Indicators to Know: 5 Analysis Tools Traders Use Regularly

Why are Indicators Important for Trading?

In today’s era, the role of speculators has become a profession that attracts many young people because profit opportunities occur 24/7 across various markets, whether stocks, Forex, or Crypto. The difference between successful traders and those who fail is having a strict trading plan and choosing the right analytical tools. In this article, we will explore 5 Most Important Indicators that help you identify trends, find entry and exit points, and manage risks effectively.

Overview of the 5 Indicator Comparison

1. Moving Average: The Trend’s Guiding Path

The Reality of Moving Average

The moving average is a fundamental indicator that almost every trader has experience with. This tool plays a crucial role in communicating the trend—whether prices are moving up, down, or sideways.

Basic Usage

The nature of Moving Average is easy to understand:

• When price > MA → signals an uptrend, buy signal
• When price < MA → signals a downtrend, sell signal

The most common types of MA include Simple Moving Average (SMA), derived from natural averages; Weighted Moving Average (WMA), which emphasizes recent data; and Exponential Moving Average (EMA), which is more responsive and popular due to higher accuracy.

Calculation and Understanding

Different MAs serve different purposes:

• Short-term (5 days/candles): for fast traders, covering about a week
• Medium-term (35 days/candles): for broader analysis, about two months
• Long-term (200 days/candles): for long-term investors, about a year

An interesting aspect is the positioning of multiple MA lines:

• MA (5) > MA (35) > MA (200) = indicates a strong uptrend
• MA (5) < MA (35) < MA (200) = indicates a strong downtrend

Strengths of Moving Average

✓ Easy to follow trend, comfortable to read ✓ Can be used as dynamic support and resistance signals ✓ An easy-to-understand tool even for beginners

Common Limitations

✗ It is a lagging indicator (Lagging Indicator) because it is calculated from past data ✗ Buy/sell signals are delayed relative to actual price changes ✗ Often gives false signals during sideways markets

2. RSI: Measuring Buying and Selling Intensity

Understanding RSI from the Start

Relative Strength Index is a momentum analysis tool that measures the strength of price changes. With this measurement, we can diagnose whether the price is overbought (Overbought) or oversold (Oversold). The value ranges from 0 to 100.

Using RSI in Trading

Standard RSI usage is clear:

• RSI < 30 = Oversold condition = buying opportunity
• RSI > 70 = Overbought condition = selling opportunity

Beyond identifying these states, RSI also helps us see trend reversals. For example, in an uptrend, RSI may signal that the price is about to decline, or in a downtrend, RSI may indicate that the decline is nearly exhausted. When combined with other tools, RSI enhances decision accuracy.

RSI Calculation Formula

RSI = 100 - (100/(1 + (Average gain)/(Average loss)))

where:

• Average gain = average increase over the last 14 candles
• Average loss = average decrease over the last 14 candles

Practical example: If over the past 14 days, the closing price was higher than the opening price for 7 days with an average gain of 2%, and the other 7 days had an average loss of 1%, the formula yields 66.67, indicating an overbought condition.

RSI Strengths

✓ Accurately identifies short-term entry and exit points ✓ Excellent at spotting divergence between price and RSI

( Cautions

✗ In strong trends, RSI can remain overbought/oversold for extended periods ✗ May cause traders to miss stronger market moves or sell too early

3. MACD: Synthesizing Trend and Momentum

) What is MACD?

Moving Average Convergence Divergence ###pronounced “Mac-Dee”### is an advanced development of moving averages that combines trend (Trend) and momentum (Momentum) indicators. This makes it one of the most comprehensive technical analysis tools.

( How to Use

MACD usage guidelines:

• MACD > Signal Line = Uptrend )Bullish### = Buy signal
• MACD < Signal Line = Downtrend (Bearish) = Sell signal

In addition to the crossover signals, the distance between MACD and Signal Line indicates whether momentum is strengthening or weakening.

( Calculation formulas

MACD = EMA)12### - EMA(26) Signal Line = EMA(9) of MACD

Both EMA(12) and EMA(26) are exponential moving averages based on closing prices over 12 and 26 periods, respectively. The Signal Line is an EMA of MACD over 9 periods.

( Benefits of MACD

✓ A comprehensive tool that indicates both direction and strength ✓ Suitable for broad trend analysis ✓ Helps identify key reversals

) Limitations to Know

✗ Calculation complexity may be challenging for beginners ✗ It is a lagging indicator, signals are slower than RSI ✗ Signals often occur after the price has moved significantly

4. Volume: Traces of Trading Power

The Importance of Volume

Trading volume ###Volume### tells us how much market interest there is in an asset. Most traders look for assets with high turnover and volatility. Volume is important because it confirms whether price changes are driven by real buying/selling decisions or just temporary volatility.

( How to Use Volume in Analysis

When price rises:

• If volume increases with price = strong upward move, likely continuation
• If volume decreases = weakening move, upward trend may pause

When price declines:

• If volume increases with price = strong downward move, likely continuation
• If volume decreases = weakening decline, downward move may end

) Volume Measurement Method

Volume is calculated from actual traded quantity over a specific period, whether daily or other chosen timeframe ###Timeframe###.

( Strengths of Volume

✓ Confirms the reality of price changes ✓ Breakouts with high volume indicate genuine moves, not false signals

) Limitations to Observe

✗ Cannot indicate direction alone; only shows intensity ✗ In Forex, non-futures volume may only reflect broker data, not global activity

5. Visible Range: Visualizing Market Cost Structure

What is Visible Range?

Visible Range ###also called Volume Profile### is a modern indicator developed from the concept of volume traders using premium subscription services on platforms like TradingView. It often involves costs.

( Purpose of Using Visible Range

This tool is designed to make price and volume analysis more detailed by showing where most market participants have their average cost. This data helps identify “support” and “resistance” zones.

) How to Use Visible Range

• Price above Visible Range = Uptrend = Prepare to buy
• Price below Visible Range = Downtrend = Prepare to sell

Calculation Method

Calculated from the average trading price within a specified period, providing a clearer picture of where most market participants have their costs.

Strengths of Visible Range

✓ Reveals the actual costs of most market participants ✓ Helps find more accurate support and resistance levels than traditional trendlines

Limitations

✗ Charts may look confusing for beginners ✗ Some platforms require higher-tier subscriptions to access this feature

Conclusion: Combining Indicators Powerfully

The 5 indicators above are fundamental tools that consistently successful traders use. However, it’s important to understand that using indicators is only part of a trading plan. Each trader and asset may require a different combination of indicators.

Before applying these methods live, backtest with historical data to ensure the chosen indicators suit your assets and trading style. Additionally, always have a clear plan for closing orders, taking profits, and limiting risks.

The key to effective decision-making is relying on data, not emotions. Take time to learn and practice until you find a strategy that fits you 💡.