Top 5 tools and indicators for beginners

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Ever wondered how to use technical indicators in trading? Well wonder no more, this article introduces 7 popular indicators, and the strategies you can use to profit from their signals.

Technical trading involves reviewing charts and making decisions based on patterns and indicators.

These patterns are particular shapes that candlesticks form on a chart, and can give you information about where the price is likely to go next.

Indicators are additions or overlays on the chart that provide extra information through mathematical calculations on price and volume. They also tell you where the price is likely to go next.

There are 4 major types of indicator:

Trend indicators tell you which direction the market is moving in, if there is a trend at all. They’re sometimes called oscillators, because they tend to move between high and low values like a wave. Trend indicators we’ll discuss include Parabolic SAR, parts of the Ichimoku Kinko Hyo, and Moving Average Convergence Divergence (MACD).

Momentum indicators tell you how strong the trend is and can also tell you if a reversal is going to occur. They can be useful for picking out price tops and bottoms. Momentum indicators include Relative Strength Index (RSI), Stochastic, Average Directional Index (ADX), and Ichimoku Kinko Hyo.

Volume indicators tell you how volume is changing over time, how many units of bitcoin are being bought and sold over time. This is useful because when the price changes, the volume gives an indication of how strong the move is. Bullish moves on high volume are more likely to be maintained than those on low volume.

We won’t cover volume indicators here, but this class includes On-Balance Volume, Chaikin Money Flow, and Klinger Volume Oscillator.

Volatility indicators tell you how much the price is changing in a given period. Volatility is a very important part of the market, and without it there’s no way to make money! The price has to move for you to make a profit, right?

The higher the volatility is, the faster a price is changing. It tells you nothing about direction, just the range of prices.

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Low volatility indicates small price moves, high volatility indicates big price moves. High volatility also suggests that there are price inefficiencies in the market, and traders spell “inefficiency”, P-R-O-F-I-T. We’ll cover 1 volatility indicator today, Bollinger Bands.

So why are indicators so important? Well, they give you an idea of where the price might go next in a given market. At the end of the day, this is what we want to know as traders. Where is the price going to go? So we can position ourselves to take advantage of the move and make money!

As a trader, it’s your job to understand where the market might go, and be prepared for any eventuality. You don’t need to know exactly where the market is going to go, but understand the different possibilities, and be positioned for whichever one materializes.

Remember, traders make money in bull AND bear markets. We take advantage of long AND short positions. Don’t get too attached to the direction of the market, as long as the price is moving you can profit. Indicators will help you to do this.

Without further ado, here are the stars of the show.

1) Bollinger Bands

Bollinger bands are a volatility indicator. They consist of a simple moving average, and 2 lines plotted at 2 standard deviations on either side of the central moving average line. The outer lines make up the band.

Simply, when the band is narrow the market is quiet. When the band is wide the market is loud.

You can use Bollinger Bands to trade in both ranging and trending markets.

In a ranging market, look out for the Bollinger Bounce. The price tends to bounce from one side of the band to the other, always returning to the moving average. You can think of this like regression to the mean. The price naturally returns to the average as time passes.

In this situation, the bands act as dynamic support and resistance levels. If the price hits the top of the band, then place a sell order with a stop loss just above the band to protect against a break out. The price should revert back down towards the average, and maybe even to the bottom band, where you could take profits. Check out the screenshot below.

When the market is trending, you can use the Bollinger Squeeze to time your trade entry and catch breakouts early on. When the bands get closer together (i.e. they squeeze), it indicates that a breakout is about to happen. It doesn’t tell you anything about direction so be prepared for the price to go either way.

If the candles breakout below the bottom band, the move will generally continue in a downtrend.

If the candles breakout above the top band, the move will generally continue in an uptrend. Take a look at the screenshot below.

In summary, look out for the Bollinger Bounce in ranging markets, the price will tend to return to the mean. In trending markets, use the Bollinger Squeeze. It doesn’t tell you which way the price is going to go, just that it’s going to go.

2) Ichimoku Kinko Hyo (AKA Ichimoku Cloud)

Ichimoku Kinko Hyo (AKA Ichimoku Cloud) is a collection of lines plotted on the chart. It’s an indicator that measures future price momentum, and determines areas of future support and resistance. At first glance this looks like a very complex indicator, so here’s a breakdown of what the different lines mean:

  • Kijun Sen (blue line): Also called standard line or base line, this is calculated by averaging the highest high and the lowest low for the past 26 periods
  • Tenkan Sen (red line): The turning line. It’s derived by averaging the highest high and the lowest low for the past nine periods
  • Chikou Span (green line): Also called the lagging line. It’s today’s closing price plotted 26 periods behind
  • Senkou Span (red/green band): The first Senkou line is calculated by averaging the Tenkan Sen and the Kijun Sen and plotted 26 periods ahead. The second Senkou line is calculated by averaging the highest high and the lowest low over the past 52 periods, and plotting it 26 periods ahead

So how can you translate these lines into trading profits? I’m glad you asked.

The Senkou span acts as dynamic support and resistance levels. If the price is above the Senkou span, the top line acts as first support, and the bottom line as second support.

If the prices below the Senkou span, the bottom line acts as the first resistance, and the top line as the second resistance. Simple as that!

The Kijun Sen (blue line) can be used to confirm trends. If the price breakouts above the Kijun Sen, it’s likely to rise further. Conversely, if the price drops below this line, then it’s likely it’ll go lower.

The Tenkan Sen (red line) can also be used to confirm trends. If the line is moving up or down, it indicates the market is trending. And if it’s moving sideways, then the market is ranging.

Top Technical Indicators for Rookie Traders

Starting out in the trading game? Looking for the best technical indicators to follow the action is important. It affects how you’ll interpret trends—both on positions and in the broad averages—as well as the type of opportunities that pop up in your nightly research. Choose wisely and you’ve built a solid foundation for success in speculation. Choose poorly and predators will be lining up, ready to pick your pocket at every turn.

Most novices follow the herd when building their first trading screens, grabbing a stack of canned indicators and stuffing as many as possible under the price bars of their favorite securities. This “more is better” approach short circuits signal production because it looks at the market from too many angles at once. It’s ironic because indicators work best when they simplify the analysis, cutting through the noise and providing usable output on-trend, momentum, and timing.

Instead, take a different approach and break down the types of information you want to follow during the market day, week, or month. In truth, nearly all technical indicators fit into five categories of research. Each category can be further subdivided into leading or lagging. Leading indicators attempt to predict where the price is headed while lagging indicators offer a historical report of background conditions that resulted in the current price being where it is.

  1. Trend indicators (lagging) analyze whether a market is moving up, down, or sideways over time.
  2. Mean reversion indicators (lagging) measure how far a price swing will stretch before a counter impulse triggers a retracement.
  3. Relative strength indicators (leading) measure oscillations in buying and selling pressure.
  4. Momentum indicators (leading) evaluate the speed of price change over time.
  5. Volume indicators (leading or lagging) tally up trades and quantify whether bulls or bear are in control.

So, how can a beginner choose the right setting at the start and avoid months of ineffective signal production? The best approach in most cases is to begin with the most popular numbers while adjusting one indicator at a time and seeing if the output helps or hurts your performance. Using this method, you’ll quickly grasp the specific needs of your level.

Now that you understand the five ways that indicators dissect market action, let’s identify the best ones in each category for novice traders.

Key Takeaways

  • Technical indicators, by and large, fit into five categories – trend, mean reversion, relative strength, volume, and momentum.
  • Leading indicators attempt to predict where the price is headed while lagging indicators offer a historical report of background conditions that resulted in the current price being where it is.
  • Popular technical indicators include SMAs, EMAs, bollinger bands, stochastics, MACD, and on-balance volume.

Trend: 50 and 200-day EMA

We’ll start with two indicators that are embedded within the same panel as the daily, weekly, or intraday price bars. Moving averages look back at price action over specific time periods, subdividing the total to create a running average that’s updated with each new bar. The 50- and 200-day exponential moving averages (EMAs) are more responsive versions of their better-known cousins, simple moving averages (SMAs). In a nutshell, the 50-day EMA is used to measure the average intermediate price of a security, while the 200-day EMA measures the average long term price.

US Oil Fund (USO)’s 50- and 200-day EMAs rose steadily into the summer of 2020, while the instrument pushed up to a 9-month high. The 50-day EMA turned lower in August, with the 200-day EMA following suit one month later. The shorter-term average then crossed over the longer-term average (indicated by the red circle), signifying a bearish change in trend that preceded a historic breakdown.

Mean Reversion: Bollinger Bands (20,2)

USO buying and selling impulses stretch into seemingly hidden levels that force counter waves or retracements to set into motion. Bollinger bands (20,2) try to identify these turning points by measuring how far price can travel from a central tendency pivot, the 20-day SMA in this case, before triggering a reversionary impulse move back to the mean. The bands also contract and expand in reaction to volatility fluctuations, showing observant traders when this hidden force is no longer an obstacle to rapid price movement.

Relative Strength: Stochastics (14,7,3)

Market movement evolves through buy-and-sell cycles that can be identified through stochastics (14,7,3) and other relative strength indicators. These cycles often reach a peak at overbought or oversold levels and then shift in the opposite direction, with the two indicator lines crossing over. Cycle alternations don’t automatically translate into higher or lower security prices as you might expect. Rather, bullish or bearish turns signify periods in which buyers or sellers are in control of the ticker tape. It still takes volume, momentum, and other market forces to generate price change.

SPDR S&P Trust (SPY) oscillates through a series of buy-and-sell cycles over a 5-month period. Look for signals where:

  1. a crossover has occurred at or near an overbought or oversold level
  2. indicator lines then thrust toward the center of the panel.

This two-tiered confirmation is necessary because stochastics can oscillate near extreme levels for long periods in strongly trending markets. And, while 14,7,3 is a perfect setting for novice traders, consider experimenting to find the setting that best fits the instrument you are analyzing. For example, experienced traders switch to faster 5,3,3 inputs.

Momentum: MACD (12.26.9)

Moving average convergence divergence (MACD) indicator, set at 12,26,9, gives novice traders a powerful tool to examine rapid price change. This classic momentum tool measures how fast a particular market is moving, while it attempts to pinpoint natural turning points. Buy or sell signals go off when the histogram reaches a peak and reverses course to pierce through the zero line. The height or depth of the histogram, as well as the speed of change, all interact to generate a variety of useful market data.

SPY shows four notable MACD signals over a 5-month period. The first signal flags waning momentum, while the second captures a directional thrust that unfolds right after the signal goes off. The third signal looks like a false reading but accurately predicts the end of the February–March buying impulse. The fourth triggers a whipsaw that’s evident when the histogram fails to penetrate the zero line.

Volume: On-Balance-Volume (OBV)

Keep volume histograms under your price bars to examine current levels of interest in a particular security or market. The slope of participation over time reveals new trends, often before price patterns complete breakouts or breakdowns. You can also place a 50-day average of volume across the indicator to see how the current session compares with historic activity.

Now add on-balance volume (OBV), an accumulation-distribution indicator, to complete your snapshot of transaction flow. The indicator adds up buying and selling activity, establishing whether bulls or bears are winning the battle for higher or lower prices. You can draw trendlines on OBV, as well as track the sequence of highs and lows. It works extremely well as a convergence-divergence tool, as Bank of America (BAC) proves between January and April when prices hit a higher high while OBV hit a lower high, signaling a bearish divergence preceding a steep decline.

The Bottom Line

Choosing the right technical indicators is daunting but can be managed if novice traders focus the effects into five categories of market research: trend, mean reversion, relative strength, momentum, and volume. Once they’ve added effective indicators for each category, they can begin the long but satisfying process of tweaking inputs to match their trading styles and risk tolerance.

Top Tools for Learning

Results of the 13th Annual Learning Tools Survey published 18 September 2020

Top Tools for Learning

PPL100: Top 100 Tools for Personal & Professional Learning 2020

Here are the Top 100 digital tools and services that individuals use for their own self-improvement, learning and development . The number in brackets is the tool’s ranking on the overall Top 200 listing. Underneath the table is an analysis of this list with an infographic.

1 YouTube (1) 2 Google Search (2) 3 Twitter (4) 4 LinkedIn (5)
5 PowerPoint (3) 6 Google Docs/Drive (6) 7 Wikipedia (8) 8 Word (7)
9 LinkedIn Learning (13) 10 WordPress (9) 11 WhatsApp (14) 12 Feedly (15)
13 Dropbox (17) 14 Facebook (18) 15 Skype (19) 16 Slack (12)
17 TED (24) 18 Evernote (25) 19 Udemy (29) 20 Microsoft Teams (11)
21 OneNote (22) 22 Pinterest (31) 23 Diigo (32) 24 Excel (16)
25 Zoom (10) 26 Google Chrome (35) 27 Google Scholar (39) 28 Tweetdeck (43)
29 Google Translate (45) 30 Trello (28) 31 Gmail (46) 32 Instagram (48)
33 Medium (51) 34 Blogger (52) 35 Outlook (38) 36 Coursera (53)
37 Apple Podcasts (54) NEW 38 Pocket (56) 39 Duolingo (58) 40 Audible (61)
41 MindMeister (63) 42 Kindle App (71) 43 Yammer (36) 44 Apple Keynote (74)
45 Inoreader (76) 46 Google Maps (77) 47 Grammarly (78) 48 Google Keep (83)
49 Stack Overflow (84) 50 Prezi (47) 51 Slideshare (89) 52 Flipboard (90)
53 edX (101) 54 FutureLearn (103) 55 Pocket Casts (105) BACK 56 Quora (107)
57 Canva (34) 58 Google Calendar (108) 59 iVoox (112) NEW 60 SoundCloud (114)
61 Udacity (115) 62 getAbstract (116) 63 Degreed (65) 64 OneDrive (55)
65 Anders Pink (69) 66 Xing (118) 67 Codecademy (121) 68 deepL (123)
69 Firefox (125) 70 Scoopit (127) 71 Wakelet (79) NEW 72 Wordreference (132)
73 Xmind (133) BACK 74 Meetup (134) NEW 75 Nuzzel (137) 76 Blinkist (138)
77 Google Alerts (139) 78 Overast (146) 79 WeTransfer (149) NEW 80 Castro (155)
81 Google Hangouts Meet (93) 82 Appear.in (124) 83 Pluralsight (156) 84 Podcast Addict (157) NEW
85 Apple iMovie (153) 86 Highbrow (158) 87 IFTTT (160) 88 DuckDuckGo (163)
89 Omnigraffle (165) 90 Mind Tools (151) NEW 91 Apple Pages (166) 92 Vimeo (66)
93 Microsoft Edge (167) 94 Freemind (170) 95 Zapier (171) 96 Bing (172)
97 Khan Academy (173) 98 Office Lens (174) 99 Snapchat (175) 100 Alison (176)

Analysis

This year’s PPL list – together with the comments on to how the tools are used – shows that many individuals are clearly Modern Learners. They learn for many different reasons, not just to develop new knowledge and skills, but to solve problems as well as for inspiration as well as for the joy of learning. They do this in 4 key ways, which I call the 4 D’s of Learning (explained below). This graphic plots the PPL100 tools around these 4 learning areas.

1 – DIDACTICS

When it comes to acquiring a new body of knowledge, individuals will probably prefer being taught and so like to take an online course – hence a wide range appear on the list, the most popular of which is LinkedIn Learning, as this comment explains

“I use LinkedIn Learning to continue to keep my skills up to date and to learn new skills to help me develop in my job. I also use it to recommend courses to others who also have LinkedIn Learning.”

2 – DISCOVERY

When it comes to problem-solving or keeping up to date though, modern learners prefer to find things out for themselves using different types of web resources.

    • This year, podcasts are an extremely popular way of finding out stuff, and Apple Podcasts comes out top tool for its podcasts and its player.

“This is the app I use for finding, subscribing and listening to podcasts, one of the least intrusive ways to learn.”

    • Modern learners also use a number of tools and services to help them curate and be notified of new web resources. Feedly is the top tool for this, as it allows users to subscribe to blogs and be alerted to new posts (as this comment shows).

“Feedly is my key tool for keeping up to date across a range of personal and professional interests.”

3 – DISCOURSE

Interacting with others is a key way for modern learners to learn, hence social networks remain high on the list. Although Facebook continues to drop down the list again this year, Twitter is still the No 1 social network for building a professional network (as this comment shows),

“My personal learning network (PLN) on Twitter is vibrant and full of generous, knowledgable people who contribute to my growth daily.”

However LinkedIn is close behind since nowadays it provides a more comprehensive networking environment.

“Increasingly better for general work-related interaction and PD. Much less focus on job hunting makes this a better learning platform. Group options now better and hashtags help filter more relevant content.”

4 – DOING

Modern learners learn by doing, ie by engaging in activities so many of the tools on the list help them with their daily life and work. They also use a number of tools to make sense of what they do and discover – through reflecting on their experiences, e.g. through mindmapping, but notably through blogging. WordPress remains the No 1 tool for reflection as well as sharing (as in this comment)

“Here’s where I lay out my ideas. The learning comes from just me thinking through things to keep populating the post, and the exercise of actually putting the thoughts down. And of course from comments, whether here or as often happens, on LinkedIn”

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1) Top 3 Technical Analysis Indicators (Ultimate Guide)

2) The Top 5 Technical Indicators for Profitable Trading

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3) Best Technical Analysis Tools and Indicators?

4) The Most Important Technical Analysis Indicators

5) Introduction to Technical Analysis for Beginners

6) Technical Analysis for Beginners

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7) Bill Poulos & Profits Run Present: The Basics Of Technical Analysis Explained Simply In 8 Minutes

8) Top 3 Technical Analysis Indicators (Ultimate Guide)

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10) Introduction to Technical Analysis

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