TECHNICAL INDICATORS OF THE STOCK MARKET
This is the Second Article in Stock Market Series… Stay connected for More!
Before going forward, I request you to read the previous article of the STOCK MARKET SERIES as everything is linked.
Title of the 1st Part of the Series: INSTRUMENTS OF THE STOCK MARKET
Link for 1st Part of the Series: https://tinyurl.com/4nnvw7v4
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Introduction
Technical Indicators have shown great promise to help investors spot good investment opportunities. There are two ways to categorize technical indicators — Initiative and Reactive. The initiative is more predictive and the reactive has a timeframe that builds off of each other. The article examines what these indicators are, how they work and how they can be helpful in spotting investment opportunities.
Technical Indicators are used in order to measure the health of different companies.
This article shows you some of the more well-known types of Technical Indicators and offers opinions as to which indicators might be useful for you.
Moving Averages
There are many different technical indicators that can be used to analyze the stock market, but one of the most basic and commonly used is the moving average. A moving average is simply a calculation of the average price of a security over a certain time period, and it can be used to help identify trends.
There are two main types of moving averages, simple and exponential. Simple moving averages are calculated by taking the average of a security’s price over a certain number of periods, while exponential moving averages give more weight to recent prices. Moving averages can be used on any time frame, but shorter time frames are more popular for day trading and longer time frames are more popular for longer-term trend analysis.
Moving averages can be used to identify both uptrends and downtrends. An uptrend is defined as a series of rising prices, and when the moving average line is rising it indicates that prices are still going up on average. A downtrend is defined as a series of falling prices, and when the moving average line is falling it indicates that prices are still falling on average.
One important thing to remember with moving averages is that they are lagging indicators, which means they only tell you what has happened in the past.
Relative Strength Index
The Relative Strength Index (RSI) is a widely used technical indicator that measures the strength of a stock’s recent price performance. The RSI is calculated using a stock’s closing price over a given period of time, and it ranges from 0 to 100. A stock is considered “overbought” when the RSI is above 70, and “oversold” when it is below 30.
Many traders use the RSI as a buy or sell signal, but it is important to remember that the RSI is a momentum indicator, not a trend indicator. This means that the RSI can stay in overbought or oversold territory for extended periods of time during strong trends. As such, traders should always confirm signals from the RSI with other indicators or chart patterns.
Chaikin Volatility Indicator
Technical indicators are tools that stock market analysts use to evaluate opportunities and identify potential risks. One such technical indicator is the Chaikin volatility indicator (CV), which is used to gauge market sentiment and predict future market trends.
The Chaikin volatility indicator measures the difference between the high and low prices of a security over a given period of time. It is calculated by subtracting the closing price from the opening price and then dividing by the average of the high and low prices. The resulting number is then plotted on a chart.
The CV indicator can be used to identify both bullish and bearish market conditions. A reading above 0.10 indicates a bullish market, while a reading below -0.10 indicates a bearish market. When the reading is away from 0, the stronger trend line is considered.
Combination of CVI with Other Technical Indicators
The Chaikin volatility indicator works best when used in conjunction with other technical indicators, such as moving averages or support and resistance levels. For example, if the CV indicator is showing a bullish signal but the price action is not confirming it, this could be a warning sign that the market is about to turn bearish.
Bollinger Bands
Bollinger Bands are one of the most popular technical indicators used by traders to analyze the stock market. Bollinger Bands are a combination of two moving averages and two standard deviations. This technical indicator is used to measure the volatility of a stock. When the stock market is volatile, the Bollinger Bands expand, and when the stock market is tame, the Bollinger Bands contract.
Pivot Points
Pivot points are technical indicators that are used by traders to determine the support and resistance levels of stock. These levels can be used to help make trading decisions and set target prices.
Pivot points are calculated using the high, low, and close prices of a stock. The most common formula uses the closing price, but some traders also use the open, high, or low price.
The first step in calculating the pivot point is to find the average of the high, low, and close prices. This average is then used to calculate the support and resistance levels.
The support level is found by subtracting the pivot point from the high price. The resistance level is found by adding the pivot point to the low price.
Some traders also use other formulas to calculate pivot points. These include the Woodie formula and the Camarilla formula.
Pivot points can be used in any time frame, but they are most commonly used on daily charts.
Fibonacci Retracement
“Fibonacci retracement is a technical analysis tool that is based on the Fibonacci sequence. The Fibonacci sequence is a series of numbers where each number is the sum of the two previous numbers. The Fibonacci retracement levels are created by taking the high and low points of a trend and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
The horizontal lines at these percentages can then be used to identify possible support and resistance levels. Fibonacci retracements are often used in conjunction with other technical indicators, such as candlestick patterns, to generate trade signals.”
Fibonacci Time Zones
Fibonacci Time Zones are a technical indicator that is used to predict changes in the stock market. The Fibonacci Time Zones are based on the Fibonacci sequence, which is a series of numbers that start with 0 and 1, and each subsequent number is the sum of the previous two numbers. The Fibonacci Time Zones are used by traders to identify potential areas where the stock market may reverse direction.
Conclusion
The above mentioned are a few technical indicators, it depends on an individual how he/she wants to use the technical indicators.
Choose Wisely ^_^
This is the Second Article in Stock Market Series… Stay connected for More!
Title of the 1st Part of the Series: INSTRUMENTS OF THE STOCK MARKET
Link for 1st Part of the Series: https://tinyurl.com/4nnvw7v4
If you want me to write more on technical Indicators, do reach me at aryanbajaj104@gmail.com
ABOUT THE AUTHOR
I recently completed BBA (BUSINESS ANALYTICS) from CHRIST University, Lavasa, Pune Campus.
Website — acumenfinalysis.com (CHECK THIS OUT)
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Aryan Bajaj (click Here for Resume)
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