Five Modern Technical Analysis Indicators
Are you looking for the best technical analysis indicators to improve your trading? Here is our list of some of the top indicators out there today. Some are free, some are paid. Some are new, some are old.
When I started learning technical analysis, I was overwhelmed by the vast amount of information, indicators, gurs, etc. In this article, I’m going to explain some of the more powerful indicators I’ve seen, how to add them to your TradingView chart, and how to use these the ways professionals on our team do.
What is technical analysis?
First things first, you may be wondering what technical analysis even is. The simplest definition of technical analysis is making trade decisions based on stock chart data. This is very different from fundamental analysis, which is making trade decisions based on the companies performance, news, etc.
As you start learning technical analysis, you’ll hear words like support, resistence, trend lines, candlestick patterns, triangles, etc. These are just a few of the many many ways to analyze a chart from a technical appraoch.
The indicators in this article are tools you can add to your chart that will draw differnt kinds of lines and dots which are all designed to aid in technially analyzing a chart.
Why technical analysis is important?
Technical analysis is important because it can show patterns in the market that would otherwise be invisible. What kind of pattens are these? Well, in “Trading the Measured Move”, David Halsey talks about how “big money” companies and hedge funds use algorithms to move millions of dollars in and out of the markets every day. Their algorithms are based on technical factors, not fundamental ones.
Halsey makes a good point in that if the big companies are moving millions of dollars based on market patterns, these patterns can be learned and played by individuals as well.
Without using technical indicators, you may just be guessing when to enter or exit the market. TA can show you where price is relative to its historical lows and highs, and if price is currently discounted and a time to buy, or too hyped up, and a time to sell.
Can technical analysis be done without indicators?
The short answer is yes, but you’ll be doing a lot more work by hand. Many indicators have been written to not have to do the manual work of drawing on your chart. The nice thing about indicators is it takes zero effort to add them to your TradingView chart and look at all your favorite assets with that indicator. Instead of drawing lines by hand on each chart for each asset.
Some calculations would be near-impossible to do by hand. Take the RSI for example, a very famous and popular indicator we talk about in this article. When you see the math behind it, you’ll be glad someone wrote the code for it!
With all that said, let’s dive in to our favorite technical indicators:
Directional Movement Index (DMI)
First up is the DMI/ADX. DMI stands for Directional Movement Index and is composed of three lines: the ADX, DI- and DI+. It was developed in 1978 by J. Welles Wilder.
What do all those letters mean? Essentially, the DMI shows how strong the current move is in the current direction. The higher the value of its main line, the ADX (Average Directional Index), the stronger the current trend is. The DI- and DI+ are the strength of selling and buying at that moment, respectively. The ADX is calculated from the DI- and DI+.
Add the DMI to your TradingView chart by typing `/DMI` on your chart and selecting `Directional Movement`.
It should look something like this:
(We change the default blue histogram to a thick white line).
In this photo, the white line is the ADX, the green is the +DI, and orange is the -DI.
So how do you use this thing? As mention above, the DMI is used to see how strong the current trend is in any given market. This can be used for stocks, forex, crypto, futures, you name it. One key strategy we like with DMI is spotting divergences.
A divergence is when the chart shows one thing, but our indicator shows the opposite. For example, the chart might be showing a rallying upward trend, but if the ADX shows that the strength is actually weakening withing that trend, a reversal might be very near.
Here’s an example:
See the first pair of yellow lines? We drew them to show the chart is making a lower low in a downward trend…typically a sign of trend strength. The DMI however shows a lower peak for those same two points. The lower peak in DMI signifies the current trend is weakening. Therefore, this is considered a divergence, and as you can see it played out nicely.
You can see the same happened with a smaller divergence at the next pair of yellow lines. Upward trend made a higher high (positive strength sign), ADX made a lower-high in that trend (negative strength sign). A great time to sell or short!
Curious about the math? Here’s the code for the DMI straight from TradingView:
Questions about DMI? Ask away in our Facebook Group, or watch this extensive video by our partner company Coin Observatory.
Relative Strength Index (RSI)
The RSI is likely one of the first indicators you heard about when starting to learn technical analysis. What it is, is the strength of the current trend relative to the specified look-back window for the indicator. This leading oscillator can also be used on any underlying asset whether its stocks, forex, cryptocurrency, etc.
Add it to your TradingView chart by typing `/RSI` on your chart. It should look something like this:
To use RSI, its important to note two approaches, overbought/oversold, and divergences. Just like ADX, the RSI can be used for divergences. Since these are both “momentum oscillators”, if the chart is showing one thing, but the momentum is slowing, its a pretty good sign price might turn around. Those are divergences.
Overbought and Oversold apply to the RSI since its formula is designed to oscillate between 0 and 100, and whenever “extreme” ranges are reached (either below 30 or above 70), the asset is considered “overbought” or overpriced, or “oversold” underpriced. In between 30 and 70, the asset can be considered as “fair value”, all of this according to the set look-back window in the indicator’s settings.
Curious about the math? Here’s code straight from TradingView for the RSI:
Questions on RSI? Drop a comment below or ask away in our Facebook Group!
Fibonacci Retracements
One of the most powerful and most talked about tools in technical analysis are Fibonacci Retracements. Though not technically an indicator, this tool is one of our most-used and thus had to be on the list! Many people have tried to make fib retracement indicators, but most aren’t very good.
What is a Fibonacci anyway? Fibonacci was a famous mathematician who discovered some very interesting things regarding how the world works. His “Fibonacci Sequence” of numbers for example matches with the rate at which a community of rabbits multiply. It’s also used to define the Golden Ratio, 1.618, which you may have heard about. This ratio is found in nature such as the spiral of a snail shell, the pattern of a sunflower’s seeds, and more. Seeing this phenomenon in nature, I’m sure technical traders weren’t surprised when they spotted it in the markets as well.
To add to your chart, select the Fib Retracement tool from the left toolbar. It should look like this <-
Then, choose a swing-low and a swing-high on your chart, and click to draw your fib between those two points. You should see the bottom being 1 and the top being 0. This defines the range for our fib. It should look like this:
Our fib tool then calculates the different levels of interest such as the 0.5 and the 0.618 levels, often described as percents: the 50% and the 61.8%.
What now? Now…you wait for price to reach (or “retrace to”) one of these levels and bounce back! In this example, we chose a section of the GOLD chart in the past that exemplifies a near-perfect 78.6% retracement. As you can see, when price came down to the 78.6, it bounced up until it closed at the 61.8. Price saw the 61.8 as support for the next 6 bars after which it finally bounced back up.
This is the power of fib retracements!
No code for this one…its a manual tool yet very powerful. Any questions, ask away in our Facebook Group.
Phantom Indicator
Phantom is a technical analysis indicator by our partner company Coin Observatory, and you’ll soon see why its one of the best on the market today! We spent a lot of time building it to be really powerful.
What Phantom does is calculate “liquidity zones” or “potential reversal zones” (PRZs). There are four lines on Phantom, and they each can act as support or resistance as price approaches them.
To add it to your chart, sign up for a free trial using the Trial form on this page. After getting acess you can add it by typing `/Phantom` on your TradingView chart and selecting the script by `coinobsalgos`.
It should look like this:
Phantom will work on any asset, and adjust for every time frame.
When the bottom (green) band acts as support, it can have some pretty strong reversals (see photo above). Same for the top deep pink line. These outer bands not only contain most of the price movement, but also signify at which level price might reverse. But what about when price is in between the outer bands?
The midlines are mini support and resistance lines. Price can bounce sharply off them (like the left-most green dots on the chart) or price can ride along that level for a while before making a move (like the row of red dots in the middle of the chart).
As price is unable to cross and continue past a Phantom level, its a good sign this is a level of interest and price action could reverse. Some of our users have made some really impressive gains with Phantom! We’d love for you to try it free here and help you master it.
Not all indicators are perfect though, and it usually isn’t enough to trade based on just one. So we built the perfect oscillator to match it.
Relative Breadth Index (RBI)
RBI is another Coin Observatory oscillator and stands for Relative Breadth Index. In short, it shows the breadth (or “how far away we are”) from the current trend and in which direction. Its also a leading momentum oscillator and is great for divergences. Here’s why its our new favorite toy.
Like Phantom, grab your free trial here, to follow along this article. Then add RBI to your chart by typing `/Relative Breadth Index` in TradingView and choosing the one by `coinobsalgos`. Here’s what it looks like:
Relative Breadth Index is unique in that it shows what’s happening relative to the trend. So if the signal line (white) is high, it means price is high for this point in the trend. If the signals line is low, it means price is low for this point in the trend. Selling or buying at either of these points may be a good idea, especially if there is a signal.
In the photo above, you can see the troughs were low points in the trend at that moment, and that peaks were high pionts. Some were within the oversold/overbought regions and signaled (green/red dots respectively). See the two green dots in the middle of the chart? The first one was only just oversold, hence not very strong.
Just after, the bulls stepped in for a little bit until the bears shot price back down to oversold, at which point the second green dot signaled very close to extreme oversold. The yellow pulse was strong leading up to this signal and as you can see, it turned out to be quite strong.
There was one extreme oversold signal (green triangle in the bottom left) which showed a high likelyhood of the trend reversal…which it did for a decent gain if you rode it out till the next red dot.
So which indicator should I use?
The best indicator is the one with a good edge that you know how to use well.
There are many YouTube videos on RSI and DMI for you to learn from. However that means there are also maaany people using them, thus the edge is weakened.
Our indicators are used by Coin Observatory’s #1-ranked trading community. Our proprietary indicators are our edge! They can be yours too, and we’d love to teach you how to use them to make more successful potentially life-changing trades.
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