3 Essential Indicators for Technical Analysis
Technical analysis sounds complicated, and it can be, if you are analyzing with the wrong tools. The study of financial market action, is what technical analysis is.
Here are 3 essential indicators that many investors use to predict the next drawdown in the market and who knows? Maybe you can use them to protect your portfolio!
50-Day EMA and 200-Day EMA
If you've read our blog post, Crypto Trading Strategies... Made EASY!, then these terms might sound familiar. Moving averages look back at price action over specific time periods and constantly creates an updated average price. To put it simply, the 50-day EMA is used to measure the average immediate price of a security, while the 200-day EMA measures the average long term price.
Relative Strength Indicators
Stochastics can help identify the buy-and-sell cycles in market movements. It measures the current price relative to the price range over a number of periods. These cycles usually reach a peek at overbought or oversold levels and then move to the opposite direction, with the two indicators lines crossing over. However, cycle alternations do not always translate into higher or lower security prices. Bullish or bearish turns indicate periods in which buyers or sellers are in control of the ticker tape. Volume, momentum, and other market forces are still needed to cause price change.
Values above 80 are considered overbought, while values below 20 are considered oversold.
On-Balance Volume (OBV)
OBV measures the positive and negative flow of volume in a security over time. It is running sum of up volume minus down volume. Up volume is the amount of daily volume when the price rallied, while down volume is the amount of daily volume when the price falls.
When OBV is rising, it means buyers are willing to take risk and push the price higher. When OBV is falling, it shows that selling volume is outnumbering buying volume and hence indicates lower prices.
Moving Average Convergence Divergence (MACD) indicator is a powerful tool to examine rapid price change. This momentum tool shows how fast a particular market is moving and the trend direction. When the MACD is above zero, the price is in an upward phase. If the MACD is below zero, it has entered a bearish period.
The indicator is made of two lines: the MACD line and a signal line, which moves slower. When the MACD crosses below the signal line, it means price is falling. When the MACD line crosses above the signal line, it means price is rising.
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