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Technical Indicators

This article presents some of the most significant volume-based indicators in technical analysis. There are short- to long-term indicators for analyzing the volume behavior of particular assets or assessing the broader market.

Why Does Volume Analysis Matter?

Volume analysis matters because volume tends to precede price, but also because volume is capable of determining the strength behind a market move. By combining volume and price, traders can get a complete picture of what is going on. The most important thing when applying a volume indicator is to select the correct timeframes and trading parameters

• Volume tends to precede price
• Volume may confirm strong trends, breakouts, and trend reversals
• Charting formations usually have a confirming volume pattern

Read more: 22 Top Volume-Based indicators

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Trend Indicators

Bollinger Bands

(BB)

◙ Usage: Measuring Volatility | Evaluating Oversold/Overbought Markets

◙ Trading: Identify Reversals (entry/exit triggers) in any Timeframe

◙ Standard Settings: 20 Periods SMA and 2 Standard Deviations

 Introduction to Bollinger Bands

The indicator was created by the money manager and researcher John Bollinger.

Bollinger Bands are two (2) volatility bands that are placed above and below a moving average. The Bollinger Bands can be used to measure volatility but also to evaluate the strength of the trend.

■ When the distance between the two bands widens then the volatility increases

■ When the distance between the two bands is getting narrow then volatility decreases

Read more: What are Bollinger Bands

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Trend Indicators

Trending/Ranging Financial Markets

(i) Trending Market: When the price of a Financial Asset or Market follows a particular trend during a long time period

(ii) Ranging Market: When the price of an asset or a market moves up or down without following a particular long-term trend (Trading within a range formed by an upper and a lower band)

Trend Indicators are Reliable only in Trending Markets

□ If a financial market is trending, the trend indicators can provide considerably reliable trading signals

□ If a financial market is ranging, trend indicators may mislead traders (In the case of a ranging market, traders should better use momentum indicators which are able to identify short-term price movements within the range)

Table: Trend Indicators at ExpertSignal.com

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Trend Indicators

Moving Averages

(MAs)

◙ Usage: Evaluating Trends / Forecasting Trend Reversals

◙ Trading: Spotting reversals at Moving Average Crossovers

◙ Combining: RSI, ADX, and other indicators

◙ Standard Settings: 10-period, 21-period, 30-period, 50-period, 200-period MAs

Introduction to Moving Averages

Moving Averages or else MAs constitute the most common tool of technical analysis. They are used to identify current trends and to forecast potential price reversals. The great advantage of an MA is its ability to eliminate the impact of ‘Market Noise’. The 'Market Noise' usually leads traders to false assumptions about the upcoming market conditions. If you compare the current price of a financial asset with the value of a moving average (for example a 50-day MA) you get in just a glance a clear picture regarding if that asset is trading in overbought or oversold levels.

Basic Features of Trading with Moving Averages

(1) The Moving Averages can eliminate the impact of Market Noise and produce smooth results

(2) An MA can analyze the trend of any financial market (Stocks, Forex, Indices, Bonds, Commodities) in any timeframe (intraday, daily, weekly, monthly)

(3) Can signal trades and confirm the results of other technical analysis tools (ADX, RSI etc)

(4) Moving averages can be sub-components of a technical analysis system, or to be used as components of an automated trading system (EA)

Read more: Trading with Moving Averages

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Trend Indicators

Trading with the Ichimoku Kinko Hyo

(一目均衡表)

◙ Usage: Evaluating the Trend | Identifying Overbought/Oversold Levels

◙ Trading: Spot Strong Trends/Reversals

◙ Standard Settings: Tenkan-Sen (9), Kijun-Sen (26), Senkou Span (52)

Introduction to Ichimoku Kinko Hyo

Many Forex professionals consider the Ichimoku Kinko Hyo as one of the best technical analysis tools to trade the Foreign Exchange Market. The Ichimoku Kinko Hyo was developed by the Japanese Goichi Hosoda back in late 1960. The indicator can be used in any financial market (Forex, stocks, etc).

What distinguishes the Ichimoku Kinko Hyo from other indicators is its ability to provide a complete and quick picture of the current market conditions via the Quick Equilibrium Chart. Ichimoku Kinko Hyo can also indentify strong trends and reversals at just a glance.

Read more: What is the Ichimoku Kinko Hyo

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Trend Indicators

Fibonacci Numbers

◙ Usage: Evaluating Trends/Reversals

◙ Trading: Calculating Support & Resistance Levels

◙ Standard Levels: 0.236 | 0.382 | 0.500 | 0.618 | 1.000 | 1.618 | 2.618 | 4.236

 Introduction to the Fibonacci Sequence

Leonardo Pisano or else Fibonacci was a famous Italian mathematician of the 12th century who introduced a revolutionary sequence of numbers that are called the Fibonacci numbers. The Fibonacci series of numbers is an infinite sequence of numbers with some unique characteristics. First of all, each number is the sum of the previous two numbers:

The General Rule is:

■ X(n) = X(n-1) + X(n-2)

0 | 1 | 1 | 2 | 3 | 5 | 8 | 13 | 21 | 34 | 55 | 89 | 144 | 233 etc

Where 3 = 2+1, 5=3+2, 8=5+3, 13=8+5, 21=13+8 etc

Chart: Using the Fibonacci Retracement to spot support and resistance levels

Read more: Fibonacci Trading