Best Technical Indicators for Trading

Published : 14 Mar 2023

Relative Strength Index (RSI)

The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of directional price movements. Momentum is the rate of the rise or fall in price.

Relative Strength Index (RSI)

The indicator has an upper line, typically at 70, a lower line at 30, and a dashed mid-line at 50. When the price increases rapidly and RSI crosses 70, it is considered overbought. Likewise, when price falls very rapidly, and RSI crosses 30 it is considered oversold, the level of the RSI is a measure of the stock's recent trading strength. The slope of the RSI is directly proportional to the velocity of a change in the trend. The distance travelled by the RSI is proportional to the magnitude of the move.

Moving averages

Moving averages is one of the oldest and most useful technical indicators in technical analysis. Single SMAs can be used to identify a trend but we find that dual or triple moving average is more powerful when combined together. There are three types of MA namely, Simple moving average (SMA), exponential moving average (EMA) and weighted moving average (WMA).

Stochastic Oscillator

Stochastic Oscillator is a momentum indicator that points the location of the current close relative to the high or low range over a set number of periods. Closing levels that are consistently near the top of the range indicate accumulation/buying pressure and those near the bottom of the range indicate distribution/selling pressure. The theory behind this indicator is that in an upward-trending market, prices tend to close near their high, and during a downward-trending market, prices tend to close near their low.  

Bollinger Band

The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators.

Bollinger Band

The Bollinger band indicator comprises three bands, which closely follow the assets’ price, with the middle band serving as a moving average. The interval between the upper and lower bands and the middle band is determined by volatility, typically the standard deviation of the same data that were used for the average. The default parameters, 20 periods and two standard deviations, may be adjusted to suit your purpose.  

Average Directional Index

The average directional index (ADX) is a trend indicator used to measure the strength and momentum of a trend. ·         When the ADX is above 40, the trend is considered to have a lot of directional strength, either up or down, depending on the direction the price is moving. ·         When the ADX indicator is below 20, the trend is considered to be weak or non-trending.

Average Directional Index

The ADX is the main line on the indicator, usually colored black. There are two additional lines that can be optionally shown. These are DI+ and DI-. These lines are often colored red and green, respectively. All three lines work together to show the direction of the trend as well as the momentum of the trend. ·   ADX above 20 and DI+ above DI-: That's an uptrend. ·    ADX above 20 and DI- above DI+: That's a downtrend. ·     ADX below 20 is a weak trend or ranging period, often associated with the DI- and DI+ rapidly crisscrossing each other.

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