Top 5 technical indicators to trade most. What are the most popular technical indicators used to trade commodities over the short term monthsand do they differ depending upon the commodity traded? The technical analyst will use a number of methods when day commodity markets. These methods typically include such things as Price Action pattern recognition, candle stick charts, Elliott Wave analysis, etc. Given the nature of the question this response will focus on the latter. When trading commodities, a technical analyst will most likely use the same indicators on a chart to predict the future as with many other instruments e. When looking at the big picture, charts that reflect long periods e. Shorter period charts e. Technical Indictors fall into different categories, but the Indicators that most technical popular use are a measure of momentum. Momentum Indicators, as the name suggests, measure the momentum behind the move. Just as a car will struggle to move forward without a foot on the accelerator, so too will a market struggle to move higher if momentum begins to falter. On the downside, once downward momentum begins to abate, the prospect of stability and a renewed upwards trend begin to improve. Momentum Indicators fall into two broad categories, Trend Following and Oscillators. Oscillators encompass such indicators as the Relative Strength Index RSI and the Stochastic. Before applying any of the Indicators, the trading or investor needs to firstly identify the type of market; is it a ranging or trending market? This needs to be determined because Oscillators are ineffective in trending markets, and similarly, Trend Following indicators are popular in ranging markets. Oscillators register overbought and oversold market levels, and the problem with using them in trending markets is that they will move to overbought or oversold levels and stay there for quite some time. This will cause the trader to exit or enter prematurely. Therefore, when using Technical Indicators in the analysis of commodity markets, the first requirement is to identify the trend. Once the trend has been identified, the trader can then apply some of the commonly used Indicators mentioned above: Moving Averages, MACD, the RSI, the Stochastic and Bollinger Bands. Moving Averages The simplest indicator one can use is the moving average. This can, for example, be the 9 and 20 day moving averages MA. The analyst will study their cross-overs and the relative position of the price with respect to the moving averages. Prices movements on a chart can be shown in different formats such as bars, candles or lines. The cross-over between two moving averages may signal a change in trend. When the fast MA 9 day crosses the slow MA 20 day from below to above, it will signify a bullish trend. If it crosses from above to below, it will signify a bearish day. Moving averages may in some situations be used as support or resistance levels for a given trade. MACD Another commonly used indicator is the MACD, which is an abbreviation for Moving Average Convergence Divergence. The MACD is a trend-following momentum indicator that measures the difference between two Exponential Moving Averages EMA. Simply put, when the MACD is rising it indicates that the 12 day EMA is trading above the 26 day EMA. This implies positive momentum. If both lines are falling, the stock is under selling pressure. The RSI The Relative Strength Index RSI is used to identify indicators a market is overbought or oversold. It is computed by analysing all the bullish ranges against all the bearish ranges during a particular period of time usually 14 days. By adding all the bullish trades when prices went up and dividing it by the summation of the bearish days when prices went down we then turn it into an index from 0 to A general rule is that when the RSI crosses the 30 line from below, it signifies a bullish signal and when it crosses the 70 line from above, it signifies a bearish signal. Readings above 80 are considered overbought and readings below 20 are considered oversold. The latter is usually computed from a day moving average and the bands are on either side of the mean. The bands will contract or trading as the price of the commodity oscillates within the bands. As the daily ranges approach the band on either side and exceed the band value, it may signify that a reversal is imminent. A better interpretation is to: This confirmed the change in trend from Bearish to Bullish. This occurred even as price had broken below a significant support level — thus the support on the indicator was more reliable than the price support. Subsequently, the MACD was rejected from the signal line in December D. This gave an early warning that the rally from September was about to fail. This combination registered a Sell signal. However, note that the Stochastic pushed to overbought levels earlier in the year, and stayed there for an extended period. Thus taking an overbought reading as a signal to Sell is not, by itself, a good trading strategy. Price was still above rising moving averages at the time; confirming a rising trend — therefore an overbought level on the Stochastic was not a reliable indicator. The trader will take day into consideration when assessing the outlook for a commodity. TheBull's free trading and weekly newsletters. Click here to receive TheBull's free weekly newsletters on stocks, trading, investing and more. Strategies for a Strong U. An ill wind blows distressed-debt companies some good. ASX Renewable Energy Stocks to Watch. 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Technical Indicators - The 3 Different Types
Technical Indicators - The 3 Different Types
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