Q1:- (a) In your own words, explain Technical indicators and why it is a good technical analysis tool.
Technical indicators are the matchemical tools that are used in analysis of assets. They are very useful for traders only if used properly.By the help of technical imdicators we can predict the price movements of the assets based on previous data available of on a market. Mainly traders use indicators to predict the upcoming bullish or bearish trends,so to make moves accordingly.
If technical indicators are used properly,they will surely increase the chances of making profits and will significantly decrease the chances of loss.
Significance of indicators.
- Indicators are very useful for analysing the market moves.
- Indicator help us to find the best spots for entry and exit in the market.
- Indicators minimises the chances of loss and maximise the chances of making profit.
(b) Are technical indicators good for cryptocurrency analysis? Explain your answer.
We know that crypto market is highly volatile thus a small mistake can cost an big loss.Using technical indicators will not only reduce the chances of falling in trap but they will help us to find the best spots to enter the market and make profits,I think technical indicators are very helpful in the cryptocurrency market and we should always use both technical and fundamental tools before making any investment.
(c) Illustrate how to add indicators on the chart and also how to configure them.
To apply indicators we have follow the steps mentioned below;
Go to Trading View website. And click on charts to open chart.
Once the chart opens ,click on the Fx (Indicators)icon and search for any indicator that you want to add. I here search for moving average indicator.
After clicking on indicator,go back and it will be visible on your chart screen. You can see moving average indicator here.
To configure indicators click on setting option, where various things can be changed and added to charts.
Q: 2(a) Explain the different categories of Technical indicators and give an example of each category. Also, show the indicators used as an example on your chart.
There are mainly three types of indicators : Trend, Volatility, Momentum based indicators. They all are groups based on their functions.
Trend Indicators:- This indicator signals for up trend or downtrend of the asset.It is very useful for making right decisions at right time. examples of trend indicators are ,Moving average , ADX indicator, Super trend etc.
Volatility indicators:-These indicators help us in understanding the volatility in markets and by that we can know about the forthcoming price fluctuations which could be upwards or downwards. examples of volatility indicators are ,Bollinger Bands,ATR indicator CBOE ,Volatility Index etc.
Momentum Indicators:-These indicators helps us to understand the momentum of price which could be high or low.If the price is high so will be momentum and if the price is low so will be momentum.examples of momentum indicator are,RSI Indicator,Stochastics Indicator,CCI Indicator etc.
RSI value above 70 is considered as overbought asset and RSI value below 30 is considered as oversold.
Q:2 (b) Briefly explain the reason why indicators are not advisable to be used as a standalone tool for technical analysis.
In crypto market,tables can turn in a blink that’s why we should take every decision very carefully.we cannot be fully dependent on any particular indicators because no indicator is 100%accurate,and thats why it’s recommended to make a use of use of more than one indicator, which-will not only enhance the chances of making profits but will significantly decrease the chances of losses.
Q: 2(c) Explain how an investor can increase the success rate of a technical indicator signal.
Technical Indicators can be very useful for investors if used properly, but the condition is that we should have learned everything about indicators like their use and efficiency.we should not fully depend on any particular indicator because no one is 100%accurate even sometimes it can not be accurate at all, that's why we should always use multiple Indicators by which changes of making successful investments are very high and reliable.And also another advantage of indicators is that, they help us to analyze the false breakouts and prevent us from falling into traps.To get the accurate results from indicators,settings must be configured properly to avoid loss.
Technical indicators are only useful if we know their usage, but as I mentioned above we cannot be fully dependent on any indicator as they are not 100% accurate.Before making any investment we can consider using more than 1 Indicator to filter the false breakouts and signals are take the buy or sell trade accordingly.
Different indicators have different advantages as well as disadvantages, we should try to learn the use of every indicator and then apply them wherever needed.I am very thankful to my professor @reminiscence01 for enlightening us with this great lecture.