Common Chart Indicators: Part II

BITSTAMP:BTCUSD   Bitcoin / U.S. Dollar
Good time of the day, family! A lot of you were asking for Part II for our popular chart indicators summary and here it is. Hope you y’all find it useful! Last week, we’ve covered Bollinger Bands , Keltner Channels and MACD (link under the post) and what they’re commonly used for. This week we have:

We've been looking at technical indicators that mostly focus on detecting the start of new trends up until now. It is critical to be able to recognize new trends, but it is also critical to be able to recognize when a trend has reached its conclusion. After all, what good is a well-timed entry if you don't depart on time? The parabolic SAR is one signal that can assist us detect when a trend is about to terminate (Stop And Reversal). A parabolic SAR plots dots or points on a chart to predict possible price movement reversals. The Parabolic SAR has the advantage of being quite simple to operate. Basically, it's a BUY indication when the dots are below the candles. It's a SELL indicator when the dots are above the candles. Simple as that. Great for exits.

Another technical indicator that traders use to determine where a trend is likely to terminate is the Stochastic oscillator. The oscillator is based on the following principle: Prices will remain equal to or above the prior closing price during an upswing. Prices will most likely remain equal to or below the prior closing price during a downturn. George Lane invented this basic momentum oscillator in the late 1950s. When the market is overbought or oversold, the Stochastic technical indicator notifies us. The Stochastic is a number that ranges from 0 to 100. The market is overbought when the Stochastic lines are over 80 (the red dotted line in the chart above). When the Stochastic lines fall below 20 (the blue dotted line), the market is likely to be oversold. We purchase when the market is oversold and sell when the market is likely overbought, as a general rule.

The Relative Strength Index , or RSI , is a famous indicator created by J. Welles Wilder, a technical analyst, that helps traders assess the strength of the current market. The RSI is similar to the Stochastic in that it detects overbought and oversold market circumstances. It also has a 0 to 100 scale. Readings of 30 or lower usually imply oversold market conditions and a greater likelihood of price strengthening (going up). An oversold currency pair is interpreted by some traders as a sign that the declining trend is likely to reverse, indicating a buying opportunity. Overbought circumstances and an increased risk of market weakness are indicated by readings of 70 or above (going down). Since a lot of people have RSI as a default indicator on their charts, it’s a very reliable instrument (even though the margin is considerably large).

See you next week for Part III?

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