Technical traders are those who formulate their trading decision based on their price charts. While Indicator based trading is one of the common strategies used by technical traders.
New traders usually choose indicator based trading since they believe that the perfect composition of indicators will give them the opportunity to predict where the market will go. That is not necessarily true since indicators can only help to spot particular market tendencies.
What is Indicator Based Trading?
By a mathematical formula, indicators can manipulate the price data. It shows a visual representation of the added price and the formula.
For the skilled traders using indicators, they will obtain more information from the chart than just merely analyzing the chart.
There are many things to be analyzed in a chart, thus traders need indicators to simplify that. Finding the best indicators to identify a trend in price charts is easier for them than learning how to identify it by themselves.
Indicator based trading relies on indicators to analyze the price and provide trade signals. There are many indicators which able to give a specific trade signal. That signals, later, alert the trade if it should start.
The Types of Indicators Strategy
There are thousands of indicators available. Traders usually combine those indicators or use it in different ways, thus there are countless trading methods using indicators.
From those thousand indicators, there are a few common types of indicators strategy. The main strategy is a crossover strategy.
Crossover strategy is when an indicator crosses path with another indicator. Or else, it can also happen during a price crossing. Price crossing a moving average is the most straightforward indicator strategy.
The second straightforward strategy after price crossover strategy is moving average crossover. What happens when a shorter term and long term moving average crosses.
Besides acting as a component for a trading strategy, indicators can also become confirmation tools. Whenever traders find an uptrend, then, the indicators will help them evaluate the strength of that uptrend.
The same indicators can also aid to confirm reversals and downtrends.
