Best indicators for the modern trader
4 stars based on
As a futures trader, it can be quiet overwhelming to find the right technical indicator with all the options available in the marketplace. After all, no one likes a chart overlaid with too many indicators yielding conflicting futures trading technical indicators confusing signals, making futures trading technical indicators stressful and daunting.
In this article, we look at three of the top technical indicators that may potentially assist you in futures trading technical indicators higher probability trades and managing them effectively. Technical traders have been using moving averages to trade for almost as long as digital trading has existed.
That is one reason why moving averages work futures trading technical indicators well in the first place. The more traders that follow a particular technical indicator, the higher the chances that indicator is useful for your own personal trading. Simply put, moving averages help smooth out futures trading technical indicators data by producing a mean of pre-determined number of close prices that constantly updates as new price data is available — hence the name moving average.
A shorter period moving average will usually run closer to the actual market action than a longer period moving average. As you can see in the chart above, the 21 period moving average is pegged closer to price than the period moving average.
That is obvious since the average of the last 21 candlestick closes will naturally be closer to real-time prices than the average of the last candlestick closes — especially in a trending market. While shorter term moving averages futures trading technical indicators work well in strong trending markets consider the last part of market action in the chart above as you find several occasions when price bounces off them as support or resistance, in sideways market conditions they can yield far too many touches often resulting in conflicting and weak futures trading technical indicators.
Whether you choose to use longer term moving averages, shorter term moving averages or a combination of the two, usually their functions will be the same. That is, we look at them on the chart as moving support and resistance levels, and in the case of crossover — possibly a sign of trend change. If we sparked an interest within you to further explore the relationship between longer term and shorter term moving averages, perhaps you need to look no further than the MACD indicator or Moving average convergence divergence indicator.
The MACD is one of the most futures trading technical indicators momentum oscillators that uses the difference between two moving averages by default the 26 and the 12 period moving average giving you the best of trend following and momentum information.
The MACD oscillates above and below a zero line often referred to as the center line, depending on whether the two moving averages are converging, futures trading technical indicators or crossing each other which would yield a MACD reading of zero. As you plot the MACD indicator on your chart you should find three illustrations within the indicator panel.
There is the MACD line in blue which is futures trading technical indicators difference between the 26 period moving average and the 12 period moving average. You will notice that as the red futures trading technical indicators blue lines cross each other the histogram is essentially flat, while it rises as the distance between the two lines widens. Recall from our previous section on moving averages that shorter term moving averages follow price more closely than longer term moving averages.
In the case of the MACD, when the 12 period moving average is trading above the 26 period moving average, we are generally trading in an uptrend with upside momentum. On the MACD this is represented as positive values. On the other hand, when the 12 period moving average trades below the 26 period moving averages the MACD futures trading technical indicators a negative futures trading technical indicators and the histogram inverts itself below zero, indicating more downside momentum.
A slightly different interpretation of the MACD is also very popular. Traders also like to pay attention to moments when the MACD line and the signal line cross. When the MACD line turns down and crosses the signal line from above, we may have an opportunity to go short. On the contrary, a long opportunity may arise when the MACD line crosses the signal line from below.
As you may see in the chart above, the two lines on the MACD crossing can often pick up market turnarounds accurately and timely. It is always better to combine signals from different sources and indicators to further validate trade setups.
Like all others, the MACD is also an additional technical indicator — and a very effective one — to validate your trades. It is by no means intended to be used as a standalone trading method. It is also worthwhile to note at this point, that a lot of traders also prefer to use the MACD not to extract trading signals from, but to merely spot conventional divergence. Conventional divergence is when the highs or lows being printed by the actual price action opposes the highs or lows being printed on oscillator indicators like the MACD.
The above chart shows bearish divergence that is the highs printed by price are matched with lower highs printed on the MACD lines. Note however that since the MACD is not bounded above or below the zero line it is not as effective in spotting overbought or oversold conditions outright.
The third top indicator on our list is the Fibonacci retracement, which pans out different levels on a trend that price may potentially bounce off during a pullback. Technically, Fibonacci retracements can only be used when price is retracing or pulling back into an established trend which in a way limits the use of this particular indicator. Well, there are Fibonacci extensions that you can use to plot areas beyond current price levels to predict where price may potentially hold as support and resistance while extending and building on the current trend.
However, that variation of Fibonacci is not as widely used as Fibonacci retracement, which is why we chose to focus mainly on the Fibonacci retracement indicator for periods where price is pulling back into trends. After all, getting in on a pullback to a decent trend is one of the major goals of most traders. Fibonacci retracement indicator essentially divides the distance between two extreme points usually the swing high and the swing low of the trend into the Fibonacci ratios of For this indicator especially, it can be really powerful to combine the retracement levels with other sources of potential support and resistance like trend lines and horizontal support and resistance levels.
While we emphasize that Fibonacci retracement levels be used in conjunction with other aspects of technical analysis, this also holds true with the other two indicators we discussed above as well as any other indicator that you may choose to employ in your trading. While these technical indicators are highly popular and effective in assisting you understand price action and market momentum, they are in no way standalone trade entry triggers futures trading technical indicators even trade management tools for that matter.
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. Optimus Futures is a leading online futures broker that caters to traders seeking fast execution and stable data feeds combined with aggressive margins and deep discount commissions.
About Optimus Futures Optimus Futures is a leading online futures broker that caters to traders seeking fast execution and stable data feeds combined with aggressive margins and deep discount commissions.