The 5 Effective Stock Indicators That Stock Traders Should Know

Many stock traders will use different methods of trading. One of these methods of trading is the use of technical indicators. Indicators are technical tools that are placed on charts & help to determine the market price chart movement.

Among the most commonly used technical indicators are:

MAs Stock Indices Technical Indicator RSI MACD Bollinger Band Technical Indicator Stochastic Oscillator

These indicators are used by stock traders to identify trends, analyze trends and also analyze trend momentum.

To trade with these indicators stock traders will come up with a few stock indices rules that will determine that this is when to open a stock trade based on the specified stock indices rules. These rules form what is known as a stock strategy.

This stock strategy which is a set of rules will be used by stock traders when trading the stock index market. To come up with a stock trading strategy that is indicator based stock trader will first need to know about these indicators used in the market.

The five commonly used technical indicators are explained below:

MAs Indicator

Moving average indicator is used to identify stock indices trading opportunities by determining the overall trend direction of the market. Moving average is drawn as a line that shows the average of prices on the chart.

When the market is heading in an upwards trend the moving average indicator will also be heading upwards.

When the market is heading in a downward stock trend the moving average indicator will also be heading downwards.

Stock traders will use two moving averages a shorter stock indices period moving average and a longer stock indices period moving average - stock trading signals will be generated when both of these moving averages are heading in same direction.

An exit stock trading signal is generated when moving averages begin to move in opposite trend direction.

Stock Indices Trading with MA Indicator

RSI Technical Indicator

RSI indicator is used to determine if prices are generally closing higher than where it is that they opened or if prices are closing lower than where it is that 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 indices trading using the RSI indicator buy and sell signals are generated when the RSI moves above or below the 50 center line mark - RSI indicator values above 50 is a buy signal while RSI technical indicator values below 50 is a sell signal.

The RSI indicator is drawn with values of between 0 and 100. RSI 50 is the center line mark used to generate signals when the RSI indicator moves above or below this center line mark.

RSI technical indicator areas below 30 are used to show oversold levels RSI technical indicator levels above 30 are used to show overbought areas

Stock Indices Trading with RSI Indicator

MACD Indicator

MACD indicator is used to analyze the momentum of trends.

MACD indicator is used to generate trade signals when MACD moves above or below the zero center line mark.

MACD indicator above Zero center-line is interpreted as a buy signal. MACD indicator below Zero centerline is interpreted as a sell signal.

MACD indicator is comprised of two lines - MACD line and MACD Signal Line - MACD line is drawn as a red line while MACD Signal line is drawn as a blue line.

Stock Indices Trading with MACD Indicator

Bollinger Band Indicator

Bollinger Band indicator uses a 20 period moving average MA as the middle Bollinger band and then calculate the price movement magnitude from these moving average line using standard deviation.

When volatility of price is high the Bollinger bands will widen When volatility of price is low the Bollingers will narrow

When Bollinger bands widen the price trend is likely to continue moving in the same direction whereas when Bollinger band narrow the price is likely to breakout and move in direction of the price breakout.

Stock Indices Trading with Bollinger Bands Technical Indicator

Stochastic Oscillator Indicator

Stochastic oscillator stock indicator is used to determine overbought and oversold levels. Stochastic oscillator values below 20 are interpreted as oversold levels and stochastic oscillator indicator values above 80 are considered as over-bought.

Stochastic oscillator stock indicator is made up of two line %K and %D lines which oscillate between values of 0 and 100. Stock Indices Trading with Stochastic Oscillator Technical Indicator

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