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Indicators in Technical Analysis

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Posted by : NIFM
12 May, 2013, 3:45 PM
Indicators are used to analyze change in some technical matrix viz. Price, Volume, Volatility or Breadth the basis of some predefined parameters. Types of indicators are: Moving Averages(MA) MACD Stochastic RSI MA: Moving average is an overlay as it is placed on the price in a chart. It reduces the noise in trading decisions and gives a sense of the direction of the trend. The moving average line acts as support and resistance. The crossover of this line by the price gives a buy or sell signal based on the direction of the trend. MACD: Moving Average Convergence Divergence is an oscillator which consists of two exponential moving averages(EMA) of different time periods. The faster EMA is continually converging and diverging from the slower EMA. There is also a defference between the slow and fast EMA is plotted as histogram. The crossover of the histogram by the signal gives the buy and sell accordingly to MACD. Stochastic: It is also a leading indicator. It is a great tool in active trading decisions and gives good reentry points in a trend. It comprises of two lines. the faster line %k and the slow line %D. One of the most important way to interpret stochastic is the crosssover of the %K and %D lines. As %K is the fast line so it will cross %D line first and indicate a change in trend or a new reentry in the continuing trend. The change in the direction oof %D line gives a confirmation to the crossover of %K line. RSI: It was developed by Wells Wilder. It is a leading indicator and tells about the intrinsic strength of the share or the market. The RSI moves in a range of 0 to 100. There are three ways to interpret RSI: Crossovers of the overbought and oversold lines Drawing trend lines on RSI Divergence

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