Trend indicator “Moving Average”

We have already analyzed the indicator in sufficient detail above, and it makes no sense to describe it. Let’s look at the principle of operation of this indicator.

A downtrend occurs when the price chart crosses the indicator line from top to bottom. It is not practical to use this as a signal due to frequent intersections. A trend ends when a reverse intersection occurs. If you have successfully selected the value of the averaging period, the indicator can act as a trend line, support for an uptrend, and resistance for a downtrend.

An uptrend occurs when the price chart crosses the indicator line from the bottom up. This trend will continue until the reverse intersection.

Pros:

  1. The simplest trend indicator;
  2. The ability to track both global and local trends;
  3. Ability to use as a trend line;
  4. Ability to work at any time intervals;

Minuses:

  1. It does not give signals to enter the market;
  2. Very large error due to market noise;
  3. It works only with a quality trend;
  4. Frequent intersections when the trend slows down;
  5. Trend signals are late.

Oscillator Relative Strength Index (RSI)

Unlike trend indicators, this one refers to the type of oscillators, and therefore it was created in order to give the trader signals to enter and exit the market.

The principle of its work is quite simple. The first thing you need to know is that this indicator refers to zonal ones, that is, it uses zones through which the indicator line passes. The indicator line passes through these zones and gives signals for operations. By the way, the indicator line itself is nothing more than the moving average already known to us, only with deeper settings, namely, using the exponential type of construction (EMA). The entire indicator area is divided into 3 zones: overbought zone (above level 70), oversold zone (below level 30), and a trading corridor (the zone between 30 and 70). According to the author’s idea, a trader’s transaction is relevant only when the indicator line is inside the trading corridor.

A sell signal occurs when the indicator line, which was in the overbought zone (above level 70), breaks through level 70 from top to bottom and enters the trading corridor (sell zone 1,2,3,4). It is necessary to fix the profit at the moment when the indicator line reaches the oversold zone (level 30) and enters it (profit 1,2,3). The limiter of possible losses, in fact, is not provided, since the reverse crossing of the level 70 from the bottom up will be a cancellation of the sell signal and the basis for exiting the transaction, but we cannot predict the moment of the occurrence of this event.

A buy signal occurs similarly to a sale, when the indicator line, which was in the oversold zone (below level 30), breaks through level 30 from the bottom up and enters the trading corridor. It is necessary to take profit at the moment when the indicator line reaches the overbought zone (level 70) and enters it. The limiter of possible losses is also not provided, and the principle of exit from the transaction is similar to the sale.

Pros:

  1. The simplest and most popular oscillator;
  2. The ability to adjust zones for filtering noise;
  3. The ability to accumulate positions;
  4. Often gives signals on small timeframes;

Minuses:

  1. Large error in the testimony;
  2. Heavily dependent on the exact setting of the averaging period;
  3. It works only with a quality trend;
  4. Does not work in flat;
  5. Market entry signals are often late.

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