Types of Indicators
4 Types
There are 4 types of trading indicators:
Trend-Following. These indicators, like Moving Averages and MACD, help you follow the market’s direction.
Oscillators. Tools like RSI and Stochastic show when the market might be overbought or oversold.
Volume-Based. Indicators such as the Money Flow Index (MFI) look at trading volume to gauge the strength of a move.
Volatility Indicators. Bollinger Bands and ATR measure how much the price is moving, helping you understand market volatility.
Don't worry if you don't understand everything so far. We will talk about each of them in detail later.
Using Indicators
No single indicator is perfect. The key is to use a combination that fits your trading style. Mix trend-following indicators with oscillators to get a complete picture. Always test your indicators on a demo account first to see how they work with your strategy.
Exercise
Put what you’ve learned into action with this simple exercise.
Pick One Indicator from Each Type
Choose one indicator from each of the following categories:
Trend-Following Example: Moving Average
Oscillator: Example: RSI (Relative Strength Index)
Volume-Based: Example: Money Flow Index (MFI)
Volatility: Example: Bollinger Bands
Take notes on how each indicator helps you understand the market.
Where? 🤔
I recommend you to use a backtesting tool for exercises. These are platforms designed specifically for trader's learning and practicing. They simulate real-market, but in the past. For example, they can teleport you in 2015, and let you trade on historical data. This helps to test your strategies, gain confidence, and master some new skills (such as indicators).
Two most popular backtesting tools right now are TradingView and Forex Tester Online.
Alternatively, you can use any other trading simulator or a demo account.
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