Indicators Traders Need to Know: 5 Highly Effective Chart Analysis Tools

Trading in the current era has become a profession that attracts more and more young people due to the ability to generate profits continuously, whether in stock markets, Forex, or Crypto. Each trader has their own trading style, ranging from Day Trading to medium-term trading.

The key to success is creating a systematic trading plan and choosing the appropriate Indicator to analyze price behavior, identify entry and exit points, and set TP/SL accurately.

This article will introduce 5 Indicators commonly used together by traders, including Moving Average, RSI, MACD, Volume, and Visible Range, so you can select and use them effectively.

Comparison Table of Each Indicator Type

Moving Average: A Fundamental Tool for Trends

Moving Average (MA) is an indicator present in almost all traders’ toolkits, used to analyze the price direction of an asset, whether it is increasing or decreasing.

( How to use Moving Average

• Price > MA = Uptrend → Focus on trading in an uptrend
• Price < MA = Downtrend → Focus on trading in a downtrend

This indicator is suitable for understanding and practical use, making it ideal for beginners. Moving Averages come in various types, such as Simple Moving Average )SMA###, Weighted Moving Average (WMA), and Exponential Moving Average (EMA). Most traders prefer using EMA because of its higher accuracy.

( How to calculate Moving Average

MA is calculated from the average of prices over a specified period, e.g., MA 5 means the average price of the past 5 days.

• Short-term: MA 5 days )about 1 week###
• Medium-term: MA 35 days (about 2 months)
• Long-term: MA 200 days (about 1 year)

Strong confirmation signals:

• Short-term MA > Medium-term MA > Long-term MA = Steady Uptrend
• Short-term MA < Medium-term MA < Long-term MA = Steady Downtrend

( Advantages

• Easily identify trends
• Acts as dynamic support and resistance )Dynamic Support/Resistance###

( Limitations

• Lagging indicator, signals are delayed relative to actual lows/highs
• Can give false signals during sideways markets

RSI: Overbought and Oversold Indicator

Relative Strength Index )RSI### is a momentum indicator used to measure price oscillation to study whether the price is in an Overbought (overbought) or Oversold (oversold) condition, with values between 0-100.

( How to use RSI

Standard levels are 30 and 70:

• RSI < 30 = Oversold → Buy signal
• RSI > 70 = Overbought → Sell signal

Additionally, RSI indicates potential price reversals, whether an uptrend is stopping and entering a downtrend, or a downtrend is nearing its end and reversing to an uptrend.

) How to calculate RSI

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

• Average Gain: The average of positive returns over the past 14 candles
• Average Loss: The average of negative returns over the past 14 candles

)Note: The 14-candle period is standard but can be adjusted based on trading style)

Example: Over the past 14 days, there are 7 days with positive closes (average +2%) and 7 days with negative closes (average -1%). RSI = 100 - (100/)1+ (2%/14(/(1%/14)() = 66.67

) Advantages

• Accurately indicates entry and exit points in the short term
• Good for divergence detection

) Limitations

• In strong trends, RSI may stay overbought/oversold for a long time, causing signals to be missed or delayed

MACD: Trend and Momentum Indicator

MACD ###Moving Average Convergence Divergence### is an indicator developed from Moving Averages, using two Exponential Moving Averages (EMA).

MACD indicates both trend direction (Trend) and momentum (Momentum) through the movement of the MACD line and the Signal line.

( How to use MACD

• MACD > Signal Line or MACD crosses above Signal Line = Bullish trend )Bullish### → Buy
• MACD < Signal Line or MACD crosses below Signal Line = Bearish trend (Bearish) → Sell

( How to calculate MACD

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

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

( Advantages

• Comprehensive, shows both trend and strength
• Suitable for medium-term trading

) Limitations

• Complex calculations for beginners
• Lagging indicator, signals come after price movement

Volume: Trading Volume Indicating Power

Volume is the trading amount of an asset, helping to gauge how much interest there is in that asset. Traders prefer assets with high volume because it indicates good liquidity.

According to technical analysis principles, volume can confirm trend changes. For example, when the price breaks resistance with high volume, it indicates a strong breakout.

How to use Volume

When price moves up:

• Price up + Volume up = Bullish momentum, likely to continue higher
• Price up + Volume down = Weakening bullish momentum

When price moves down:

• Price down + Volume up = Bearish momentum, likely to continue lower
• Price down + Volume down = Weakening bearish momentum

How to calculate

Use trading volume within the observed period ###according to the time unit of the candles###

( Advantages

• Confirms the credibility of price movements
• Breakouts with high volume tend to be sustainable

) Limitations

• Cannot indicate price direction alone
• In Forex, volume data may come only from brokers, not the global volume

Visible Range: Finding the Market’s Average Cost

Visible Range or Volume Profile is an indicator derived from volume, designed for traders seeking more detail. It shows where most traders have their costs at certain price levels.

This indicator displays the distribution of trading volume across price levels, helping to identify significant support and resistance.

How to use Visible Range

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

How to calculate

Based on the average trading price within the observed period.

Advantages

• More accurate identification of significant support and resistance
• Reveals the true average market cost

Limitations

• Charts may be complex for beginners
• Some platforms may require additional costs

Comments on Using Indicators

Indicators are only part of a trading plan. Each trader and asset may require different indicators. Before applying them in real trading, backtesting is essential to verify whether the chosen indicators suit the asset.

It is crucial to have a clear plan for opening and closing orders, taking profits ###Take Profit###, and cutting losses (Stop Loss) in every trade.

Trading always involves risk. Invest cautiously and study the indicators that best match your trading style.