19 Best Stock Market Indicators for Technical Analysis

Best Stock Market Indicators for Technical Analysis

Technical indicators are the critical factors for traders to carry out a practical technical analysis. Connecting a technical indicator with the right risk management tool can contribute to understanding price trends and market trends.

Traders often avail several technical indicators in tandem when analyzing security.

Moreover, with literally thousands of different options, traders must choose the indicators that inculcate the best outcomes for them and acquaint themselves with their working process. Traders are also advised to blend these technical indicators with more subjective forms of technical analysis. For example, looking at chart patterns or models to develop trade ideas, etc. Technical indicators can also be embodied into automated trading systems, given their quantitative nature.

What are Technical Indicators?

Technical indicators are technical tools that assist in studying the movement in the stock prices and whether the current trend will persist or reverse. It helps the traders to make decisions about the entry and exit of a particular stock.

Technical indicators can be characterized as leading or lagging indicators. They can also be analyzed based on volume, momentum, volatility, and trend indicators.

Subsequently, the tools of the trade for day traders and technical analysts include charting tools that produce signals to buy or sell or indicate pertaining trends or patterns in the market. 

Technical indicators can be broadly characterized into two types:

Overlays: Technical indicators using the same scale as prices are plotted over the apex of the prices on a stock chart. Examples include moving averages and Fibonacci lines or Bollinger Bands.

Oscillators: Technical indicators oscillating between a local minimum and maximum are marked over or below a price chart. Examples include the stochastic oscillator, MACD or RSI.

Why Should You Consider Technical Indicators for Trading?

Traders mainly use technical indicators to get insight into the supply and demand of securities and market psychology. Concurrently, these indicators shape the basis of technical analysis. Metrics, such as trading volume provide frequent clues as to whether a price move will proceed. In this way, indicators can be utilized to generate (trigger) buy and sell signals.

Technical indicators should be used in addition to the price action on the technical charts, as sometimes they may also give incorrect signals. Price actions are an easy way to confirm the signals provided by the technical indicators. Traders can go for the combination of 2-3 indicators to assure the signal is given mutually.

19 Best Technical Indicators for Indian Stock Markets

1. Moving Averages

Moving Averages are lagging technical indicators used to rectify the ongoing trend. The best known moving average periods are 10, 20, 50, 100, and 200 moving averages.

moving average indicators for technical analysis

In the above chart, we have plotted 200 SMA, 50 SMA, 10 SMA. Moving Average could be Simple Moving Average (SMA), Weighted Moving Average (WMA), and Exponential Moving Average (EMA). 

When the prices cross the Moving Average, the current trend is considered an uptrend. On the other hand, when the prices go down the Moving Average, the ongoing trend is deemed to be the downtrend.

2. Moving Average Convergence Divergence (MACD)

Moving Average Convergence and Divergence (MACD) is one more trend-identifying indicator that notifies us whether the trend will persist or reverse. It comprises two primary lines, the MACD line and the Signal line.

Moreover, the MACD line is measured by subtracting the 26 periods EMA from the 12 periods EMA. The signal line comes as 9 periods EMA.

MACD indicators for technical analysis

When the MACD surpasses the signal line from below, it gives a clear buy signal. However, when it crosses the signal line from above, it provides a sell signal.

The moving average convergence divergence (MACD) indicator assists traders perceive the trend direction, including the trend’s momentum. It also offers some trade signals.

When the MACD is overhead zero, the price is upward (rising). However, if the MACD is below zero, it has listed a bearish period.

The indicator consists of the signal line and a MACD line, which moves slower. When the MACD falls below the line, it showcases that the price is dropping. When the MACD line goes over the signal line, it means the price is thriving. 

Focusing on which side of zero the indicator is on serves in determining which signals are meant to follow. For example, if the indicator indicates above zero, watch out for the MACD to cross above the signal line to procure. Conversely, if the MACD is less than zero, the MACD crossing below the signal line may offer the signal for an upcoming short trade.

3. Relative Strength Index (RSI)

Relative Strength Indicator is one of the best momentum oscillators, which measures the magnitude of change in the current prices. It shows reading from 0 to 100.

It signifies to the trader whether the prices fall in an overbought or oversold region.

RSI indicators for technical analysis

For example, above 70 is studied to be an overbought zone, and below 30 is considered to fall under the oversold zone.

The default period is 14, yet the trader can alter it according to his trading setup.

The relative strength index (RSI) has three primary uses. First, the indicator escalates between zero and 100, plotting a current price rise versus recent price losses. The RSI levels, therefore, help in evaluating momentum and trend strength. 

The most effective use of an RSI is in the form of an overbought and oversold indicator. When RSI crosses 70, the asset is claimed overbought and could decline. Conversely, when the RSI go under 30, the asset is oversold and could rally. However, making this assumption is risky to its extent; therefore, it’s advisable to wait for the indicator to go over 70 and then drop below before selling, or drop below 30 and eventually rise back above before purchasing. 

Divergence is another essential use of the RSI. When the indicator is moving in different directions than the price, that’s when it shows that the current price trend is declining and could soon reverse.

A third use for the RSI consists of support and resistance levels. A stock will usually hold above the 30 levels during uptrends and frequently reach 70 or above. Conversely, when a stock is in a downtrend, the RSI will typically remain below 70 and frequently reach 30 or below sometimes.

4. Average Directional Index (ADX)

The average directional index (ADX) is a technical indicator used by traders to decide the trend’s forte.

The trend can go up or down indicated via two indicators: the negative directional indicator (-DI) and the positive directional indicator (+DI).

Thus, the ADX indicator includes three separate lines. This indicator assists the traders to examine if a trade should be taken for a long or short period of time or should be avoided.

ADX indicators for technical analysis

The average directional index (ADI) is a trend indicator used to examine the potential and momentum of various trends. When the ADI is above 40, the trend is considered to have great directional strength, either up or down, depending upon the direction the price is moving.

When the ADX indicator is below 20, the trend is believed to be weak or non-trending.

The ADX is the crucial line on the indicator, generally colored black. Moreover, it also includes two additional lines that can be optionally shown. These are named DI+ and DI-. These lines are usually colored green and red, respectively. All these three lines work concurrently to show the trend’s right direction with the trend’s momentum.

  • ADX over 20 and DI+ above DI-: which means it’s an uptrend.
  • ADX over 20 and DI- above DI+: which means it’s a downtrend.
  • ADX less than 20 is a weak trend or ranging period, frequently associated with the DI- and DI+ swiftly crisscrossing each other.

5. Channel Commodity Index (CCI)

Channel Commodity Index (CCI) underlines the gap between current and historical prices.

CCI indicators for technical analysis

Its’s reading lies around 100 to -100. So when CCI escalates from the negative to near 100, the prices are considered bullish.

In contrast, when CCI moves from the positive to near -100, these prices can be considered bearish.

6. Exponential Moving Average (EMA)

Exponential Moving Average (EMA) is a subsequent type of Moving Average that indicates weights to the recent prices.

Since the recent prices carry more importance than the price movement, more weightage should be assigned to them.

This is the reason why most traders prefer Exponential Moving Average to Simple Moving Average.

EMA indicators for technical analysis

In the above chart, we can see 10 EMA, 50 EMA, 200 EMA are plotted. In the recent event, the 50 EMA is crossing 10 EMA while 200 EMA stays below. This indicates in the short term, the trend is going downward.

7. Volume Weighted Average Price (VWAP)

Traders use the volume-weighted average price (VWAP) to attain the average stock price at which the trade has happened throughout the day, depending on volume and price.

VWAP indicators for technical analysis

This indicator is essential as it tells the traders about both the stock’s trend and value. Generally, a trader buys a stock, when its price is below VWAP & sells when the price is above it.

8. On Balance Volume Indicator (OBV)

The on-balance volume (OBV) is one of the technical indicators that use volume flow to predict stock price changes. It signifies a shift in volume according to the bar-to-bar price change.

This indicator delivers a total of an asset’s trading volume and helps define if this volume flows in or out of stock.

First up, use OBV to examine the positive and negative flow of volume in security over a period of time.

The indicator is a whole total of up volume minus down volume. Up volume is all about how much volume there is on a day when the price rallied. Down volume is about the volume on a day when the price falls. Each day’s volume is added or subtracted from the indicator based on whether the price will rise or go down.

OBV indicators for technical analysis

When OBV is rising, it depicts that the buyers are prepared to step in and push the price bar higher. When OBV is falling apart, the selling volume is outpacing buying volume. Then it indicates lower prices. In this exact way, it acts as a significant trend confirmation tool. If price and OBV are rising, that is considered a continuation of the trend.

Traders who use OBV also focus on divergence. This situation comes when the indicator and price are going in diverse directions. For example, in case the price is rising but OBV is falling, that could signify that the trend is not backed by sturdy buyers and could soon reverse.

9. Price Volume Trend

Being an indicator used to decide the balance between a stock’s demand and supply, Price Volume Trend comes in really handy for traders.

The altering percentages of the stock price trends represent a specific stock’s relative supply or demand. On the other hand, volume indicates the force that is behind the trend.

PVT indicators for technical analysis

This indicator is identical to the on-balance volume (OBV) indicator, which scales cumulative volume.

10. Fibonacci Retracement Levels

Fibonacci retracement levels are horizontal lines defining support and resistance levels and are based upon Fibonacci numbers.

Each level shows a percentage showing us how much of a previous move the price has already been retraced long back.

Fibonachhi retracement indicators for technical analysis

The Fibonacci retracement levels can be underlined as Fibonacci ratios such as 23.6%, 38.2%, 61.8%, and 78.6%.

11. Stochastic Indicator

Being one of the best indicators, the Stochastic indicator measures the ongoing price relative to the price range over a number of periods. It focuses on the most recent closing prices as a percentage of the price range. It oscillates from 0-100 values where above 70 is considered an overbought zone and under 30 is considered the oversold zone.

Marked between zero and 100, the idea is that the price should be making new highs when the trend is going up. In a downtrend, the price is supposed to make new lows. The stochastic tracks whether this is happening or not.

The stochastic goes upwards and downwards quite rapidly because it rarely happens that the price makes constant highs that keep it near 100. Instead, its continual lows keep the stochastic nearby the mark of zero. Hence, the stochastic is leveraged as an indicator to show overbought and oversold signals. 

Stochastic Indicator indicators for technical analysis

Values exceeding 80 are taken as overbought, whereas levels less than 20 are to be considered as oversold.

Now, consider the price trend while considering overbought and oversold levels. For instance, when an uptrend is spotted, and the indicator goes below 20 followed by a rise above it – that would be a potential buy signal. However, rallies over the mark of 80 are not as risky due to the expectation of seeing the indicators move over 80 consistently while an uptrend is in play.

As for a downtrend, you should search for the indicator to move over 80 and then fall downwards, signaling a potential short trade. However, the 20 level isn’t so significant in a downtrend.

12. Bollinger Bands

Bollinger Bands is a volatility indicator that mainly considers 3 bands: the first and third bands are +2 and -2 standard deviation while the middle band is about 20 days simple moving average.

Bollinger Bands indicators for technical analysis

When the volatility in the stock takes a rise, then the bands expand when the volatility in the stock decreases the band’s contract.

13. Super Trend

A Super Trend is a trend-based indicator planned on price.

It is made using a p couple of parameters – the period and multiplier. The default ones are 10 Average True Range (ATR) and the remaining 3 for its multiplier.

Supertrend indicators for technical analysis

When the dots are over the prices, the trend can be termed as bearish, while the trend is bullish when the dots are below the prices. 

14. Volume

Volume applies to the number of shares traded in a specific stock. When the volume rises along with the price, then the current trend is confirmed, and when it lowers with the price increase, it depicts weakness in the ongoing trend.

Volume indicators for technical analysis

Therefore, it’s a valuable indicator as it helps verify the price movements.

15. Donchain Channel

Like Bollinger Bands, the Donchain indicator includes three bands – the mid-band is an average of the upper and lower bands.

The upper one means the highest security price, whereas the lower one means the lowest security price over a tenure.

Donchain indicators for technical analysis

Like Bollinger Bands, this indicator also portrays the volatility in the stock.

16. Open Interest

Open Interest refers to the number of impressive derivatives contracts existing in the market. Therefore, it is essential to determine whether the ongoing trend will pertain or reverse.

When the price rises up along with volume and open interest, it depicts bullishness in the market.

Open interest indicators for technical analysis

When the price decrease and open interest and volume fall, it indicates that the market is backing.

17. Correlation Coefficient

Traders can calculate the correlation coefficient to find the relationship between any two parameters, whether market indicators or stock which can be traced numerically.

In statistics, correlation is the version of covariance measuring if the parameters are positively or conversely related.

It is crucial in technical analysis as it assists in assessing the mechanics of price patterns.

Read more about it here.

18. Money Flow Index

The Money Flow Index is a technical oscillator that uses price and volume to simplify overbought or oversold zones.

This indicator can also be used for underlining divergences that warn against the price change. The oscillator oscillates around 0 and 100.

MFI indicators for technical analysis

Unlike the Relative Strength Index (RSI), the Money Flow Index comprises price and volume, whereas RSI is based on price. This is the reason why MFI is also termed the volume-weighted RSI.

19. William %R

Willian %R is a momentum oscillator that works the same as the stochastic indicator.

William %R indicators for technical analysis

It oscillates around 0-100 values where above 70 is considered an overbought zone and under 30 is considered the oversold zone.

Key Takeaways

  • Technical traders and chartists have a wide range of indicators, patterns, and oscillators in their toolkit to produce signals.
  • Some consider price history, others watch out on trading volume, and yet the remaining are momentum indicators. Often, these are used in tandem or blend with one another.
  • The target of every short-term trader is to assess the price trends of a given stock’s movements and try to capitalise on such a situation for profits. You can utilise the indicators to develop new strategies or consider using them in your current strategy.
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