The market is dominated by two alternating trends: the bullish and bearish trends. For an analyst to be able to understand the market trend, and to be able to predict the next trend is fundamental but complicated. There are many indicators that, if used in the same way, can give concrete predictions about what is going to happen to the market. Predicting as truthful a forecast as possible is very important because it gives the possibility to significantly reduce the risk in investments. There are many techniques used for this type of forecast. There is not a single index that can give certainty, a good analyst uses different methods to center his prediction.
The Average true range is a technique for measuring price volatility. Before we understand what, this technique is, let us look at the concept of price volatility.
Volatility is the change in the prices of a listed security or index, the volatility increases with the increase in fluctuations and therefore between the minimum price reached and the maximum price. This is not a negative element, but rather positive within the market, because it creates opportunities for investors to earn money by correctly forecasting the performance of the stock. An oscillating security is a security that moves capital and investment.
Not only a security, but also a market can be regarded as volatile if the overall price fluctuations are large.
This index is used to quantify the amplitude of fluctuations in determining whether there is a reversal of the market trend. In fact, one of the characteristics of this trend is that when it assumes very high or very low values, it signals a future trend change. To measure this amplitude, in addition to the Average True Range it is possible to use two other indices, namely the Bollinger bands and the Beta coefficient.
Before calculating the average amplitude, we see how to calculate the range, that is the amplitude. For this calculation, we need three data for the index in question: the maximum and minimum price reached on the stock day, the distance between the closing price of the day before and the maximum price of the day taken as a reference, and finally the distance between yesterday's closing price and the minimum price of the day. The result of these three is the true range.
From this data, taken on different days, it is possible to obtain an average, the function of which is precisely that of capturing the trend reversal. The days between which to do the average is decided by the analyst. However, the recommended period is 14, decided by John Welles Wilder Jr, the inventor of the index. The 14-day time was considered by Welles Wilder to be better because half of 28 days, that is the lunar cycle, which according to the scholar was a short market cycle. Other analysts use 7 days, or a quarter of a cycle, or 28 days, a full cycle.
There are two other indicators for determining volatility. The first is the beta coefficient: it is a coefficient that is statistically calculated and measures the price trend of an index to vary from its market. If the ratio is less than 1 then volatility is less than 20% compared to the market; if it is 1, the index varies according to changes in the reference market; if, finally, it is more than 1, it indicates greater volatility.
Bollinger bands, on the other hand, are lines drawn on a chart that record price changes. If the distance between caries lines is large, then the volatility is greater, vice versa, the volatility is reduced. This index also indicates volatility to signal a possible reversal of the trend. Closing the price above the lower band indicates a probable increase, closing above the upper band indicates a downward market.
Once you have understood what the main indicators are to predict volatility, a little insight into their practical use may be useful.
The aim of these trading strategies is to exploit the indicators by means of reading and calculation models to get as close as possible to a real forecast of the market trend and to maximize the gains derived from trading.
It allows satisfactory gains while minimizing the risk of loss.
The strategy consists of identifying volatile assets with a constant trend and anticipating a turnaround shortly before maturity. It is the safest and most suitable option for inexperienced traders who are still in the early stages of their trading experience.
The mobile average strategy is based on the ratio between the mobile average itself and the upward or downward trend of an asset calculated over a specified period for the asset.
It assumes that during a bullish trend, the mobile average is below the asset price, while during a bearish trend, the mobile average is above price. Under these conditions, the trader will develop a targeted strategy.
The Fibonacci method uses the "Fibonacci Succession", a numerical sequence discovered by the great mathematician, to study the graphs with the market trend.
Thanks to the Fibonacci sequence, the trader identifies the level reached by the asset prices and provides entry points to invest with a risk of loss reduced to a minimum.
The Fibonacci method is one of the least used, due to its complexity, but it remains one of the most effective methods for those who want safe reference points for their trading operations.
The Long Candle strategy uses indications of strong price swings to determine the range in which to invest in the chosen asset.
A Long Candle causes a strong instability in the price of the asset, which is analyzed correctly by the trader and can predict the subsequent price trend. The choice of expiration date will normally vary from the shortest interval to the interval in the graph chosen for the analysis.
Some important strategies have been developed, such as spread trading, a particular technique that allows you to have a completely neutral exposure on the market.
It is much easier to analyze some data through the reading of graphs than the discussion that can arise around simple numerical inputs. Through the graphs it will be possible to monitor information related to volumes and other technical indicators (they are displayed at the base of the graph characterizing the time axis). To give a concrete example, the bands of Bollinger are directly represented on the price graph.
In this article I would like to talk about a very effective 30 second binary options trading technique. For this technique will be used simply tick charts and candle charts with a timeframe of 30 seconds. The indicators that we will need will be 3 moving averages of different colors that will be placed on the candle graph. The moving average at 3 periods will be blue, the one at 5 periods of fuchsia, the one at 14 periods of red.
If you are looking for an alternative to equities, you can think of trading in bonds. But what does it mean and, above all, how can we make money out of bonds without risking too much? To answer this question, continue to follow our guide which will explain in a simple and detailed way how a bond trader operates.
For this 20-30 minute technique we will use a few indicators, very effective and used by the best professional traders.