The best technical indicators for beginners are the few that each answer one clear question: moving averages for trend, Bollinger Bands and Donchian Channels for range and breakouts, ATR for volatility and RSI for momentum. Simply put, an indicator is a calculation made from historical price data that gives insight into current market conditions.
Quick answer: which technical indicators should beginners learn first?
Start with five: a moving average for trend direction, Bollinger Bands for volatility and breakouts, a Donchian Channel for recent highs and lows, ATR for how far price normally moves, and RSI for momentum. Use one indicator per job, and read each one alongside price and key levels rather than on its own.
What technical indicators do (and what they cannot)
It is difficult to gauge directly from the chart what the market is really doing, so technical indicators aim to filter out a lot of the noise of price action. Every indicator is built from past prices, so it lags; we read indicators as a second layer on top of the candles. If you are new to charts, start with our guide on how to read candlestick charts for beginners.
The best technical indicators for beginners: our top 5
This list first appeared here in October 2017, and the original author’s views are kept below. Each indicator does a different job, so you rarely need more than two or three at once.
1. Moving averages
Moving averages are arguably the most straightforward technical indicator. This indicator calculates the average close price over a given time period: a 50-day simple moving average averages the close price for each day over 50 days. A more complex trend tool built from midpoints rather than averages is covered in Ichimoku cloud explained.
Other types include exponential and weighted moving averages, which give more weight to recent prices. They are therefore more responsive and track the price more closely than a simple type. They are often used in exit strategies and trend filters. By varying the length of a moving average you can completely change a strategy, from capturing short-term momentum to following longer-term trends. Our guide to the moving average crossover strategy covers trading two averages together.
2. Bollinger Bands
The Bollinger Band creates a price range using standard deviations (SD) of the closing prices around a moving average. The range is often set 2 standard deviations above and below the moving average; the original example used a 50-day simple moving average and +/- 2 SD. The bands highlight consolidating price action and the moment a breakout occurs. Using bands to measure stretch is the idea behind mean reversion trading. Our full Bollinger Bands strategy guide covers squeezes and band walks.
“A Bollinger band breakout is my favourite pattern to play,” the original author wrote. A breakout can be used either to go with the momentum (like my $7000 Ethereum profit & $1400 EURGBP profit) or to predict when the market is going to pull back (like my $1700 Natgas profit & $1700 GBPJPY profit). Those are historical 2017 desk trades, not a guide to future results.
3. Donchian Channel
Donchian Channels also create a price range for normal market action. The range is formed from the highest high and lowest low over a given period, and when a new high or low is made, the line adjusts to that level. As a result, it keeps track of recent highs and lows that are likely to act as resistance and support.
The Donchian Channel was the main indicator used by the legendary Turtle Traders, who reportedly made $175 million in 5 years. Their basic rule was to buy a break above the 20-day high, sell a break below the 20-day low, and exit on a 10-day high or low in the opposite direction. Our guide to avoiding false breakouts shows why not every break holds.
4. Average True Range (ATR)
Unlike most technical indicators, Average True Range measures volatility rather than price direction. It calculates how “spikey” price action is over a period compared with what is normal for that market. A higher ATR means a more volatile market, and that can be used to scale your position size, as explained in our guide on how to calculate position size for CFDs and spread bets. Our guide to the average true range indicator goes further on stops and sizing.
5. Relative Strength Index (RSI)
RSI, introduced by J. Welles Wilder and usually set to 14 periods, is a momentum indicator. It ranges from 0 to 100: a market is said to be overbought above 70 and oversold below 30. A divergence between RSI and price, where they move in opposite directions, can warn of a future reversal, so use it with other tools to judge the trend and find entry points. Our guide to RSI divergence trading covers divergence in depth. Another momentum tool, MACD, has its own guide: our MACD trading strategy.
| Indicator | What it measures | How we use it with price action |
|---|---|---|
| Moving average | Trend direction | Trade only in the direction of the slope |
| Bollinger Bands | Volatility around an average | Spot squeezes before breakouts |
| Donchian Channel | Recent highs and lows | Mark breakout levels and exits |
| ATR | Normal movement size | Set stop distance and position size |
| RSI | Momentum | Look for divergence at a key level |
Fibonacci retracement with price action: the NatGas example
Fibonacci lines are drawn from a recent low to a recent high. Trades are placed with the trend when price retraces to the 61.8%, 50% or 38.2% levels, anticipating a bounce back in the direction of the initial move. The original post showed a Natural Gas trend, with price bouncing off the 50% Fib level, and our natural gas price action trading guide covers that market in more depth. Our full guide to Fibonacci retracement trading covers drawing the levels and what the evidence says.
“I don’t personally use Fibonacci levels to make decisions, as I find they are more subjective than other indicators,” the author added, but markets regularly respond to them because so many traders watch them. There is research behind that idea: a New York Fed study of currency orders by Carol Osler found stop-loss and take-profit orders cluster at levels traders watch, which helps explain why trends often turn or speed up there.
Worked example: using ATR to size a trade
Example, using hypothetical figures: on a £5,000 account, a trader risks 1% per trade, which is £50. The daily ATR on the market they are watching is 40 points, and they place the stop 1.5 times ATR away, at 60 points.
- Risk in pounds: £5,000 x 1% = £50.
- Stop distance: 40 x 1.5 = 60 points.
- Stake: £50 / 60 = about £0.83 a point on a spread bet.
If volatility doubles, the stop widens and the stake halves, so the £ risk stays the same. Spread bets and CFDs are leveraged, so a gap through the stop can cost more than planned. Our guide on how much to risk per trade explains the percentage itself.
Common mistakes with indicators
- Stacking indicators that measure the same thing, such as RSI, stochastics and MACD together, until they contradict each other.
- Treating 70 and 30 as automatic signals. In a strong trend RSI can stay overbought for a long time.
- Ignoring location. A signal mid-range means far less than one at a fresh supply or demand zone.
- Changing settings after every loss instead of applying one set consistently.
There is no perfect indicator. Apply each one consistently, as one part of a process like reading price action step by step.
Frequently asked questions
How many indicators should a beginner use?
Two or three is plenty, each doing a different job: one for trend, one for volatility, one for momentum.
Are indicators better than price action?
No, they are built from price, so they lag it. We read candles and levels first and use indicators to confirm the trend or size the trade.
Does Fibonacci retracement really work?
The levels are subjective, and price does not respect them every time. They can matter because many traders watch them, so treat a Fibonacci level as one reason among several, not a reason on its own.
Which indicator is the most accurate?
None is accurate on its own, and no indicator works in every market condition. Choose one that fits your method and apply it the same way each time.
Next steps
Indicators sit on top of the bigger method in our complete beginner’s guide to price action trading, and our steps for spotting the start of a new trend show moving averages and price working together. If you are deciding which to learn first, read price action vs indicators.
For a structured path, the free basics section of our price action trading course covers these foundations before any indicator.
This article is for education only and is not financial advice. Trading leveraged products such as CFDs and spread bets carries a high risk of losing money.
