Traders will predict the future trend of asset prices by analyzing technical indicators. These indicators make it easier for traders to confirm the current market conditions and identify trading signals. Today, we will introduce four types of technical indicators that are often used by traders.
1. Relative Strength Index (RSI)
Relative Strength Index (RSI), is to analyze the market's intention and strength to buy and sell by comparing the average closing increase and average closing decline over a period of time, so as to predict future market trends.
It is a technical analysis tool used to compare the average price increase of a financial instrument with respect to the average price decrease of a certain financial instrument within a few days. The index does not compare the relative strength of the two assets, but only compares the strength of the price fluctuation of a single financial instrument itself.
The index can be used to find overbought and oversold signals, as well as a warning that there is a divergence between the direction of the index change and the direction of the price change of financial instruments. For example, when the price of a financial instrument falls and the relative strength index is rising, this is a signal to buy.
2. Moving Average (MA)
Moving average (MA) is a method of statistical analysis that averages the price of the asset in a certain period of time and connects the average of different times to form an MA for observing assets. It is a technical indicator of price movement trends.
Moving average are commonly used by 5 days, 10 days, 30 days, 60 days, 120 days and 240 days. Among them, the 5-day and 10-day are the reference indicators for short-term operations, also called daily moving average indicators; the 30-day and 60-day moving average indicators are called mid-term moving average indicators and; the 120- and 240-day moving averages are the long-term moving average indicator and are also called the annual moving average indicator.
The most common use of MA is to compare the relationship between the moving average of prices and the price of the security itself. When the price of a security rises above its moving average, a buy signal is generated. When the price of a security falls below its moving average, a sell signal is generated.
3. Moving Average Convergence / Divergence（MACD）
MACD is developed from the double exponential moving average. The fast exponential moving average (EMA12) is subtracted from the slow exponential moving average (EMA26) to get the DIF line, and then 2× (The 9-day weighted moving average DEA of the line DIF-DIF) gets the MACD bar.
The meaning of MACD is basically the same as the double moving average, that is, the divergence and convergence of fast and slow moving averages characterize the current long and short state and the possible trend of prices, but it is more convenient to read. The change of MACD represents the change of market trend.
4. Commodity Channel Index（CCI）
The Commodity Channel Index（CCI）indicator was proposed by the US stock market technical analyst Donald Lambert in the 1980s. It specifically measures whether the stock price, foreign exchange or precious metal transactions have exceeded the normal distribution range. It belongs to a special kind of overbought and oversold indicators.
It was first used in the judgment of the futures market, and later used in the research and judgment of the stock market, and is now widely used. Unlike most of the various technical analysis indicators invented by using the stock's closing price, opening price, highest price, or lowest price, the CCI indicator introduces the degree of deviation of the price from the average interval of stock prices in a fixed period based on statistical principles.
The concept, emphasizing the importance of the average deviation of stock prices in the technical analysis of the stock market, is a relatively unique technical indicator. It has its own uniqueness compared with other overbought and oversold indicators.
Most overbought and oversold indicators, such as KDJ and Williams %R, have "0-100" upper and lower limits. Therefore, they are more applicable to the research on the normal market conditions, and could stop functioning during market pumps and dumps. However, the CCI indicator fluctuates with no limits, so it will be very helpful for traders to better predict the market, especially during short term extreme market conditions.