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Technical Analysis IndicatorsMajor Technical Analysis Indicators


Technical indicators are mathematical calculations based on price volatility and volume activity. Technical indicators are used to confirm the price trend of a financial security but also to generate buy and sell signals. Indicators which are formed in a bounded range are called oscillators. Usually oscillators are formed in a range between zero and 100. Here are the most commonly used technical indicators.

 

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1) Bollinger Bands

Bollinger bands indicator consists of three bands which encompass the activity of a particular share price. These three bands are 1.The upper band (20-day moving average plus 2 standard deviations) 2. The lower band (20-day moving average minus 2 standard deviations) 3. A middle moving average (20-day moving average).


2) Simple and Exponential Moving Averages

A simple moving average is formed by calculating the average price of a financial security over a particular period. Exponential moving averages apply less weight to old prices and more weight to recent prices.


3) MACD (Moving Average Convergence Divergence)

MACD indicator is one of the most commonly used technical analysis indicators. MACD is a trend following momentum indicator. The MACD transforms two trend-following moving averages into a single momentum oscillator by subtracting the longer moving average from the shorter moving average.

 

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4) Relative Strength Index (RSI)

Relative Strength Index (RSI) is a Momentum Oscillator commonly used among technical analysts. RSI measures the internal strength of a stock (between 0 and 100)

-If RSI is above 70 then a stock is considered overbought

-If RSI is below 30 a stock is considered oversold

 

5) Stochastic Oscillator

Stochastic Oscillator is a momentum oscillator that indicates overbought and oversold levels. It presents the current close price level relative to the high / low range over a number of periods.

 

6) Accumulation / Distribution

It is an indicator that measures demand and supply by indicating whether investors are buying (accumulation) or selling (distribution) a financial security. Accumulation / Distribution indicator is formed as:
Accumulation / Distribution  = {(Close Price – Low Price) – (High Price – Close Price)} / {(High Price– Low Price) X Volume Activity}. 

7) Put / Call Ratio

A very simple and useful indicator formed by dividing Options Contracts put volume by Options Contracts call volume. This indicator usually signaling a possible trend alteration.

Put / Call Ratio = (Put Options Volume) / (Call Contracts Volume)


8) Average Directional Index (ADX)

Average Directional Index is evaluating the strength of a price trend. High readings of ADX indicate a strong trend and low readings a weak trend. ADX uses a scale of 1 to 100 and the standard measurement is set for 14 days.

-If ADX readings are above 30 it is a signal of a strong price trend

-If ADX readings are below 20 its is a signal of a changing trend

 


9) Correlation Coefficient

Indicates the correlation degree between two financial securities in a particular period.

 

10) Chaikin Money Flow

Chaikin Money Flow combines price and volume to measure the amount of money flow volume over a specific period.

 

11) Balance Volume - OBV

The on-balance volume (OBV) presents graphically the flow of volume in a stock activity. The OBV line is a cumulative total of the daily volume numbers. OBV line is adding volume on days when the closing price moving up and deducting volume when the closing price is moving down.

 

12) William %R

Williams %R is a momentum indicator that reflects the level of the close relative to the highest high for the look-back period. 

William %R = {(Highest High - Close) / (Highest High - Lowest Low)} X ( -100)

 

13) Volume-weighted Average Price (VWAP)

Volume-weighted Average Price (VWAP) is used in intraday basis. This indicator is formed by dividing the total dollar value of all trades in a day by the total trading volume. 

 

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