Indicators

Why indicators? Read here why all the Big Names are using indicators for their Trading. It’s highly advised that you do the same

Why indicators? In the trading world most professional traders use one or more indicators to determine whether a directional move still has room to continuing moving in the same direction or see if there are any signs that current move will change in short term. In other words indicators helps you to know what the next possible market move will be!

As traders we use indicators for both efficient entries as exits based upon the price action agreements that these indicators gives. In this section you will learn what a RSI indicator and MACD indicator are and how to use them for your advantages in your trading activities.

What is a RSI indicator?

RSI is a momentum indicator, which stands for Relative Strength Index. What this indicator does is that it compares the magnitude of recent gains to recent loss in an attempt to determine if the current security is overbought and oversold. The calculation formula of the RSI indicator is as follow: RSI= 100-100/(1+RS)

Where RS stands for average days X up closes/ average days x closes down. Which basically means average price gain divided by average price loss.

So how does the RSI determine the current position of a security? In general if the RSI level is above 70 then it is considered as being overbought, which means that prices will most likely drop soon in the short term. And when the RSI level is below 30 then it means the current security is oversold. When the RSI level is below 30 then you can expect that the price of a security will start rising soon.

RSI Convergences

A RSI Convergence is a price agreement between the current price movements of a security with the RSI movement. There are two kinds of RSI Convergences.

RSI Bullish Convergence

When RSI Bullish Convergence occurs its means that there bullish price agreement. So in this situation the prices of the current security will probably continue to increase in price and making newer highs, the same applies for the RSI Indicator.

RSI Bearish Convergence

When the RSI Bearish Convergence occurs it means that there is bearish price agreement. In this situation the prices of the current security will continue to make newer lows as will the RSI Indicator.

RSI Divergence

A RSI Divergence is a disagreement in price movement between the current security and the RSI Indicator movement. The price movement of both parties don’t match with each other. When this happens it means the markets want to reverse.

For example:

Situation 1: The price of a current security is making lower lows while the RSI Indicator is making newer higher lows. When this happens it means that there is a good possibility that the current price movement of the security will change into making new highs.

RSI Divergence

Situation 2: The current price movement of a current security is making higher highs while the RSI Indicator is making newer lower Highs. When this situation occurs it means that there is a good possibility that the current price movement of a security will change soon and it means that it will bearish soon.

MACD indicator

The MACD Indicator stands for Moving Average Convergence Divergence. The MACD indicator works a bit the same as the RSI Indicator. The only different is that MACD is calculated different. The formula for a MACD Indicator is as follow: 12 ema / 26 ema. Some traders use different MACD lines by putting in different EMA’s. When those lines crosses each other it would be then considered as signal to buy or to sell. However we use MACD Indicator to confirms strength of the current trend through Agreement and Disagreement.

So what do we mean by agreement and disagreement? If the price of a current security and the movement of the MACD Indicator are moving in the same direction then we called it Agreement. In this situation it means that trend of the current security remains the same.

However if there is a disagreement then it means that the price of a current security doesn’t move in the same direction as the MACD Indicator. What happens in this situation is that there is a chance that the price movement of the current security will head in the same direction as the MACD soon.

What have your learned?

In this trading section we have explained you what indicators can do. We have explained how the RSI indicator and the MACD indicator work. Now you know how they work, you can use these indicators to your own advantages.

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Why indicators? Read here why all the Big Names are using indicators for their Trading. It’s highly advised that you do the same

What is a RSI indicator?

RSI Convergences

RSI Divergence

RSI Divergence

MACD indicator

What have your learned?

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Tutorial: How to Buy and Sell Apple CFD Stocks on Plus500

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Indicators

Why indicators? Read here why all the Big Names are using indicators for their Trading. It’s highly advised that you do the same

What is a RSI indicator?

RSI Convergences

RSI Divergence

RSI Divergence

MACD indicator

What have your learned?

Share this entry

Table of contents

Learn how to make money by reading our trading articles

The Bigger Picture of the Foreign Exchange London

Online trading: understanding the business from all the angles

Trading techniques: study trends and swing the stock market

Daytrading With Stocks: 8 Strategies For Beginners

Plus500 Review: Is Plus500 a good broker?

Dividend stocks: a way to build a passive income

The Top 5 Most Promising ICO’s of February

Investing in ICO’s : Ten things that every investor needs to know

Bitcoin Private: A Cryptocurrency Review

Litecoin’s Development: How Did it Perform This December?

Tutorial: How to Buy and Sell Apple CFD Stocks on Plus500

Plus 500 Tutorial: How to Buy and Sell Facebook (CFD) Stocks

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