What are the Best Technical Analysis Indicators used to trading?
The technical analyst will use a number of methods when reviewing commodity markets. These methods typically include such things as Price Action (pattern recognition, candle stick charts, Elliott Wave analysis, etc.), Seasonal Factors and Technical Indicators. The five best and most effective Indicators among all can be pointed out as Moving Averages, MACD, RSI, Stochastic, and Bollinger Bands.
Moving Averages
The simplest indicator one can use is the moving average. This can, for example, be the 9 and 20 day moving averages (MA). The analyst will study their cross-overs and the relative position of the price with respect to the moving averages. Prices movements on a chart can be shown in different formats such as bars, candles or lines. The cross-over between two moving averages may signal a change in trend. When the fast MA (9 day) crosses the slow MA (20 day) from below to above, it will signify a bullish trend. If it crosses from above to below, it will signify a bearish trend. Moving averages may in some situations be used as support or resistance levels for a given trade.
MACD
Another commonly used indicator is the MACD, which is an abbreviation for Moving Average Convergence Divergence. The MACD is a trend-following momentum indicator that measures the difference between two Exponential Moving Averages (EMA).
Simply put, when the MACD is rising it indicates that the 12 day EMA is trading above the 26 day EMA. This implies positive momentum. If this is above the ‘trigger line’ (the 9 day EMA) then the stock is considered bullish. If both lines are falling, the stock is under selling pressure.
RSI
The Relative Strength Index (RSI) is used to identify when a market is overbought or oversold. It is computed by analyzing all the bullish ranges against all the bearish ranges during a particular period of time (usually 14 days). By adding all the bullish trades (when prices went up) and dividing it by the summation of the bearish days (when prices went down) we then turn it into an index from 0 to 100. A general rule is that when the RSI crosses the 30 line from below, it signifies a bullish signal and when it crosses the 70 line from above, it signifies a bearish signal.
Stochastic
This indicator is based on the observation that, as price is moving higher the closing price tends to be closer to the upper end of the day’s price range. And when prices are falling, the closing price tends to gravitate to the lower end of the day’s range.
Readings above 80 are considered overbought and readings below 20 are considered oversold.
Bollinger Bands
The basis of these relate to the theory that a market’s probable movements (up or down) can be traced to two standard deviations. This means that 90% of all price movements will be confined within a band around the mean. The latter is usually computed from a 20-day moving average and the bands are on either side of the mean. The bands will contract or expand as the price of the commodity oscillates within the bands. As the daily ranges approach the band on either side and exceed the band value, it may signify that a reversal is imminent.
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The technical analyst will use a number of methods when reviewing commodity markets. These methods typically include such things as Price Action (pattern recognition, candle stick charts, Elliott Wave analysis, etc.), Seasonal Factors and Technical Indicators. The five best and most effective Indicators among all can be pointed out as Moving Averages, MACD, RSI, Stochastic, and Bollinger Bands.
Moving Averages
The simplest indicator one can use is the moving average. This can, for example, be the 9 and 20 day moving averages (MA). The analyst will study their cross-overs and the relative position of the price with respect to the moving averages. Prices movements on a chart can be shown in different formats such as bars, candles or lines. The cross-over between two moving averages may signal a change in trend. When the fast MA (9 day) crosses the slow MA (20 day) from below to above, it will signify a bullish trend. If it crosses from above to below, it will signify a bearish trend. Moving averages may in some situations be used as support or resistance levels for a given trade.
MACD
Another commonly used indicator is the MACD, which is an abbreviation for Moving Average Convergence Divergence. The MACD is a trend-following momentum indicator that measures the difference between two Exponential Moving Averages (EMA).
Simply put, when the MACD is rising it indicates that the 12 day EMA is trading above the 26 day EMA. This implies positive momentum. If this is above the ‘trigger line’ (the 9 day EMA) then the stock is considered bullish. If both lines are falling, the stock is under selling pressure.
RSI
The Relative Strength Index (RSI) is used to identify when a market is overbought or oversold. It is computed by analyzing all the bullish ranges against all the bearish ranges during a particular period of time (usually 14 days). By adding all the bullish trades (when prices went up) and dividing it by the summation of the bearish days (when prices went down) we then turn it into an index from 0 to 100. A general rule is that when the RSI crosses the 30 line from below, it signifies a bullish signal and when it crosses the 70 line from above, it signifies a bearish signal.
Stochastic
This indicator is based on the observation that, as price is moving higher the closing price tends to be closer to the upper end of the day’s price range. And when prices are falling, the closing price tends to gravitate to the lower end of the day’s range.
Readings above 80 are considered overbought and readings below 20 are considered oversold.
Bollinger Bands
The basis of these relate to the theory that a market’s probable movements (up or down) can be traced to two standard deviations. This means that 90% of all price movements will be confined within a band around the mean. The latter is usually computed from a 20-day moving average and the bands are on either side of the mean. The bands will contract or expand as the price of the commodity oscillates within the bands. As the daily ranges approach the band on either side and exceed the band value, it may signify that a reversal is imminent.
Thank You !
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