[Technical Analysis Tools:] 12 Stocks Day Trading Indicators
Technical analysis tools are common in markets such as forex, stocks, cryptocurrency, commodities, and indices. To use technical analysis you’ll need a trading software such as MetaTrader 4 to read the charts and identify a price movement. Besides, you’ll need to look for historic data on the asset.
What are the best technical indicators?
First off is the On-Balance Volume (OBV) indicator that was developed by Joseph Graville. This indicator measures the flow of volume – negative and positive – of an asset over a specific period. It is the sum total of negative and positive volume. A rising OBV indicators that more buyers are willing to push the price higher while a falling OBV indicators are willing to sell at a lower price.
A rising OBV and asset price confirms an upward or downward price movement. However, should there be a divergence; the price is likely to reverse. For example, if the price is rising and the OBV is falling, the price will eventually fall.
Also known as the A/D line, it is one of the most popular technical indicators used by traders. It uses price and volume to determine money flow of an asset. As such, traders can tell whether there’s distribution or accumulation of a stock and whether a trend is strong or weak.
For example, if A/Dis rising while the price is falling, it shows that distribution volume is weak and hence a price rise is inevitable. It also uses trading range and closing position of the stock. If the stock closes near its high, then the volume traded is high.
Average directional indexThis trend indicator measures the strength of a trend. A measure of above 40 indicators that the trend has a strong momentum. If it is less than 20, the trend momentum is weak. This indicator uses three lines with the main, ADX, colored black. The additional two are positive (D+) and negative (D-) directional indicator.
These lines enable the trader to gauge whether he should go long, short, or not trade. An uptrend is characterized by an ADX above 20 and a D+ above D- while a downtrend has an ADX below 20 and a D- above D+. You should however look out for crossovers, which happen when the ADX is above 25.
Moving average convergence divergence (MACD)
The MACD allows the trader to assess the trend and momentum of the trend in question. With it comes several crucial trade signals. It uses 2 moving averages: 26 - and 12-period exponential moving average. To get MACD, you subtract the 26-period EMA from the 12-period EMA.
A MACD of above zero indicates a bullish market while a MACD below zero indicates a bearish trend. It uses the signal and MACD line to indicate price movement. If the MACD line is above the signal line, then there’s a price rise and vice versa. The downside of MACD is that it can produce a false positive leading to loss of money.
Aroon indicatorThis indicator uses the Aroon Oscillator to follow the trend of a price movement. It also confirms whether the trend will continue or reverse. It also allows traders to gauge the formation of a new trend by using the Aroon-down and Aroon-up lines. If the indicator reads above zero, it confirms presence of an uptrend and vice versa.
The two lines move between 0 and 100. For example if the Aroon-down line hits 100 and the Aroon-up line stays near 0, it confirms a downtrend. The reverse is true. It also provides trade signals that allows you to gauge the price movement of an asset.
Relative strength index
This technical analysis indicator shows recent price changes of an asset. It measures the magnitude of price change of the said asset. Like the Aroon indicator, it moves between 0 and 100 to indicate the magnitude in price change. As such, you can tell the trend strength and momentum. It shows an oversold or an overbought condition.
If the indicator is above 70, there’s an overbought which indicators the asset price is likely to dip. And when it’s below 30, there’s an oversold hence the price will rise. However, making this assumption can lead to losses. Therefore, you should be cautious. You should also watch out for divergence (indicator and price trend moving in opposite directions)
This momentum indicator compares the current price of an asset with its price range over a specific period. The oscillator moves between 0 and 100. It is used to confirm an uptrend or a downtrend. During an uptrend, the price is expected to make new highs. In a downtrend, new lows should populate the trend.
Unlike other indicators, it moves relatively fast making it an ideal indicator that confirms an overbought or oversold. Here an overbought is above 80 while an oversold is below 20.
This is a level where the price of an asset does not fall below. It happens when buyers enter the market whenever the price of the asset reaches a certain level at a specific time. Technical analysts draw a line along the lower lows to come up with a support level. They also use more advanced technical indicators to draw better support levels.
Creation of limit orders can also create a support level of a specific stock. It is one of the core of technical analysis since it indicates price movement of an asset. It allows traders to enter or exit a position at a specific time.
Resistance level is the price at which many sellers enter the market preventing it from rising. Like the support level, it is crucial to technical analysis. While it can be long-term, it can easily break due to fundamental changes. Here, traders draw a line (straight or slanted) along higher highs. You can also use moving averages and trendlines to map a resistance level.
Like the support level, it helps traders know when to enter or exit positions. It is also an effective risk management tool, allowing traders to set a stop-loss order. While a popular indicator, experts regard it as a concept rather than a technical indicator. As such, most traders use other advanced technics to draw a resistance level.
Exponential moving average (EMA)
EMA unlike DMA, uses most recent data points. It reacts to recent changes in an asset price. Like other moving averages, it uses crossovers and divergences to indicate sell and buy signals in the market. Here, you can 200-day, 50-day, or 10-day moving averages to identify a price movement. While a popular indicator, critics say that putting more emphasis on recent market data can create a false alarm. Besides, it uses historical data hence cannot predict future price movement of an asset.
Simple moving average (SMA)
With the SMA indicator, you place weight equally on all data points. You add recent prices of an asset and divide the total by the number of periods. SMA also reacts quickly to price changes of an asset. Unlike other moving averages, you can customize SMA by using different periods.
This calculation smoothens price changes allowing traders to map a clear price movement trend. An uptrend shows the price is rising while a downtrend shows the price is falling. Also, to get a smoother SMA, you should use more data points.
Finally, we have the Bollinger Bands that has become a favorite for most traders in the stock, forex, currencies, and other markets. This indicator shows whether there’s an overbought or oversold of an asset. It can also follow a trend and monitor breakouts.
What are the best technical indicators in forex?
There are many indicators that forex traders use for informed buy and sell decisions. However, not all indicators are effective with many creating false alarms and positives. Here are a few efficient indicators you should use if you are trading in the forex market.
· Moving averages: moving averages shows the overall movement of currency prices. A price above a moving average indicates the price is moving and vice versa.
· Relative strength index: this is yet another effective indicator. It plots between 0 and 100 showing where the price of a currency pair is likely to change. Levels above 70 show an uptrend while levels below 30 show a downtrend.
Other technical indicators include MACD, stochastic, Ichimoku Kinko Hyo, and Fibonacci.