Technical Indicators

Technical indicators are heuristic or pattern-based signals generated by a security’s or

Momentum Indicators
Trend Indicators
Volume Indicators
Volatility Indicators
 Momentum Indicators

Momentum indicators are tools traders use to understand better how quickly or slowly
the price of security changes. Momentum indicators should be used with other indicators
and tools because they do not identify the direction of movement but only the timeframe
in which the price change occurs.

Momentum indicators help the traders to understand the speed at which the price of
certain stocks changes. In addition, these indicators help us understand the strength of
price movements.
 Relative Strength Index
The Relative Strength Index (RSI) is popular momentum indicator that acts as a metric for
price changes and the speed at which they change for a particular period. The indicator
oscillates between 0 and 100.

Signals can be spotted by traders when they look for divergences and when the indicator
crosses over the centerline, which is 50. When RSI crosses above 50 signals positive and
uptrend momentum if the RSI hits 70 or above, then it is an indication of overbought
conditions.
On the other hand, RSI readings that cross below 50 show negative and downtrend
momentum. If RSI is below 30, though, it indicates oversold conditions.
 Average Directional Index (ADX)

The Average Directional Index (ADX) created by Welles Wilder established the Directional
Movement System, which consists of the ADX, the Minus Directional Indicator (-DI), and
the Plus Directional Indicator (+DI).

These indicators as a group are used to help measure both the momentum and the
direction of price movements.

Traders should note that the ADX values of 20 or higher indicate that the market is
trending, and for any reading less than 20, the market is viewed as “directionless” or
consolidated.
 Moving Average Convergence Divergence (MACD)

MACD is a momentum indicator which shows the relationship between the two
moving averages, i.e. 26 EMA and 12 EMA.

It consists of the MACD line and the signal line. The MACD line is the difference
between the 26 EMA and 12 EMA, and the signal line is 9 EMA.

The buying signal is generated by MACD when the MACD line crosses the signal line
from below, and the selling signal is generated when the MACD line crosses the
signal line from above.
 Trend Indicators
Trend indicators help traders analyse whether the trends will continue or reverse. Although
no single technical indicator will help you gain profits, traders also need well-defined risk
management and trading psychology.

Traders who follow trend trading enter a long position when the stock is trending upward.
Whereas trend traders enter a short position when an asset is trending downward.

Trend traders gain profit from trading with the trends. This trend trading method captures
profits through the stock momentum analysis in a particular direction.
 Moving Averages
Moving average is a trend indicator that smooth's out price data constantly by making
average prices. On a price chart, a moving average is a flat line that reduces variations
because of random price fluctuations.

The average can be of any period– say 10 days, 30 minutes, one week, or any other period
the trader chooses. For long-term trend traders, the 200-day, 100-day, and 50-day simple
moving averages are popular moving averages.
 Supertrend
As the name suggests, Supertrend is a trend indicator and indicates that the direction of
the price movement in a market is trending.

A super-trend indicator is plotted either above or below the closing price. The indicator
changes color based on the change in the direction of the trend.

If the super-trend indicator moves below the closing price, then the indicator turns green
and gives a buy signal. Conversely, if a super-trend closes above, the indicator shows a sell
signal in red.
 Volume Indicators

Volume plays an important role in technical analysis that helps confirm trends and patterns.
It also indicates how many stocks were bought and sold in the market at a given period.
Again, this helps us in gauging how other traders perceive the market.

One of the main benefits of volume is that it leads to the stock’s price movement, i.e., it
gives us early signals when the price movement will continue or reverse. Hence volume
indicators are helpful measures for a trader.
 Volume-Weighted Average Price
The volume-weighted average price shows the average price an asset has traded at throughout
the trading session when both the price and volume are considered.

This indicator shows the value the security is trading at, indicating if the security was bought or
sold at a fair price.

Traders use the VWAP to eliminate the noise in the market to get an idea of what prices buyers
and sellers are willing to transact.
 Volume at Price
A volume profile is a horizontal graph depicting the volume traded at a specific price over a
specified period. What distinguishes this from a traditional horizontal volume profile at the
bottom of your chart?

Here’s a comparison of the volume profile to the more traditional horizontal volume tool.
The benefit of using this volume indicator is that it allows you to see how many trades
occurred at each price point for each trading day.
Volume on a time frame is meaningless because it only tells you the buying or selling intensity
within the current candle. Traditional horizontal volume is ineffective for trade entry. A
volume profile is a vertical breakdown of how many shares are available.

Before we get into explaining this volume indicator, there are some terms which you need to
understand:

The Value Area (VA) is the price range in which 70% of the total volume was traded, and it is
frequently colored differently for easier visualization.

Value Area High (VAH) – This is the highest price in the 70% total value area.

Low-Value Area (VAL) – the lowest price in the 70% total value area.

The Point of Control (POC) is the single price level where the most volume was traded for the
session and represents the area with the most open trading positions.
 Money flow index
Money Flow Index (MFI) is a movement and volume indicator which analyses both time and
the price for measuring the trading pressure – buying or selling.

It is also known as the volume-weighted Relative Strength Index (RSI), as it includes volume,
unlike RSI, which only incorporates price.

The Money Flow Index (MFI) can be interpreted similarly to RSI. Trading signals are
generated by this indicator when the stock signals bullish or bearish divergence, crossovers
and when the stock is in the overbought or oversold zone.
 Volatility Indicators
When trading in the stock market, we should not only look at whether the market is
trending or consolidating but also deal with Volatility. Thus, the traders need to understand
the volatility indicators, which can help them to trade more effectively.

Volatile periods in the stock markets can create big swings, making it difficult for traders to
trade. In addition, extreme Volatility can be seen in the market when certain extreme news
comes.

High Volatility can be seen when the market is trending, and low Volatility occurs during the
consolidation phase of the market.
 Average True Range (ATR)

The ATR measures the true range of a particular number of price bars, usually 14. ATR is a
pure volatility measure that does not necessarily indicate a trend. Volatile price movement
can occur inside a choppy market during an important news event.

The best way of using the ATR is to indicate the change in the market’s nature. A rise in ATR
indicates higher trading ranges and, thus, an increase in Volatility. In contrast, low readings
from the ATR indicate periods of quiet or uneventful trading.
 Bollinger Bands
Bollinger Bands consist of 3 bands: the upper, lower and middle bands. The middle band is
the 20 days or bars moving average, the upper band is +2 Standard Deviation, and the lower
band is the -2 Standard Deviation of the middle band.

When the Volatility in the market increases, these bands expand, and when the Volatility
decreases, these bands contract. Traders can trade with the Bollinger bands when the prices
break out from either side of the upper or lower bands after the low Volatility or
consolidation phase.