New Indicators: How to Choose the Right One?: With the number of indicators available on the IQ Option platform growing by the day, it can be difficult to choose an indicator that suits your personal trading style and preferences. More than 100 indicators can be found in their respective trading room menu. But how do you choose the best one for you? Today we’re going to take a closer look at the main indicator categories and provide you with a brief overview of the features that an aspiring technical analyst like you should know.
All technical analysis indicators, found on the IQ Option platform, fall into one of the six main categories, with its distinctive usage and characteristics: momentum, trend, volatility, moving averages, volume or other.
Impulse indicators, as their name suggests, follow the inertia of the market. In other words, they help to estimate the strength of a positive or negative price movement. The faster the change, the stronger the momentum. But why would you want to know? When trading, the strength of the trend can be as important as its direction. The stronger a trend is, the more trading opportunities it can offer. Stop-loss and take-profit levels can also vary from slow-moving to highly volatile markets. Some popular momentum indicators are: the Aroon Oscillator, the Amazing Oscillator, the Power Balance, the Trendless Price Oscillator and the Stochastic Oscillator.
Trend indicators help you determine the direction of the trend. Some may say that the direction of the trend is self-explanatory and no additional tool is required to detect it. However, sometimes it is beneficial to look at certain aspects of the trend separately. More than that, certain tools in this category can offer a new perspective on the existing trend and provide you with a better and deeper understanding of the underlying market processes.
Some popular trend indicators include: Average Directional Movement Index, Bollinger Bands, CCI, Ichimoku Cloud, McGinley Dynamics and Parabolic SAR.
Volatility indicators, as the name implies, measure the volatility of a particular asset. It can be said that the higher the volatility, the higher the financial risk associated with that asset, but so is the potential benefit. Volatility indicators, therefore, help determine periods of rapid or slow price changes. When the market is flat and the price remains the same, volatility is low and trading opportunities are limited. When the price begins to fluctuate, market volatility rises. The most prominent indicators in this category are: ATR, Bollinger Bands and Donchian Channels.
Moving averages are a separate group of indicators that all function in a similar way. In short, they soften the trend line, reducing price noise and making the underlying trend stand out more. They can be especially useful when the market is uncertain about the future direction of the trend. They are also helpful when you need to determine a reversal point of the trend. Two or more moving averages can form a trading system by themselves.
Unlike other indicators, Volume indicators are not based on the stock price. Instead, they use a different set of data, i.e. the trading volume. The latter can be of great help when trying to find the time to open a trade. An increasing or decreasing trading volume may be indicative of a future reversal of the trend. Therefore, they are a popular complementary tool. The number of these indicators is limited, and each of them works very differently.
The ‘Other’ category includes all the other indicators (some quite unique), which do not fall under any of the above. Although peculiar, most of them can become a valuable addition to your arsenal of operations if applied correctly.
How many indicators should you use in a single trading system? The answer varies depending on who you ask. However, the general rule is not to use more than three. If three is the maximum, it is always possible to trade with as few as two or even one. Keep in mind that when trading with only one indicator, it is wise to check each signal you send using different time intervals or using fundamental information.
When you know what kind of assets you want to trade and how, you can create your own trading system using all that information. If, for example