Best technical indicators for stock trading

Best technical indicators for stock trading

It is hard to analyze the charts and volatility in the stock market. But, to give a perspective to the traders, indicators play a very dominant role. The indicators for stock trading certain the users with the structural zones for entering and exiting the trade. That in turn prevents the traders from being panic when there is a sudden change in the trend. 

In this article, we will disclose the best technical indicators for stock trading and direct you with its uses along with the benefits of technical analysis indicators.

About: Technical indicators

The technical indicators are the patterns that are derived for predicting the upcoming trend. These are simply created based on historic data that includes price, volume, and volatility. Indicators aim to signal the users by giving them a direction and suggesting an ideal range concerning their current position. 

It exhibits more trading opportunities by indicating the crucial price momentum and alert the traders to make a correct action for maximizing the profits. But, using the technical indicators does not give a 100% surety that stocks will sail as per the signal given by the indicators. As these are for alerting the users about the significant levels and directions.  

There are hundreds of technical analysis indicators, but we will spotlight some of the finest and widely used indicators, applied by immature to advanced traders.

Best technical indicators for stock trading

Check out the list of top technical indicators that are most prominently used and play a pivotal role in analyzing the market trend:

Moving averages 

The price of the stocks does not move in one direction as the movement involves ups and downs. And to smoothen the flow of stock price, the moving average indicator comes into play. It is derived by calculating the closing price of a particular stock on different period frames. Example- 5 days, 10 days, 50 days, 200 days moving average, etc. Also, it is said that longer the moving average, the better would the reliability in predicting the later price change.

There are two main types of moving averages i.e Simple moving average and exponential moving average. The simple moving average is relatively slow because it is calculated on the basis of data taken out by averaging the closing price. While exponential is faster as it applies more weight to the recent price range which makes it more prompt and accurate for a short-term trade.

RSI (Relative strength index)

RSI is one of the commonly used technical analysis indicators that is helpful in ascertaining the traders whether the stock is in an overbought or oversold zone. It is ranged from 0 to 100 but most of the users set out the ideal range as 70-30. 

When the RSI hits the 70 range, it signals that stock has reached an overbought zone and may consolidate to cool down the buying pressure. On the other hand when it outreaches 30 levels then it senses that stock is oversold and perhaps experience a pullback in the prevailing price.

Bollinger bands 

Bollinger bands is a set of bands comprising of three lines. The first line is the topmost line called as an upper limit, the middle line is the moving averages, and the third one is the lower limit. Since Bollinger bands constitute three lines, it is also called as an advanced version of moving averages

Apart from this, the two lines form a cloud-shaped bubble range. That bubble signifies the volatility of the stock i.e when the bubble is wide it states that the stock is highly volatile in terms of the trading volume. On the flip side when the bubble forms a narrow range it indicates that volatility is relatively low. Additionally, just like RSI, it specifies the overbought and oversold zones. When the price line crosses the topmost line then it indicates an overbought zone and vice versa.

MACD (Moving average convergence divergence)

MACD is also one of the best technical indicators for stock trading that helps in in-depth analysis. This indicator reveals the variation in strength and momentum. It comprises two indicating lines and a histogram chart. The two indicating lines are MACD and the signal line while the histogram symbolizes the distance between MACD and the signal line.

Now, coming to its use then MACD gives a buy or sell indication through its two-line crossover. When the MACD line crosses the signal line in an upward direction then it intimates a buy call and when the MACD line crosses in a downward direction it indicates to sell. 

Super trend 

The super trend is one of the technical analysis indicators that give a buy or sell signal to the users. It works on an algorithm of considering the stock's closing price. It gives a buying direction when the trend closes below the price and notify sell when the trend closes above the price. Also, turns green or red, pointing out the entry or exit position.

It remains green or red until it receives a solid alert, but it is sometimes better to exit or buy at a better price because it does not change the signal until it receives a pure indication.

Also, this indicator works well in the volatile market condition, and using this in a sideways trend may result in a wrong entry and exit.

 Take away

In the article above, we reveal the best technical indicators for stock trading. These listed technical analysis indicators were absolutely selected by recognizing their wide usability and trader's preferences. We tried to bring out a short explanation of each of the five indicators by disclosing the features and uses. 

This article is free from any promoted content and brings out the best story for readers. Also, we are not financial advisors and reveals the facts based on our experience and observation in the stock market.