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The Top 5 Technical Indicators for Profitable Trading - YouTube
Channel: Trade Room Plus
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Welcome to the top five technical
indicators for profitable trading. By the
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end of the video you'll have a good
understanding of how people use
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technical indicators to trade with, with
the examples we provide. Technical
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indicators can be very confusing and
daunting for beginner traders. They don't
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have to be, and in this video give you a
basic understanding of them as useful
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technical indicators to help you make
profit in the markets. Firstly, all the
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indicators we are going to show you or
created from basic candlestick data. They
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all take their information from the
basic price action. The open, high, low and
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close data. If you need to learn more
about the basics of candlesticks then
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please click here and watch our
three-part candlesticks series here is
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some of the most common mistakes traders
make with technical indicators. Don't
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overload your screen of indicators. Only
display the indicators on the charts
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that you'll actually use. A lot of
traders overload the charts with
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indicators as an excuse to over trade.
Remember, indicators are an indication of
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something happening in the market. They
aren't a crystal ball trying to predict
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the future. Don't blame the indicators
when a trade doesn't work out no matter
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which indicators you use you will still
need to take losses in trading. The two
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types of indicators. There are two main
types of markets trending and range
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bound or sideways markets. A trending
market looks like this where the market
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is moving in one direction, a range bound
or sideways market looks like this, where
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the market is moving up and down within
a specific range indicators tend to be
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suited to either trending or range bound
in sideways markets. Indicator one: RSI
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the Relative Strength Index compares the
magnitude of recent gains to recent
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losses in an attempt to determine
overbought and oversold conditions of
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instrument. As you can see from the chart,
the RSI ranges from 0 to 100. An
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instrument is deemed to be overboard
once the RSI approaches a 70 level
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meaning that it may be getting
overvalued and is a good candidate for a
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pullback or reversal. Likewise, if the RSI
approaches 30 is an indication the
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instrument may be getting oversold and
therefore likely to reverse. Traders will
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often use the RSI either coming back out
to its overbought or oversold areas as a
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signal or partial signal to enter a
trade. As we can see, the RSI is often
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accurate when
indicating when a market will reverse. A
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trader using RSI should be aware that
large rallies and drops in the price of
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an instrument will affect the RSI by
potentially creating false buy or sell
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signals. Traders often combine the RSI
with other indicator signals such as MACD
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crosses. Indicator 2: MACD. The Moving
Average Convergence / Divergence is one of
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the most well known and used indicators
in technical analysis. This indicator is
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made up of two exponential moving
averages which help measure momentum and
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an instrument. These moving averages and
the changing distances between them
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become the MACD. Convergence simply means
the moving averages are moving close
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together, and divergence simply means
they're moving away from one another.
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When the shorter-term moving average is
above the longer-term moving average
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this area of the indicator will show
activity when the shorter-term moving
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average is below the longer-term moving
average, this area of the indicator will
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show activity. The centre line, of which
the MACD is plotted around, indicates
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where the moving averages are equal and
when the MACD passes through the centre
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line this indicates the moving average
is crossing. The signal line, here in red,
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is a moving average of the MACD values
themselves. Typical values for the MACD
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are 26 and 12 exponential moving
averages, and 9 for the signal line. The
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farther apart the moving averages and
the greater the momentum, the farther
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away the MACD will be from the centre
line. Traders use the MACD and signal line
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crosses, such as these, to indicate
momentum trades. You can see how these
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crosses often match up with market moves.
Traders also use the MACD crosses to
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indicate where momentum is coming out of
the market and may use it is a signal to
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exit a trade. Indicator 3: Bollinger Bands.
A Bollinger Band starts off a simple
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moving average it then has two standard
deviations plotted away from it. Now
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sounds a mouthful, but the important part
is because standard deviation is a
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measure of volatility, Bollinger Bands
adjust themselves to current market
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conditions. When the markets become more
volatile, the bands widen and move further
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away from the average. During less
volatile periods the bands contract,
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moving closer to the average. The
tightening of the bands is often used by
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technical traders as a early indication
that volatility is about to rapidly
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increase as volatility often follows
periods of lack of volatility. The market
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spent most of the time within the bands
and when the price action reaches the
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edge of the bands, it is often more likely
to reverse and come back into the range.
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This is used as a signal by reversal
traders to take a trade. This is similar
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to the oversold and overbought
conditions of the RSI. Indicator four:
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Super Trend Indicator. The super trend
indicator is an excellent indicator of
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trend direction. It can be used as a
foundation of a trading system that is
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based on trend following. One of the most
popular ways to use this indicator is to
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enter the market after a pullback. For
example, if the market is on a downtrend,
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indicated by red, wait for a green
pullback and then re-enter the market
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once it turns red again. The same can
apply in up trending markets. Here we can
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see how this indicator accurately tracks
market trends. It can be refined through
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the settings to match the specific
instrument. Indicator 5: Confluence. The
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last indicator isn't a new one it's
indicated confluence,which means to use
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multiple indicators and their signals to
take a trade. Here we have the RSI and
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MACD we looked at with the RSI moving
into overbought
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territory here. Remember, that indicates
the market will reverse. However, we want
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to help us filter out false signals on
the RSI so we also look at the MACD to
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give us confluence. We can see is
indicating the momentum has come out of
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the market as far as the market rallying
or going up is concerned. And we have an
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MACD cross here. A signal to enter this
short trade could be waiting for the RSI
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sights come back out of the overbought,
and also waiting for the MACD cross. We
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can see that those combined signals or
an indication that captures this trend.
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We can use the opposite signals to
indicate when the momentum is coming out
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of the market and it's more likely to
reverse and the market to retrace back
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up the opposite direction of our trade,
and therefore is an exit signal. In
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addition to the RSI and MACD signals we
can add further confidence this trade
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with a Bollinger Band and the Super
Trend Indicator. We can see the market is
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at the top of the Bollinger Band here,
but we could also wait for the Super
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Trend Indicator to change right here
before taking the short trade.
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And now we have the confluence of four
indications. We have an RSI coming back
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out of overbought.
We have an MACD cross. We have the market
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going to the edge of one of the
deviations on the Bollinger Band, and we
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also have the Super Trend turning back
to red. This is the sort of confluence you
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should be looking for with technical
indicators on various markets to see how
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you can find opportunities to take
profitable trades. There are hundreds of
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indicators a trader can choose from. The
five we've spoken about on the best ones
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to developed trading strategies from.
Take note how the indicators work with
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certain mark conditions and see if you
can see patterns in the market.
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