We are discussing the technical indicators that impact the trading decisions of a stock. There are no magic formulas or perfect strategies, as much as the newcomers seek to look with full speed towards the benefits in technical analysis. Everything is a matter of study, discipline and patience. However, it is possible to learn from the more experienced operators and strategies which are managed successfully in the market. Let us understand some of the types of technical indicators of stock, forex, currency and commodity used for trading in financial markets.
Technical Analysis – Types of Technical Indicators:
In previous few chapters we have discussed about some of the technical indicators like; Moving Averages (MA), Volume, Moving Average Convergence & Divergence (MACD), Simple Moving Average (SMA), Exponential Moving Average (EMA), Relative Strength Index (RSI), Stochastic, etc. In this chapter we will continue with discussing some additional technical indicators that are useful for trading in stock markets, forex markets, currency markets and commodity markets.
Bollinger Bands Indicator:
Bollinger Bands are a widely used technical analysis tool in the forex market. Bollinger Bands are plotted by two lines: one more than the simple moving average and lower. Bands indicate when a sale over the phone (or close to the upper band – overbought market) is average and indicates a purchase when the bands are below the moving average (or close to the market-lower band oversold). It is important to note that the bands reflect price volatility. The basic interpretation of Bollinger Bands is that prices tend to stay between the upper and lower bands. The characteristic of Bollinger Bands is that the spacing between the bands varies with the volatile prices. In times of increased market volatility, the bands will be wider, and during periods of low volatility, the bands narrow to contain prices of financial markets.
Parabolic SAR Indicator:
The Parabolic SAR is a popular indicator used primarily to determine the future short-term price trend of a given financial asset. The parabolic SAR indicator allows traders to determine stop loss orders. The graph of the parabolic SAR is a series of dots placed above or below the price. The dots are below the price when the trend is bullish assets, while the dots are above the price when the trend is down. The signals are generated when the position of the points changes the direction and gets positioned on the opposite side of the price.
Momentum is a technical indicator used in the forex market to determine trends, such as the case of MACD. Momentum can be used to measure the rate of change of price is the net difference between the current closing price and the closing price of the stock during a given period. Momentum generally indicates the trend leading prices. If the indicator is positive, it means that the trend is up, and if the indicator is negative means that the trend is down.
In the above chart pattern, you can see the examples of types of technical indicators like: bollinger bands, parabolic SAR, momentum, Willam %R, RSI, ADX / ADI indicators which is useful to identify trend of stocks, forex, currency or commodity markets.
Average Directional Index Indicator (ADX Indicator):
The ADX indicator measures the strength or quality of the trend and decides the direction in the market. ADX moves on a scale of 0 to 100 and has a horizontal line at the level 20. Typically a reading above 25 can be considered directional. Keep in mind that what indicates the ADX is only the strength of the trend, not its direction. This ADX indicator is also referred as ADI indicator. For example, if the price and technical indicator ADX is rising, then it means that the downtrend is significant.
William’s %R Indicator:
William’s %R indicator shows the current closing price in relation to the ups and downs of the past certain days. William’s %R is measured on a scale between -100 negative (bottom point) to 0 (the highest point). William’s% R is a momentum indicator that measures the levels of overbought and oversold. Williams uses a period of 10 trading days and if it is below -80 is considered oversold level, while a reading above -20 is considered an overbought.
Investors implementing the Fibonacci pattern in financial markets use to determine how much could be the rebound or rewind the price of a particular asset. Fibonacci concept involves a series of setbacks based on mathematical relationships that originate from natural phenomena and factors of psychological type, linked to those involved in the market. Fibonacci retracements allow us, for the development of a correction to a previous motion; establishing a prior support or resistance levels where you can expect a turn. Few most popular Fibonacci levels or ratios are 23.6%, 38.2%, 50%, 61.8%, 100% and 161.8%. Fibonacci retracements are displayed by selecting two extreme points of a graph. Normally they apply to sections where the market has shown a trend, and are used to detect the levels at which the price, bounces back to retake the same trend.
Here we have tried to mention all major technical indicators though it’s not limited to these. You need to have an effective risk management system and be quick to bear a loss if needed.
- Tutorial Course - Basics of Technical Analysis for Beginners -
» e-Learning Chapter 1: What is Technical Analysis? Definition with Examples.
» e-Learning Chapter 2: Technical Analysis: Types of Technical Chart Patterns.
» e-Learning Chapter 3: What is Candlestick Chart? Definition with Examples.
» e-Learning Chapter 4: Different Types of Single Candlestick Patterns. Definition with Examples.
» e-Learning Chapter 5: Different Types of Multiple Candlestick Patterns. Definition with Examples.
» e-Learning Chapter 6: What is Support and Resistance? Definition and Examples.
» e-Learning Chapter 7: What is Volume? Definition with Examples of Indicators.
» e-Learning Chapter 8: What is Moving Average? Definition, Examples, Types and Strategy.
» e-Learning Chapter 9: What are Technical Indicators? Definition with Examples.
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