What is Technical Analysis?

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume.

What are technical analysis indicators?

Following is the list of some best technical analysis indicators.

 

1) Relative Strength Index (RSI)

2) Stochastic Oscillator

3) ADX

4) Moving Average Convergence Divergence (MACD)

5) Average True Range (ATR)

6) Bollinger Bands

7) On Balance Volume (OBV)

8) Supertrend indicator

9) Moving averages (MA)

10) Exponential Moving Averages (EMA)

11) Commodity Channel Index (CCI)

12) Williams % R Indicator

13) Fibonacci retracement

Relative Strength Index (RSI): The Relative Strength Index (RSI) is a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions. Levels below 30 is oversold and value of RSI above 70 is overbought.

If any stocks crosses above 30 RSI level from below, is BUY signal and any stock crosses below 70 RSI level from above is SELL Signal.

Stochastic Oscillators: Stochastic oscillators measure the momentum of an asset's price to determine trends and predict reversals. Stochastic oscillators measure recent prices on a scale of 0 to 100, with measurements above 80 indicating that an asset is overbought and measurements below 20 indicating that it is oversold.

If any stock crosses above 20 stochastic level from below is BUY signal and any stock crosses below 80 stochastic level from above is SELL Signal.

ADX: The average directional index (ADX) is a trend indicator that can lead traders to reduced risk and increase profit potential. The ADX, negative directional indicator (-DI), and positive directional indicator (+DI) are momentum indicators. The ADX helps investors determine trend strength, while -DI and +DI help determine trend direction. The ADX identifies a strong trend when the ADX is over 25 and a weak trend when the ADX is below 20.

ADX is one of the most reliable trend strength indicators and has helped many analysts to correctly identify ranging markets and thus avoid being lured into buying false breakouts or buying into markets that are basically just flat and going nowhere.

Moving Average Convergence Divergence (MACD): Moving average convergence/divergence (MACD) is a momentum indicator that shows the relationship between two moving averages of a security's price.

If MACD is above the signal line, the histogram will be above the MACD's baseline, or zero line. If MACD is below its signal line, the histogram will be below the MACD's baseline. Traders use the MACD's histogram to identify when bullish or bearish momentum is high—and possibly for overbought/oversold signals.

The strategy is to buy or close a short position – when the MACD crosses above the zero line, and sell or close a long position – when the MACD crosses below the zero line.

Average True Range (ATR): Average True Range (ATR) is the average of true ranges over the specified period. ATR measures volatility, taking into account any gaps in the price movement. Typically, the ATR calculation is based on 14 periods, which can be intraday, daily, weekly, or monthly.

Interpreting the ATR indicator values is simple and straightforward. When the ATR line edges higher, it implies that the volatility of the underlying asset is increasing; similarly, when the ATR line drifts lower, it implies that the volatility of the underlying asset is decreasing.

Bollinger Band: A Bollinger Band is a momentum indicator used in technical analysis that depicts two standard deviations above and below a simple moving average.

Bollinger Bands use W patterns to identify W Bottoms when the second low is lower than the first low but holds above the lower band. It occurs when a reaction low form close to or below the lower band. The price then pulls back towards the middle band or higher and creates a new price low that holds the lower band.

On Balance Volume (OBV): On-balance volume (OBV) is a momentum indicator that uses volume flow to predict changes in stock price. On Balance Volume measures buying and selling pressure as a cumulative indicator that adds volume on up days and subtracts volume on down days. When the security closes higher than the previous close, all of the day's volume is considered up-volume.

OBV rises when volume on up days outpaces volume on down days. OBV falls when volume on down days is stronger. One way to exploit the OBV is to use it as an accumulation indicator, by simply finding divergences between prices and the OBV indicator we can detect accumulation.

Supertrend Indicator: The Supertrend Indicator is a popular technical analysis tool designed to assist traders in identifying market trends. While the Supertrend Indicator might be valuable for identifying trends and managing risk, its reliability is not absolute and should only be used as part of a comprehensive strategy.

The best supertrend settings for swing trading are usually the 4-hour and 1-day charts, combined with the default 10,3 supertrend line. Additional indicators will be useful for better precision. For instance, you can consult volume based indicator such as the on-balance volume (OBV) to confirm the trend.

Moving Averages (MA): A moving average (MA) is a technical analysis indicator that helps level price action by filtering out the noise from random price fluctuations. It is also called simple moving average.

Traders and market analysts commonly use several periods in creating moving averages to plot their charts. For identifying significant, long-term support and resistance levels and overall trends, the 50-day, 100-day, and 200-day moving averages are the most common. Moving averages method is best suited in trending market.

Look at the direction of the moving average to get a basic idea of which way the price is moving. If it is angled up, the price is moving up (or was recently) overall; angled down, and the price is moving down overall; moving sideways, and the price is likely in a range.

Exponential Moving Averages (EMA): Exponential Moving Average (EMA) is similar to Simple Moving Average (SMA), measuring trend direction over a period of time. However, whereas SMA simply calculates an average of price data, EMA applies more weight to data that is more current.

Generally traders want to trade in the direction of the trend to improve odds and go with the flow. The 8- and 20-day EMA tend to be the most popular time frames for day traders while the 50 and 200-day EMA are better suited for long term investors.

Everything else being equal, an EMA will track price more closely than an SMA. Because of this, the EMA is typically considered more appropriate in short-term trading.

Commodity Channel Index: The Commodity Channel Index (CCI) is a technical indicator that measures the difference between the current price and the historical average price. When the CCI is above zero, it indicates the price is above the historic average. Conversely, when the CCI is below zero, the price is below the historic average.

When the CCI moves above +100, a new, strong uptrend is beginning, signaling a buy. Use trending indicators or other technical analysis methods to confirm signals indicated by the CCI. When the CCI moves below −100, a new, strong downtrend is beginning, signaling a sell. Close the position on CCI rising above −100.

The CCI is a multifaceted technical indicator that aids traders in various aspects of stock trading, from identifying emerging trends to spotting overbought or oversold conditions. It is particularly useful for detecting bullish and bearish divergences, which can indicate potential price reversals.

The Commodity Channel Index (CCI) can be used as either a coincident or leading indicator. As a coincident indicator, surges above +100 reflect strong price action that can signal the start of an uptrend. Plunges below -100 reflect weak price action that can signal the start of a downtrend.

Williams % R Indicator: Williams %R, also known as the Williams Percent Range, is a type of momentum indicator that moves between 0 and -100 and measures overbought and oversold levels. The Williams %R may be used to find entry and exit points in the market. The indicator is very similar to the Stochastic oscillator and is used in the same way. It was developed by Larry Williams and it compares a stock’s closing price to the high-low range over a specific period, typically 14 days or periods

The indicator is telling a trader where the current price is relative to the highest high over the last 14 periods (or whatever number of lookback periods is chosen). When the indicator is between -20 and zero the price is overbought, or near the high of its recent price range.

Fibonacci Retracement: Fibonacci retracement levels—stemming from the Fibonacci sequence—are horizontal lines that indicate where support and resistance are likely to occur. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced.

The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. Sometimes Fibonacci ratio, 50% is also used. The most popular Fibonacci retracements are 61.8% and 38.2%. Note that 38.2% is often rounded to 38%, and 61.8 is rounded to 62%. After an advance, chartists apply Fibonacci ratios to define retracement levels and forecast the extent of a correction or pullback

Many traders find success using Fibonacci ratios and retracements to place transactions within long-term price trends. Fibonacci retracement can become even more powerful when used in conjunction with other indicators or technical signals.