What is your strategy for investing or trading in the stock market? If your answer was just one – you might want to think of more steps. Your strategy needs to also include trading indicators. These indicators need to be a part of any technical strategy that you have, and they will be paired with your risk management.
These indicators will also include gaining more insights into price trends. So, lets us start exploring, and you will understand why these trading indicators are important. But before that, let us understand a trading indicator.
What is the Meaning of a Trading Indicator?
In general, technical indicators are tools that help investors use history to predict the most likely course of a financial asset’s price in the future. These indications serve as the cornerstone for any technical analysis.
The premise behind this type of study is that financial markets follow repetitive, quantifiable patterns. Technical analysis, by finding and tracking patterns in a stock chart, gives both entry and exit signals, which, more often than not, lead to lucrative market moves.
The Best Trading Indicators that You Need to Know
Here is a massive list of indicators you could use along with your trading strategy in the stock market:
A trend tracking indicator based on price is known as a Super Trend. It is made up of only two variables: period and multiplier. The default values for the ATR and multiplier are 10 for the ATR and 3 for the multiplier.
The trend is deemed bearish when the dots are above the prices. The trend is deemed bullish when the dots are below the prices.
2. 52-Week High
These levels are used by traders as a technical indicator to analyze a stock’s current value and potential price movement.
When a stock’s price is approaching the high or low end of its 52-week price range, traders frequently exhibit heightened Interest in it. Between the 52 week low stocks and the 52-week high, there is usually a range. These levels are based on the stock’s daily closing price.
A stock may shatter a 52-week high intraday, but it may end up ending below the prior 52-week high, resulting in it going unnoticed. This also holds true when a stock makes a new 52-week low intraday but fails to close below it.
3. Price Volume Trend
The volume price trend indicator is utilized to determine the demand and supply balance of stock.
The relative supply or demand of a specific stock is represented by the change in percentage of the share price trend, whereas volume reflects the driving force behind the trend. The on-balance volume (OBV) indicator, which monitors cumulative volume, is identical to this one.
The Donchian indicator, like Bollinger Bands, is made up of three bands, with the middle band being an average of the upper and lower bands. The upper band depicts the maximum security price, while the lower band depicts the lowest security price over a given time period.
5. Exponential Moving Average
The Exponential Moving Average (EMA) – it is a sort of Moving Average that gives recent price weights. Because recent prices are more important in terms of price change, they should be given more weight. This is why the majority of traders prefer the Exponential Moving Average to the Simple Moving Average.
6. Open Interest
The amount of outstanding derivatives contracts in the market is referred to as open interest. It’s a crucial metric for determining whether the current trend will continue or reverse.
When the price rises in tandem with volume and open Interest, it signals that the market is bullish. When the price, open interest, and volume all fall, it means the market is bottoming.
7. Moving Average
Moving averages are trailing technical indicators that are used to determine whether or not a trend is still in progress. The most popularly used moving average periods are 10, 20, 50, 100, and 200.
Exponential Moving Average (EMA), Simple Moving Average (SMA), and Weighted Moving Average are all examples of moving averages (WMA). When prices move above the Moving Average, the current trend is regarded as an uptrend, while when prices go below the Moving Average, the current trend is considered a downtrend.
8. Relative Strength
The Relative Strength Indicator (RSI) is a momentum oscillator that calculates the magnitude of recent price changes. It features a scale that ranges from 0 to 100.
It indicates if prices are overbought or oversold to the trader. Above 70, it’s called an overbought zone, while below 30, it’s considered an oversold zone. The usual period is 14 periods – but the trader can adjust it to suit his trading strategy.
Well, this list can go on. You can use these indicators based on what you want to know and also what you want to achieve.
There are only certain things you need to remember when you are using indicators – you should not be using too much together or just one alone. Concentrate on a few that you feel suit you the best.