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Choosing the right indicators depends on your trading strategies and analysis. That is why it’s important to know what each of them means. Learn with us, and you will be able to trade like a pro on our Basic or Spot Trading pages. Today, let’s talk about the first two indicators used by traders the most!
The MACD is a very popular indicator used in technical analysis. It identifies trend direction and duration. MACD also determines the difference in values between the MACD Line and Signal Line and shows it as a histogram above and below the Zero Line. This histogram is used as an indication of a security's momentum.
Some traders may try using MACD to find overbought or oversold conditions. However, that’s not a good idea. Just give it some time and you will be able to analyze the chart with the help of MACD.
A simple trading strategy using MACD looks something like this:
If MACD crosses the Signal Line from below, a buy position is opened. If the histogram crosses MACD from above, a sell position is opened. A Stop-Loss Order is placed below the candle’s minimum (to buy) or above maximum (to sell).
The Stochastic Oscillator is a range-bound oscillator that consists of two lines moving between 0 and 100. It’s a perfect tool for identifying changes in momentum. It displays the ratio between the current closing price and the high/low range over a certain period.
Stochastic is usually used for identifying overbought and oversold levels, spotting divergences, and identifying bull and bear set-ups or signals. It’s better to use Stochastic with other technical analysis tools, for example, trend lines.
The main signal generated by the Stochastic Oscillator is Overbought/Oversold conditions. It’s better to trade along with the trend to identify overbought/oversold levels.
Frequent overbought conditions during an uptrend confirm the strength of a trend.