More Advanced Indicators for More Correct Analysis of Market Trends

The method of technical analysis remains vital in the examination of financial markets, particularly in forex trading. It is here that traders use other tools and indicators to perform price trend analysis along with identifying the most appropriate entry and exit levels. Many tools are being used under technical analysis, but among them, indicators have a central role in offering a more complex view of the behavior of markets. This article from Toofan Trade Academy represents a selection of advanced indicators that can increase accuracy for market trend analysis.

1. Ichimoku Cloud Indicator

Ichimoku Cloud is a multifunctional, complex indicator for detecting the market trend, momentum, and levels of support and resistance. It was developed by a Japanese analyst named Goichi Hosada and contains many lines, along with a color-coded cloud, for complete market analysis.

The key features of Ichimoku Cloud are described below.

Ichimoku Cloud: This is used primarily to identify current and future trends.
The Tenkan-sen and Kijun-sen are moving average lines that provide the best points of entry and exit.
Chikou Span: This plots the current price to show some very precise indications of trends and possible reversals

2. MACD – Moving Average Convergence Divergence Indicator

Moving Average Convergence Divergence, or MACD, has been independently developed as part of technical analysis to show the change in trends of prices and their points of divergence and convergence. It consists of two lines showing exponential moving averages (EMA) and a histogram.

The Key features of the MACD include:

MACD Histogram: It charts the difference between the MACD line and the signal line.
Divergences: MACD is very effective in highlighting the positive and negative divergences, which, in turn, indicate a probable uptick or downtick in price.

3. ADX (Average Directional Index) Indicator

Apart from the ADX indicator, another advanced indicator computes the strength of the market trend. Unlike many indicators used to determine the direction of the trend, ADX has been used to help traders in determining the strength of the prevailing trend.

Key characteristics of ADX:

Directional Index: The ADX itself doesn’t tell about the direction of the trend but gives an idea of the strength of the trend. When above 25, it reads that the trend is strong, while when below 20, it shows the weakness of the trend.
Combination with Other Indicators: ADX works well in combination with other technical tools and hence is effective in volatile markets to detect trading opportunities.

4. ATR Indicator

The ATR Indicator was developed for calculating the volatility of the market. The main purpose of the ATR Indicator is to provide the trader with some idea about the potential risk that may be present in any given trade. The ATR Indicator is an invaluable tool for traders to detect the most volatile market conditions.

Key characteristics of ATR operating :

ATR or Average True Range: The ATR does not show the direction of trends but has been designed to calculate market volatility. The higher the ATR, the higher the volatility in the market and vice-versa.
Risk Management Application: The ATR can be useful for giving stop-loss levels of trading, which would also help while trading in highly volatile markets with increased risks.

5. Bollinger Bands Indicator

Bollinger Bands were developed by John Bollinger to help identify periods of volatility in the markets. It is a sophisticated indicator made up of a middle moving average and two upper and lower bands, which serve as a boundary for price fluctuations.

Key features of Bollinger Band:

Upper and Lower Bands: These bands help in ascertaining overbought and oversold conditions. If the price starts touching the upper band, it may be termed an overbought condition, and vice-versa.
Application in Trading Strategies: Bollinger Bands are used to identify volatile conditions and for better timing of trades.

Read more: What is the future value of money?

6. Fibonacci Retracement Indicator

Fibonacci Retracement is a very handy tool based on Fibonacci levels that allow traders to determine potential support and resistance levels. Essentially, it works similar to the Fibonacci series, where the common critical retracement levels set at 38.2%, 50%, and 61.8%.

Traits of Fibonacci Retracement:

Identifying Entry and Exit Points: Fibonacci levels are significant reversal points in price and always help the trader decide on the perfect entry or exit time.
Combination with Other Indicators: This is often combined with other technical indicators to provide more effective trading signals.

7. Parabolic SAR Indicator

Another advanced indicator for the identification of the direction and strength of the trend is Parabolic SAR. It normally finds application in very trending markets, with dots above or below prices, signaling to buy or sell.

The following are some of the key features of Parabolic SAR:

Reversal Signals: When the dots are below the price, it indicates an uptrend, and when they are above, it signals a downtrend, aiding in trend reversal detection.
Application in Risk Management: It is used as a regular means of establishing stop-loss and having proper risk management in the trade.

8. Chaikin Oscillator

Chaikin Oscillator, being money flow-and-trading volume-based, depicts buying and selling pressure for traders. This indicator is useful in those markets where money flow significantly influences price movements.

Some key highlights concerning Chaikin Oscillator:

Pressure Points of Purchase and Sales: It draws out points of buying and selling pressure to help traders decide when an entry or exit should be made.
Combination with Volume Indicators: Generally used in combination with other volume indicators to generate more reliable signals.

Conclusion

Advanced indicators enable traders to dive into advanced, more in-depth analysis of market trends and determine the best trading opportunities. Advanced Indicators have rich insights into market strength, volatility, direction, and liquidity and are thus directly useful in making correct, profitable trading decisions. However, traders must keep in mind that indications like these do their work most when combined with other techniques of technical analysis and good practices of risk management.