable the engulfing bar is.
12. Fibonacci Retracement
Traders use the Fibonacci retracement levels as areas of interest as price rises and fall through these levels. Since so many investors keep an eye on these levels they tend to become a self-fulfilling prophecy. Equally, these levels are also used to take profit.
Traders use this indicator to gauge momentum in an asset price movement.
Accumulation/Distribution plots the whether the asset is in a ‘Supply’ or ‘Demand’ state, or whether people are selling or buying right now.
14. Moving Average
A moving average is used to smooth out price action. It is achieved by taking the average closing price of an asset over a number of periods.
15. Hull Moving Average
The key issue with regular SMA and EMAs is that they lag behind price which means that as a trader we are lagging behind the price action. The Hull Moving Average (HMA) reduces this lag dramatically.
Want to learn more about this indicator? Click here
16. Bollinger Bands
Bollinger Bands are used to measure a market’s volatility. In trading, they are used as dynamic support and resistance areas.
The MACD combines price action and momentum in the asset. The whole point of the indicator is to spot a divergence between the price and momentum. This would give an opportunity for a trader to take action.
The stochastic indicator helps plot an asset’s momentum by comparing the closing price of the asset over a certain number of periods.
19. Relative Strength Index
RSI identifies overbought and oversold conditions in the market.
It is scaled from 0 to 100. Typically, readings below 30 indicate oversold, while readings over 70 indicate overbought.
20. Average True Range
The ATR is an excellent tool for measuring volatility because it tells us the average trading range of the market for X amount of time, where X is whatever you want it to be.
So if you set ATR to 20 on a daily chart, it would show you the average trading range for the past 20 days.
21. Ichimoku Kinko Hyo
Ichimoku Kinko Hyo is an indicator that determines future areas of support and resistance and future price action.
This indicator literally has every aspect of trading in one and is extremely powerful.
22. Commodity Channel Index
The CCI is a trend confirming indicator or it will give notice of extreme conditions in the asset. It mainly wants to show you how far the price is above or below the average value of the asset.
23. Donchian Channels
Donchian channels mainly measure volatility and are really useful for trend trading. Made famous by future traders and “Turtle Traders”, this indicator is still relevant today.
These are used to spot breakout opportunities.
24. Linear Regression Line
More commonly known as a line of best fit through several data points. The linear regression line indicates a fair value of the asset, any time the price goes above or below the line, traders believe it can be a sell or buying opportunity.
The Aroon indicator determines the optimal opportunity for a change in the current trend.
The indicator measures the time that it takes for the price to reach the highest and lowest points over a given timeframe as a percentage of total time.
Our suggestion is to do your own research into these tools. By no means are we writing about technical indicators that have 100% success.
We hope you find it useful and inspired you to take a look at some of the technical indicators on our list.
If you have any comments, ideas or suggestions then please feel free to contact us.
Alternatively, if you are wanting to learn how to trade for free – you can do so with our trading course.
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