There are several different type of technical analysis indicators that traders use for market entry and exit. Most indicators are based on technical analysis and technical chart patterns This report will outline the basic type of indicators that work best for short term technical trading strategies. Before I get into specifics, you need to understand that here are three basic type of indicators. I will describe each of the to you below.

1. Identifying Trends and/or Confirming Trend

2. Identifying Overbought and Oversold Conditions

Many Professionals Rely On The 50 Day Moving Average

The first type of technical indicator most traders begin experimenting with is the moving average. This is an indicator that will help you identify and confirm a trend. There are several different type of moving average indicators, the most basic kind is called the simple moving average. This indicator has been used successfully by traders for several decades. The simple moving average is calculated by adding the closing prices for a set number of days and then dividing the total by that same number. The average is plotted each day to give a running average of the markets price. The typical length of a moving average is 20 days for short term trading, 50 days for intermediate term trend and 200 days for long term market analysis. Many traders use indicators that are based on the moving average such as the Bollinger bands.

The Moving Average Works Great In Trending Markets But Fails In Flat Or Range Bound Markets

The Relative Strength Index Measures Overbought And Oversold levels

The next category of indicators are momentum indicators. These indicators are leading indicators, this means they anticipate what will happen next. Unlike the moving average which is a lagging indicator, that reacts to what has already happened in the markets. One of the most popular momentum indicators is the RSI (Relative Strength Index) indicator. This indicator is available on every charting program online and offline. The RSI indicator measures strengthening and weakening of momentum and is most commonly used to indicate temporary overbought and oversold levels in stocks, futures and commodity markets.

The RSI indicator works very well when markets are flat and range bound, and only recommended during these type of market conditions.

Another very popular use of momentum indicators is to determine divergence between the market and the indicator. If the market makes a lower low while the indicator makes a higher low, it indicates that the market is overbought and trend reversal may be near. Similarly, if the market makes a higher high while the RSI indicator makes a lower high, it indicates that momentum to the upside may be slowing down and the market may be overbought.

The RSI Measures Overbought and Oversold Levels Works In Range Bound Markets

Visual Chart Patterns Make Excellent Market Analysis Tools

Visual Analysis has been around since before the 20th century and has been used successfully by professional traders around the world for advanced technical analysis. Although, advanced technical indicators have become simple to use and are based on advanced mathematical and statistical formulas, visual analysis remains one of the most popular popular methods to analyze stocks, futures, currencies and commodity markets. Basic patterns such as flags, head and shoulder patterns and other visual patterns based purely on price remain one of the best technical indicators for short term and swing trading strategies.

Many trading patterns that I use for my daily market analysis are based on simple visual analysis.

Chart Patterns Remain Very Popular Tools For Traders Who Rely On Technical Analysis

How Can These Indicators Help You

The best way to use technical indicators is to determine the underlying market conditions. If markets are trending strongly, using a lagging indicator such as a moving average will produce the best results. Conversely, if markets are flat and range bound, an oscillator such as the RSI or Stochastic would probably work best. Many times a simple visual analysis of the slope of the trend line will provide all the feedback that is necessary to determine market conditions.

I created several videos to help you learn about the best technical analysis indicators and how to use them. You can download the videos by filling out the form on the top of this page.