Indicators are considered the most essential tools for retail traders. Starting from the novice, ending with the professionals, everyone relies on the indicators reading to find the quality trade signals. But the novice traders fail to analyze the indicators reading properly as they rely too much on the tools. Indicators should be considered as helping tools. For instance, professional traders never use the indicators reading to find the position of the trade signals rather they use it to assess the quality of the trade setup.
In this article, we will discuss the top 4 indicators used by professional traders. Once you read this article, you should be able to use these indicators just like a professional trader.
Relative strength index
The relative strength index or the RSI is a very popular indicator in the CFD market. Most novice traders rely on the RSI index to find the overbought and oversold condition of an asset. The RSI indicator shows the market condition with the help of a signal line. If the signal lines move in the north direction, you should be expecting a strong bullish rally in the market. On the contrary, if the RSI signal drops, you should be expecting a downtrend.
To find the overbought and oversold state of an asset, you have to consider two important zones. When the signal line is trading between the 100-70 level, you should consider it as an overbought signal. On the contrary, when the signal line trades between 0 -30 level, look for buying opportunity.
100 and 200-period moving average
The 100 and 200 period SMA is one of the most important indicators in the CFD market. With the help of these moving averages, you can find the reversal, support, and resistance levels in the market. But for that, you need to use the CFD demo account and learn its use properly. If the 100 period SMA trades above the 200 SMA, you should be considering the buying signals only. On the contrary, if the 100 period moving average trades below the 200 SMA, you should consider the trend as bearish.
The professional scalpers often use the 100 and 200 periods moving as dynamic support and resistance level. If you carefully notice the price action scenario, you will be surprised to see that the price will respect these moving averages most of the time. So, you may set the pending orders at the SMA and make a decent profit by scalping the market.
Bollinger band indicator
The Bollinger band indicator creates a simple channel in the market. The upper channel acts as the resistance level and the lower channel act as the support zone. When the price rejects the upper channel, you should be expecting a strong drop in the price. On the contrary, if the price bounces off from the lower channel, you should be expecting a bullish rally.
The slope of the Bollinger band indicator also tells a lot about the trend. If the slope is positive, the trend is bullish. On the contrary, if the slope is negative, consider the trend as bearish. Based on the slope, you should be taking the trades in the market.
The stochastic indicators work more like the RSI indicator. But this is mostly used to deal with volatile assets. If the signal lines trade in between 0-20 levels, you should be expecting a rise in the price. On the contrary, if the signal line trades between 80-20 levels, consider the market is trading in the overbought zone. So, looking for a short trade setup will be a wise decision.
While using the stochastic indicator, try to focus on the higher time frame. If you trade in the lower time frame, you will not get accurate data reading from the market. So, take your time and select the time frame properly to get the accurate signals.