Find the precise buy and sell points: 3 indicators used by professional traders

Many traders are always looking for price reversal points because they are the best zones for trading. If you can detect that the market will change direction before others, you can maximize your investment benefits. But the problem is that estimating reversal points through fundamental analysis, news, or eye-based guesses often leads to errors. This is where indicators that signal buy and sell points become essential tools for professional traders to improve trading accuracy.

Why Use Indicators to Signal Buy and Sell Points Instead of Guessing Price Movements

Professional traders do not rely on guesses but depend on indicators that show buy and sell signals, helping measure the strength of price movements. Momentum indicators are popular because they can tell if the price is overbought or oversold.

However, using only indicators is not enough, especially in strong trending markets. Indicators may repeatedly signal overbought or oversold conditions, leading to buying or selling at the wrong times. An advanced technique is observing divergence signals, which indicate conflicting signals between price and momentum. When divergence occurs, it’s a warning that the trend may be about to reverse.

RSI Divergence – How to Detect Warning Signs Before Price Reversal

The Relative Strength Index (RSI) is an indicator that calculates values between 0 and 100. The basic signals are RSI above 70 indicating overbought conditions, and RSI below 30 indicating oversold conditions.

But this is a misuse. In strong trending markets, RSI can stay overbought or oversold for extended periods. Therefore, professional traders use RSI divergence techniques instead.

Bearish Divergence (Warning of a reversal from uptrend to downtrend):

• When the price makes a new high but RSI fails to make a new high, it indicates that although the price is rising, momentum is weakening.
• This signals that the upward move may end soon and is a relatively safe point to sell.

Bullish Divergence (Warning of a reversal from downtrend to uptrend):

• When the price makes a new low but RSI does not make a new low, it suggests that selling pressure is weakening.
• This indicates that the downtrend may be losing strength and is a safe point to buy.

MACD Divergence – Reading Price Momentum

The Moving Average Convergence Divergence (MACD) is a more comprehensive indicator than RSI because it shows both trend and momentum.

Basic MACD reading: MACD above zero indicates an uptrend, below zero indicates a downtrend. Advanced traders look at the Histogram (the difference between MACD and its signal line) to detect MACD divergence signals.

Bearish Divergence:

• When the price makes a new high but the positive Histogram (indicating upward momentum) does not reach a new high, it suggests weakening bullish momentum.
• This indicates an unstable rise and a high likelihood of reversal downward.

Bullish Divergence:

• When the price makes a new low but the negative Histogram (indicating downward momentum) does not reach a new low, it suggests weakening bearish momentum.
• This points to an unstable decline and a high chance of reversal upward.

OBV Divergence – When Volume Signals Precede Price Movements

Beyond momentum indicators, the On-Balance Volume (OBV) is a tool that can improve the accuracy of buy and sell signals by focusing on trading volume rather than just price.

Rising OBV (upward trend line) indicates accumulation, while falling OBV (downward trend line) indicates distribution. The key is observing when price and volume move in opposite directions.

Bearish Divergence:

• When the price makes a new high but OBV does not, or shows signs of decline, it suggests that despite the price increase, volume is decreasing, warning that the rally may lack strength.

Bullish Divergence:

• When the price makes a new low but OBV rises or does not make a new low, it indicates accumulation despite falling prices, signaling a potential end to the downtrend.

Summary: Combining Multiple Indicators for Greater Accuracy

Professional traders do not rely on a single indicator but combine RSI, MACD, and OBV to increase confidence in signals. When all three show divergence in the same direction, it’s an optimal time to enter a trade.

Remember, indicators are tools to guide you—they do not guarantee outcomes. Alongside these tools, you should incorporate risk management, money management, and long-term trend analysis to optimize your trading system.

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