Totally we can divide Technical indicators into 3 different categories:
Trend-following indicators: (some example)
I. Moving averages (both simple and exponential),
II. MACD (Moving Average Convergence Divergence),
III. Parabolic SAR,
IV. ADX (Average Directional Movement Index)
Momentum indicators: (some example)
I. Relative Strength Index (RSI),
II. Stochastic, III.Commodity Channel Index (CCI)
Volatility indicators : (some example)
I. Bollinger Bands and
II. ATR (Average True Range)
Moving Average Simple & Exponential – General information
Moving average, another useful trend indicator that helps to have a better understanding of price action in the market. As it is categorized in the Trend following a category, MA can be used to identify the trend as well as have a better idea about Resistance and Support levels which can help to manage our SL and TP, in better positions. We have two types of moving average, Simple Moving Average (SMA) and Exponential (EMA). While both of them are based on past price actions, as most of the technical indicators, they can just help you to have a better idea about the market and not enough by them own to trade just with them. Moving average by itself is a very useful indicator and at the same time, it used inside other indicators as well, like MACD (Moving Average Convergence Divergence).
SMA = The simple average of a security over a defined number of time periods (Closed price, Opened Price …, based on setting)
EMA = Gives more weight to the most recent prices.
As you can see below, technically this is the way how this indicator works, however today we will talk about how we can use it and not going into mathematics calculation.
Let’s check on live chart to see when and how ADX can give us Buy or Sell signals.
MA can be used to identify the trend as well as have better idea about Resistance and Support levels