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Financial Market Trading: Indicator and Oscillators

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PostPosted: Fri Apr 07, 2017 10:19 am    Post subject: Financial Market Trading: Indicator and Oscillators Reply with quote

Trading in a financial market is not easy. It requires a good amount of trading and market analysis skills to excel in your trading career. Indicators help traders to gain better insight of the market, irrespective of the market they are trading in. Here are some indicators that every trader should know to trade financial market.

Average Directional Index
Average directional index or ADX is trend indicating indicator that helps a trader to test the strength of current trend. Although the indicator can be used to identify the momentum that is behind a trend, it cannot identify the direction in which the trend is moving. Two price movement measures are used in combination to calculate ADX.

They are negative directional indicator and positive directional indicator. The positive direction indicator helps to measure the strength of an uptrend and negative directional indicator tests the down trend. These two indicators are also plotted along with the ADX line. ADX is measured on the scale between 0 and 100. 20 acts as signal of weak trend while above 40 is a signal of a strong trend.

Moving average convergence divergence or MACD is one of the most popularly used indicators. The momentum is measured using two exponential moving averages. The difference between the two exponential averages is called MACD. The two exponential moving averages are plotted on the chart with a centreline that is plotted in between. Centreline is at equal distance from both the moving average lines. This indicator helps in measuring short term in comparison to long term momentum. This signals the current direction of the momentum. The formula of the MACD is given below:

MACD = short term moving average-long term moving average
Positive MACD is a signal of an upward momentum while negative MACD is a signal of downward momentum.

Accumulation and Distribution Line
This indicator is one of the popular volume based indicator. This indicator helps a trader to measure the money flows for an asset. Accumulation/distribution line is an indicator that measures the buying to selling. This ratio is calculated by comparing the movement of price over a certain period of time to the volume of that period. The formula is given below:

Acc/Dist= [(Close-Low)-(High-Close)]/ (High-Low)*volume of the period
The indicator is not bounded and thus, keeps summing up over the period of the asset. Traders use this indicator to get a better insight of the market and find the trends prevailing in the market. When the line of an asset is moving upwards, it is an indication that the market is witnessing more buying and selling and vice versa.

Relative strength index or RSI is also a popular indicator like MACD. This momentum indicator signals the overbought and oversold market conditions. The RSI is plotted within the range of zero and 100. If the RSI reading is above 70, it is an indication that the assets are overbought. On the other hand, a reading below 30 will suggest that the assets are oversold. RSI is very helpful to traders as it helps them to identify any unreasonable push in the current levels and predict any reversals in the near future.

Apart from the above mentioned indicators, traders must also focus on indicators like stochastic oscillator, on-balance volume, Aroon indicator and Aroon oscillator to trade better in any financial market.
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