The 5 Effective Stocks Indicators That Stocks Traders Should Know
Many stock traders will use different methods of stock trading. One of these methods of stock trading is the use of stock indicators. Stock indicators are technical stock trading tools that are placed on stocks charts and help to determine the stock price chart movement.
Among the most commonly used technical indicators are:
Moving Averages Stocks Trading Technical IndicatorRSIMACDBollinger Band Technical IndicatorStochastic Oscillator Technical Indicator
These stocks trading indicators are used by stock traders to identify stock trends, analyze stock trends and also analyze stock trend momentum.
To trade with these indicators stock traders will come up with a few stock rules that will ascertain that this is when to open a stock trade based on the specified stock trading rules. These stock rules form what is known as a stock trading strategy.
This stocks strategy which is a set of stocks trading rules will be used by stock traders when trading the stocks market. To come up with a stocks trading strategy that is indicator based stock trader will first need to know about these indicators used in the stock trading market.
The five commonly used stock trading indicators are described below:
Moving Averages Indicator
Moving average stock indicator is used to identify stock trading opportunities by determining the overall trend direction of the market. Stocks moving average is drawn as a line that shows the average of stock prices on the stock chart.
When the stock market is heading in an upwards stock trend the moving average stock technical indicator will also be heading upwards.
When the stock market is heading in a downward stock trend the moving average stock technical indicator will also be heading downwards.
Stocks traders will use two moving averages a shorter stock period moving average and a longer stock period moving average - stocks trading signals will be generated when both of these moving averages are heading in same direction.
An exit stocks trading signal is generated when moving averages start to move in opposite direction.
Stocks Trading with Moving Average Technical Indicator
RSI Indicator
RSI indicator is used to determine if stock prices are generally closing higher than where they opened or if stock prices are closing lower than where they opened.
RSI indicator values above 50 signals that stock prices are closing higher than where they opened RSI indicator values below 50 signals that stock prices are closing lower than where they opened
When stock trading using the RSI indicator stock buy and stock sell trading signals are generated when the RSI moves above or below the 50 center line mark - RSI indicator values above 50 is a buy stock trading signal while RSI technical indicator values below 50 is a sell stock trading signal.
The RSI indicator is drawn with values of between 0 and 100. RSI 50 is the center line mark used to generate stocks trading signals when the RSI indicator moves above or below this center-line mark.
RSI technical indicator areas below 30 are used to show over-sold areas RSI technical indicator areas above 30 are used to show over-bought areas
Stocks Trading with RSI Technical Indicator
MACD Indicator
MACD indicator is used to analyze the momentum of stock trends.
The MACD indicator is used to generate stocks trading signals when MACD moves above or below the zero center-line mark.
MACD indicator above Zero centerline is interpreted as a buy stock trading signal. MACD indicator below Zero center-line is interpreted as a sell stock trading signal.
MACD indicator is comprised of two lines - MACD line and MACD Stock Trading Signal-Line - MACD line is drawn as a red line while MACD Signal-line is drawn as a blue line.
Stock Trading with MACD Technical Indicator
Bollinger Band Indicator
Bollinger bands stock indicator uses a 20 period moving average as the middle Bollinger band and then calculate the stock price movement magnitude from these moving average line using standard deviation.
When stock price volatility is high the Bollinger bands will widen When stock price volatility is low the Bollinger bands will narrow
When Bollinger bands widen the stock price trend is likely to continue moving in the same direction whereas when Bollinger band narrow the stock price is likely to breakout and move in direction of the stock price break out.
Stocks Trading with Bollinger Bands Technical Indicator
Stochastic Oscillator Indicator
Stochastic oscillator stock trading indicator is used to determine overbought and oversold levels. Stochastic oscillator values below 20 are interpreted as oversold levels and stock stochastic oscillator values above 80 are considered as overbought.
Stochastic oscillator stock trading indicator is made up of two line %K and %D lines which oscillate between values of 0 and 100.Stock Trading with Stochastic Oscillator Technical Indicator
