Trading tools and indicators are necessary to be able to understand previous moves, current trends and forecast future price action. This is called technical analysis and is used by every trader in every market. There are a wide range of indicators that can be applied to a chart but today we’ll focus on the main ones we believe are inevitable. We’ll teach you how to add them to your charts and use them to analyse the market and perform the best trades possible.
In this chart representing the BTC/USD price at the time of writing on a daily time frame, we have added the fibonacci retracements showing support and resistance levels, the moving averages over the last 18 days, trading volumes and the RSI (Relative Strenght Index) which measures the speed and changes of price actions. This chart gives us a good idea of previous movements on which we can base a forecast for the prices to come.
Let’s go through these 4 indicators one by one on the same chart.
The Fibonacci retracement is one of the most common indicator used in technical analysis as it is relatively easy to use and to understand. It offers visible key support and resistance areas which are particularly useful to submit buy and sell orders. To add a Fibonacci retracement to a chart, you first need to identity the trend in the time frame of your choice.
In our example, we can see that it is a bull trend. Then, you need to identify the lowest price in that time frame as well as the highest. Here, the lowest price is at $5746.8 and is considered support which can be used by the trader as a reference for buying opportunities. The the highest at $8505.8 which is considered resistance and can be used by the trader as selling points. To add it to your chart, click on your Fibonacci retracement tool you have in your broker, click on the lowest price (here $5746.8) and drag it all the way up to the higest price (here $8505.8) as well as to the right of your chart. That’s it! Repeat this process for every time frame you’re interested in or when you run out of chart space.
Moving averages are a great tool to visually identify the trend of a market and its zone of price movements.
To add Moving Averages to your charts, click on Weighted Moving Averages, specify your lenght and your source. In our case, we’ve chosen the 18 average of highs and the 18 average of lows. Moving Averages allow the trader to understand if price action is within the previous range, below or above. If prices find themselves above range as we can see here from July 17th until 25th, this can be seen as a good selling point or shorting opportunity as chances are price action will come down within the moving averages as it did here.
Volume measure the total amount of an asset or security that was traded during a specific time frame. It is a very useful tool to analyse general market interest and the strenght or weakness of a particular price move.
To add the Trading Volume to your chart, simply find it in your list of indicators and voila! Depending on your broker, it may be listed as Volume or Trading Volume. For instance in our chart, we can see volume picking up on the 23rd and 24th of July leading to that big green candle up to resistance level.
Relative Strenght Index
The Relative Strenght Index (RSI) is a momentum oscillator which is used to analyse the strength of an asset’s recent price performance. RSI values range from 0 to 100. If the RSI gets above 70, it is usually seen as a sign that a security is becoming overbought or overvalued and might be suggested to a price correction soon. An RSI below 30 is often seen as a good buying opportunity as the security is considerded oversold or undervalued and therefore expected to go up in price.
To add the RSI to your chart, simply locate and click RSI in your list of indicators and it will apply under your chart for that specific time frame. In our chart, we can clearly see the RSI getting above 70 on July 24th which was a strong signal for price reversal and therefore was a good selling/shorting opportunity.
Keep in mind that there are many more indicators out there that can be very helpul to analyse and trade the markets and also that fundamental analysis is also necessary as important news and development in a specific sector can strongly influence price action and cannot be predicted using tools and indicators.