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 identify the price chart movement.

Among the most often used technical indicators are:

MAs Indices Indicator RSI MACD Bollinger Bands Indicator Stochastics Indicator

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

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 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 strategy that is indicator based stock trader will first need to learn about these indicators used in the market.

The 5 commonly used technical indicators are explained below:

MAs Moving Averages Indicator

Moving average indicator is used to identify 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 downward.

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 gets derived & generated when moving averages begin to move in the opposite trend direction.

Stock Indices Trade with MA Indicator

RSI Indicator

RSI is used to identify if prices are in general closing higher than where it is they opened or if prices are closing lower than where it's they opened.

RSI values above 50 signals that stock prices are closing higher than where they opened RSI values below 50 signals that stock prices are closing lower than where they opened

When stock indices trading using the RSI buy & sell signals are derived & generated when the RSI moves above or below the 50 center line mark - RSI values above 50 is a buy signal while RSI values below 50 is a sell signal.

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

RSI areas below 30 are used to display oversold levels RSI levels above 30 are used to display overbought areas

Stock Index Trade with RSI Indicator

MACD Indicator

MACD indicator is used to analyze & interpret the momentum of trends.

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

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

MACD technical indicator is composed of two lines - MACD line and MACD SignalLine - MACD line is drawn as a red line while MACD Signal line is drawn as a blue line.

Indices Trade with MACD Indicator

Bollinger Bands Indicator

Bollinger Bands indicator uses a 20 period moving average MA as the middle 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 price breakout.

Indices Trade with Bollinger Band Indicator

Stochastic Oscillator Indicator

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

Stochastic oscillator stock indicator is made up of 2 line %K and %D lines which oscillate between the values of 0 and 100. Indices Trade with Stochastics Indicator Indicator

Learn More Guides & Tutorials: