Trader must know 5 popular Indicators - the secret weapon for profit-making

Why are Indicators Important?

Trading is not just about luck. Successful traders rely on popular indicators to analyze the market, identify entry and exit points, and manage risk. Today, we will introduce the 5 most commonly used indicators in the industry that every trader should understand deeply.

Comparison of the 5 Most Popular Indicators

Moving Average - The Easiest Tool to Read Trends

Moving Average is a widely used indicator that traders use to determine whether an asset’s price is trending up, down, or sideways.

How to Use Moving Average

The simplicity of this indicator lies in one rule:

• Price > Moving Average = Uptrend → Buy
• Price < Moving Average = Downtrend → Sell

There are several types of Moving Averages, such as SMA, WMA, and EMA. EMA (Exponential Moving Average) is the most popular due to its calculation accuracy.

Calculation and Usage

Moving Average is calculated from the average of past prices:

• MA 5 days = Past ~1 week (Short-term trading)
• MA 35 days = Past ~2 months (Medium-term)
• MA 200 days = Past ~1 year (Long-term)

Key tip: If short-term MA > medium-term MA > long-term MA, it confirms a strong uptrend.

Strengths and Weaknesses

Strengths: Easy to use, can serve as dynamic support/resistance (Dynamic Support/Resistance)

Weaknesses: Lagging indicator, signals come after price moves, and may give false signals often in sideways markets.

RSI (Relative Strength Index) - Find Overbought or Oversold Conditions

RSI is a momentum indicator that measures price oscillation to identify overbought (buying too much) or oversold (selling too much) conditions. RSI values range from 0-100.

How to Use RSI

Standard levels:

• RSI < 30 = Oversold (selling too much) → Buy signal
• RSI > 70 = Overbought (buying too much) → Sell signal

RSI also helps identify divergence clearly, which signals potential reversals.

Calculation Method

RSI formula compares the average of positive and negative returns over the past 14 candles:

RSI = 100 - (100/(1 + (Average Gain)/(Average Loss)))

Example: If over 14 days, the average gain is 2% on 7 days and the average loss is -1% on 7 days, RSI will be approximately 66.67.

Strengths and Weaknesses

Strengths: Accurate for short-term reversal points and good at spotting divergence signals.

Weaknesses: In strong trends, RSI can stay overbought or oversold for a long time, leading to premature trade exits.

MACD (Moving Average Convergence Divergence) - Read Both Trend and Momentum

MACD (pronounced “Mac-Dee” or “M-A-C-D”) is developed from Moving Averages, combining trend and momentum analysis strengths.

How to Use MACD

Very simple: observe the relationship between MACD line and Signal line:

• MACD > Signal line = Bullish (Uptrend) → Buy signal
• MACD < Signal line = Bearish (Downtrend) → Sell signal

MACD helps visualize both price direction and movement strength.

Calculation Method

MACD = EMA(12) – EMA(26) Signal Line = EMA(9) of MACD

EMA(12) and EMA(26) are exponential moving averages of closing prices over 12 and 26 days.

Strengths and Weaknesses

Strengths: All-in-one indicator providing trend and momentum signals.

Weaknesses: Complex calculation, lagging indicator, signals come after price moves.

Volume - Trading Volume Indicates Price Power

Volume shows the trading amount of an asset, helping us understand whether price movements are genuine or false signals.

How to Use Volume

Relationship between Price and Volume:

• When price rises:
  • Price up + Volume up = Rising with strength (Likely to continue)
  • Price up + Volume down = Weak rise (Potential reversal)
• When price falls:
  • Price down + Volume up = Falling with strength (Likely to continue)
  • Price down + Volume down = Normal decline (May end)

Calculation Method

Volume is the traded amount within a specific period (day, hour, minute), depending on the timeframe.

( Strengths and Weaknesses

Strengths: Confirms price action reliability. Breakouts with high volume are more trustworthy.

Weaknesses: Does not indicate direction alone. In Forex, volume may only reflect broker activity, not the entire market.

Visible Range )Volume Profile### - Find the True Market Cost

Visible Range or Volume Profile is a newer popular indicator derived from Volume, providing more detailed insights by showing the price levels where most traders have their positions.

( How to Use Visible Range

Simple rules:

• Price > Visible Range = Uptrend → Buy signal
• Price < Visible Range = Downtrend → Sell signal

Helps identify strong support and resistance levels more accurately than drawing lines.

) Calculation Method

Calculated from the average trading price within the specified period.

Strengths and Weaknesses

Strengths: Reveals the true market cost, allowing precise identification of significant resistance/support levels.

Weaknesses: Chart may look cluttered; some platforms may require additional subscription fees.

How to Properly Use Indicators

The key is selecting the right indicators suited to your trading style. Backtesting ###Backtesting### is essential to confirm that your chosen indicators work well with your assets and timeframes.

Important: Indicators are just tools. The core principles of trading are having a clear plan, risk management, and discipline.

Choose popular indicators that suit you, practice diligently, and master them. That is the path to trading success. 💪