Efficient market analysis might not guarantee 100% accuracy while trading in uncertain conditions, yet it could position traders in such a way that any unexpected move won’t take them by surprise.
If you’re a trader and you want to improve your ability to analyse the markets with technical indicators, this article will cover some of the most useful.
Alt-text: technical indicators for market analysis
Measuring the positive and negative flow of volume in a security over time, On-Balance Volume (OBV) is not an indicator traders hear about daily in the media. Yet, it can be very efficient, since a rising OBV shows buyers are willing to step in and drive the price verse, while in the opposite scenario (failing OBV) the sellers hold the upper hand.
This is an indicator also posting divergences, generally signaling from an early stage that the market trend is about to reverse, due to underlying weakness in the order flow. Traders wanting to use will find OBV available at TradingView, one of the most popular solutions in the market.
A reputed CFD brokerage, easyMarkets, has recently integrated TradingView and joined a select group of companies that enable access to advanced trading tools, a large Social Network, and other resources useful for a broad, range of assets, including stocks, currencies, commodities, indices, or cryptocurrencies.
Average Direction Index
Secondly, the Average Direction Index (ADX) is a trend indicator measuring the strength and momentum of any price action development. Usually speaking, when the ADX posts a value above 40, that means the trend is powerful, either up or down, depending on the context.
Also, a figure below 20 the trend is weak and even though the price might be moving in a clear direction, it is not backed by large volumes and is vulnerable in the face of pullbacks. The indicator is posting two additional lines (DI+ and DI-), working together to show the direction of the trend.
An indicator not so commonly referred to but one that’s available via TradingView is Aroon, used to measure whether an asset is in a trend, based on the price hitting new highs or lows, during the calculation period.
Traders are using Aroon to identify new trends from an early stage, giving them the ability to get into the market at attractive valuations. Aroon-up crossing Aroon-down is the first sign of a shift in the underlying trend and the potential emergence of a new one in the opposite direction.
How traders should treat technical indicators?
On-Balance Volume, Average Direction Index, and Aroon can all be used to get more technical insights into the conditions of any given asset. However, traders must get accustomed to them see where their weaknesses are, to achieve higher accuracy and avoid the market noise.