7 Stock Market Technical Indicators That Can Help You Invest

3/19/2018 Stock Market: 7 stock market technical indicators that can help you invest - The Economic Times
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7 stock market technical indicators that can help you invest

BY NARENDRA NATHAN, ET BUREAU | UPDATED: MAR 19, 2018, 05.57 PM IST Post a Comment
Technical indicators are mostly used by stock traders for raking in short term profits. Big Change:
However, they are also useful for medium-to long-term investors. The end of Five-Year Plans: All you need to know
ET Wealth explains how these indicators can help you invest better. You can find them on the websites of stock exchanges.
Trend Line
Type
Trend indicator
Computation
Connecting three rising price bottoms makes an uptrend; three falling tops make a downtrend.
What it signals
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Stock price above an uptrend line means market is bullish on the stock. Price below a downtrend line shows market is bearish.
Takeway
Buy when price moves towards long-term moving average from the top, but sell if it goes below the uptrend line. Sell when price moves
towards the downtrend line from the bottom, but buy if it goes above the downtrend line.
https://economictimes.indiatimes.com/wealth/invest/7-stock-market-technical-indicators-that-can-help-you-invest/printarticle/63342749.cms 1/8
Longer the trendline, the stronger is the trend.
Simple Moving Average

Type
Trend indicator
Computation
A simple average of the closing stock prices for selected time period. Short-term traders usually use the 10-day prices to calculate the
simple moving average (SMA), medium- to long-term investors use 100-day or 200-day moving average.
What it signals
If the price remains above long-term indicators such as 100- or 200-day SMA, market is considered to be bullish on the stock.
Takeway
Buy when prices approach long-term moving average from the top but sell when they fall below the longterm moving averages. Sell
when the prices approach the long-term moving average from the bottom but buy if they go beyond the long-term moving average.
Now the index is struggling to cross 100-day SMA.
Rate of Change
Type
Momentum indicator
Computation
Percentage change in prices of two selected time periods. Most traders use 14-day Rate of Change (ROC).
What it signals
Positive ROC value means prices are rising; negative ROC value means prices are falling.
Takeway
Turnaround in ROC indicates a possible turnaround in price. Divergences—price going up but not the ROC—is a good warning for a
trend reversal.
Divergence between price and ROC hints at a trend reversal
Relative Strength Index

Type
Momentum indicator
Computation
It is based on the average price increase during a period of rising prices and average price fall during a period of falling stock prices.
Relative Strength Index (RSI) is plotted between 0 and 100.
What it signals
Usually, the market is treated as overbought when RSI goes above 70 (80 for highly volatile stocks) and oversold when it hits 30—20 for
highly volatile stocks.
Takeaway
RSI entering overbought and oversold zones should be treated only as warnings. Sell when RSI goes below 70 twice consecutively. Buy
if it goes above 30 twice consecutively.
RSI indicates that the Nifty is neither overbought nor oversold.
Moving Average Convergence Divergence

Type
Trend and momentum indicator
Computation
The difference between 12 and 26-day moving averages.
What it signals
Rising Moving Average Convergence Divergence (MACD) indicates an upward price trend and falling MACD indicates a downward price
trend.
Takeaway
Usually, nine-day moving average of MACD is used for buy and sell calls. Buy when MACD goes above the nine-day moving average of
MACD, sell when MACD go below the nineday moving average.
Falling MACD indicates a downward price trend.
Bollinger Bands
Type
Trend, volatility, momentum indicator
Computation
They comprise three lines: A 20-day moving average, an upper band and lower band—the upper and lower bands are plotted as two
standard deviations from the moving average.
What it signals
The moving average shows the trend, the gap between upper and lower band shows volatility in the counter.
Takeaway
Prices surging to the upper band during high volatility show that the counter is overbought. Prices falling to the lower band during high
volatility show that the counter is oversold.
The Nifty is at the 20-day moving average.
Fibonacci Retracements
Type
Trend indicator
Computation
These percentages—23.6%, 38.2% and 61.8%—are golden ratios based on the Fibonacci number series.
What it signals
After a rally or a fall, stocks usually retrace their prices to an extent before the next trend begins. Traders believe these retracements
occur close to the golden ratios.
Takeaway
Retracement happening at 23.6% shows the trend (upward or downward retracement) is very strong. Retracement usually ends at
38.2%. The trend considered over, if the retracement goes beyond 61.8%.
If the trend is strong, retracement happens at 23.6%.
Types of technical indicators
Trend indicators
These measure the direction of a market trend—up trend, down trend and sideways trend.
Momentum indicators
These measure the speed of a trend and help to identify trend reversals. They are used only as warning signals—just like the reducing
speed of a car may not end up in it stopping altogether, all reductions in market momentum don’t end up in a trend reversal.
Volatility indicators
These indicate how uncertain a market is. Volatility is usually measured in terms of standard deviation.
Volume indicators
Volume or traded value plays an important role in generating trading signals. Break out of trend lines or crossing the moving average
aquires greater signifi cance signifi cant when accompanied with high volume.
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3/19/2018 Stock Market: 7 stock market technical indicators that can help you invest - The Economic Times

04:05 PM | 19 MAR CLOSED ೆ ೆ 50 ನ (ಎಂ ಎ ) (₹/10 ಾ … ಯು / ಾರ ೕ… CREATE ಈ- ಾರುಕ ೆ ಗಳ ಆ CHOOSE

7 stock market technical indicators that can help you invest

Longer the trendline, the stronger is the trend.

Simple Moving Average

Now the index is struggling to cross 100-day SMA.

Divergence between price and ROC hints at a trend reversal

Relative Strength Index

RSI indicates that the Nifty is neither overbought nor oversold.

Moving Average Convergence Divergence

Falling MACD indicates a downward price trend.

The Nifty is at the 20-day moving average.

If the trend is strong, retracement happens at 23.6%.

Types of technical indicators

Live Market Industry About Us

Download it from Download it from Download it from

Other Times Group news sites Hot on the Web

In Case You Missed It

FD Rates How to link Aadhaar with mobile number

HRA Calculator PF Balance

How to update Aadhaar How to link Aadhaar with Pan

PF Calculator Tax Saving Guide

HRA Exemption IFSC Code

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