Stock trading has always been a very challenging profession. Many professional stock traders have changed their lives even though they had nothing when they took on trading as their career. With strong devotion, dedication, and sincerity, they managed to become a top trader. During the trading process, traders use different kinds of tools to analyze market data. These tools are used to find a potential entry point. At times, it acts as the best filter tool.
Indicators are a very common topic in stock trading. Since we have thousands of indicators in the Forex market, it is very hard to choose the right one. Today, we are going to discuss the top 4 indicators used by professional stock traders.
Moving average is a very common indicator used by the elite stock and Forex traders. But the period selection greatly depends on a trader’s approach and skill. In general, a 100 and 200 period daily moving average is most commonly used by successful traders since it provides accurate dynamic support and resistance level. You can also filter the down and up trend with the help of this moving average. As long as the price of a certain asset is trading above the 200 moving average, you can consider the trend as upward. If the price falls below the 200 moving average, consider the trend is downward. By using it properly, you can even filter out the trend in very complex market conditions.
Relative Strength Index
The relative strength index or RSI is used to find the overbought and oversold condition of the stock. If you read some analysis on the major stock market, you will see the elite traders at Saxo capital markets often uses the RSI to determine the state of the market. RSI has a simple signal line and when the signal line is trading below the 20 levels, we can assume the market is oversold. So looking for buying opportunity in that stock is a valid action. On the other hand, when the RSI signal line tests the 80 levels, you have to sell the stock as it is showing an overbought state. During the data collection from the RSI, try to stick to the higher time frame data as it will help you find a much more accurate signal.
Bollinger band indicator
The Bollinger band indicator is more like using the moving average. The upper band act as the resistance and the lower band act as the support. Those who are having trouble finding the entry and exit point for the trend can use the Bollinger band. It can act as an excellent stock trading tool provided that you are trading the band with the help of the price action signals. You can also find the direction of the trend by assessing the slope of the mid-band. If the slope is pointing north, you can assume the trend is up. If the slope is pointing south, you can assume the trend is downward. It might take some time to get used to this tool but once you do, you can significantly improve your trading.
Fractals are a confirmation tool for traders. It works more like a stochastic and RSI indicator. When you find a short trade, you should wait for the fractal market at the top of the candle. Unless you find the fractal market, you should never sell the asset. Similarly, when you are trying to buy the asset wait for the fractal market below the candle. Note that the fractal is invalid if you take the trades at the minor support and resistance level. The best result can be achieved by taking the reading from the daily and weekly charts. The fractal indicator can also be used to trade the currency market.