Price is the ultimate indicator. Regardless of what indicator you use, it won’t tell you more than the actual price motion itself, considering all indicators are derived from price. I adopt to trade without binary options indicators, since the price itself is what I merchandise. With that said, indicators do present price information in a different way, which can help u.s. isolate moves or underlying forcefulness or weakness we non see on the price chart. While I generally merchandise indicator gratuitous, but here are my two favorite indicators which I practise use on occasion to clarify moves, hone in on high probability trades and help filter out the bad ones.
Average True Range (ATR)
By far the indicator I utilise the most. Simply put, ATR is the corporeality an asset moves in the day.
The indicator takes an average over a number of days (or bars), such equally 10 or 20, to give you lot a representation of daily cost movement of the nugget. The average is based on the largest following number: Current Loftier minus Electric current Low, Current High minus Previous Close or Current Low minus Previous Close. Luckily the indicator tool within your trading platform will calculate this all for y’all, then all yous have to is look at the current indicator reading.
Effigy 1. EUR/USD Daily with ATR
Source: Oanda – MetaTrader
Figure ane shows the ATR over ten days–shown every bit “ATR (10)”– for the EUR/USD on Daily confined. Therefore, the current reading of 0.0099 means the EUR/USD is moving on average 99 pips per mean solar day. If you used a v minute chart, the reading you become would exist a 10 period average of how much the EUR/USD moves in a 5 infinitesimal catamenia.
So how does this reading help y’all brand better trades? Assume it is near the end of the day, and the EUR/USD has already moved up 140 pips on the day and you want to accept a long trade. Exercise you lot take it?
Maybe, but only if you believe something important is going on. Since the boilerplate daily movement is virtually 99 pips, information technology is quite probable that the EUR/USD is fleck overextended (at 140 pips), having already moved well beyond average. That is non as well say that if you lot go long/buy calls you won’t make money, but it does make yous sit back and examine the merchandise to brand sure it is worth taking.
I more often than not employ this indicator as a filter. While wide ranging days happen (much larger than average), I similar to trade based on statistics. If I get a point to get long or brusque on an intra-24-hour interval trade, and the asset has already moved well across the average, I volition usually skip it and await for another trade which has more room to run.
Relative Strength Index (RSI)
Known as an oscillator, this indicator fluctuates betwixt 0 and 100 and measures the speed and alter of price. If you accept watched business news or read some technical comments from traders, you will often hear the words “Overbought” or “Oversold.” While the speaker may exist addressing something else, frequently technical analysts are referring to the electric current RSI reading when they apply these words. A reading above 70 is typically overbought, while beneath xxx is oversold. Once an nugget enters these expanse, a reversal is commonly not far off.
But to me, timing is important and therefore standard overbought/oversold RSI readings are pretty much useless. For ane, in a strong uptrend, the reading will be frequently above 70, but yet you want to exist long most of the time. Same goes for a downtrend; the RSI will frequent the area below 30 and yet you desire to be short/buying puts during downtrends.
I prefer to employ the RSI in a “relative” fashion; comparing current RSI readings in uptrends to past uptrends, and current RSI readings in downtrends to past downtrends. This concept comes from Constance Brown’s volume
Technical Analysis for the Trading Professional. What the author finds is that in downtrends the RSI generally stays beneath 60, and that in uptrends information technology more often than not stays in a higher place 40.
Figure ii. EUR/USD 4 Hour Chart
Source: Oanda – MetaTrader
In figure two, notice how the RSI shifts; during the downtrend information technology often touches beneath 40 and rarely gets above threescore (red line). But when the tendency moves college toward the right hand side of the chart, the RSI doesn’t move below 40 (dark-green line) and spends much of the time higher up 60.
This is an excellent method for confirming trends, although some tolerance is oft required. The RSI may squeak just beyond the levels mentioned, or the levels used may vary slightly by asset.
General adventure warning: your capital letter is at risk
* Amount is credited to account in case of successful investment
Indicators are derivatives of price. Generally I do not utilize indicators very much, every bit I prefer just to wait at the bodily price chart. Indicators can only provide this same price data, but may present it visually in a way that is preferable, or summarize the data for easier use. ATR is one such summarizing tool. It speedily gives you a number–the daily average range–you can piece of work with. If an asset has moved well across its daily average range, it’s possible something important is happening, but by and large I observe the trade should simple be skipped if it requires the nugget motility
The RSI presents price information in a different fashion, which tin be quite useful for confirming trends or catching tendency reversals. The RSI has different tendencies during downtrends than it does during uptrends. Typically in a downtrend the RSI stays beneath lx, and in uptrend stays higher up twoscore. When you observe the RSI shift from one trend to another, the trend has probable reversed.