If you are not a trained analyst, then day trading in stocks can be risky for you. Only a few years ago, trading was as simple as buying and selling stocks. But trading has off late become relatively complex and thus, difficult. However, do not be perturbed; with the help of technological advancements, it has become possible to predict the behavior of stocks. There are many tools available in the market that can predict the rise and fall as well as the prices of stocks. Therefore, the stock market prediction is no longer an impossible task.
Traders use these tools to gain insight into the supply and demand of securities and market psychology. There are metrics like the trading volume that ensure a stable price movement. Moreover, there are many portfolio management software that helps in managing & tracking multiple assets. Thus, making it easier to buy and sell signals. Read this article carefully to know about some of the best Technical Indicators for stock market analysis.
How These Tools Work
Technical tools analyse the movement of the historical prices for stock market prediction. It uses a two-dimensional chart to complete the operation. This chart is so simple that a person with a basic knowledge of the stock market can read this chart to know about the movement of the prices. Below are the seven best Technical Indicators for the stock market.
1. On-Balance Volume
On-Balance Volume helps investors to know about the negative and positive volume flow insecurity over time. It shows the result of up volume minus down volume. Down volume is calculated on a day when the price falls. On the other hand, Up volume is calculated on a day when the price is raised. You will see up or down the volume on the indicator, and it depends on whether the price is low or high.
If the On-Balance-Volume rises, then it means that buyers are running to purchase the stock and thus making the price higher. If you see the On-Balance-Volume is falling, then it means the price will decrease thus, making it a significant trend conformational tool for stock market prediction.
2. Moving Average Convergence Divergence
To identify the direction and momentum of a trend more efficiently, you can use this MACD indicator. You can also get numerous trade signals through this tool. If the MACD is above zero, then it’s an uptrend. On the other hand, when the MACD is below zero, then it is a downtrend. The MACD line and a signal line indicate both the rise and fall of price.
3. Accumulation/Distribution Line
Accumulation/Distribution Line is a widely popular tool to determine the money flow. It is almost like the On-Balance-Volume. However, the A/D also considers the trading range for the period. Thus, you can use this tool to determine both the closing price of the security and the trading range.
If you see the A/D ascending, then it means buyers are showing interest to buy it. Thus, confirming an uptrend. It indicates a downtrend when the volume is negative. Hence, if you see that A/D is descending, then it is indicative of the lowest possible price of its daily range. This tool will make the stock market analysis easier.
4. Relative Strength Index
If you want a tool for multiple purposes, then the Relative Strength Index is the tool recommended. The index can help you determine the rise and fall of prices and gauging trend strength and momentum. Oversold and Overbought indicators are essential to use of this Relative Strength Index. The other services are divergence and indication of resistance and support levels. If the Relative Strength Index is below 70 and reaches 30 frequently, then the stock is a downtrend.
5. Average Directional Index
Measuring the momentum and strength of a trend is one of the most important aspects of stock market prediction. Average Directional Index is a trend indicator that helps to calculate the same. If you see the Average Directional Index is above 40, then the trend has enough Directional strength. Hence, it can go either up or down. A trend is considered weak or non-trending when the ADX is below 20.
The black-coloured line on the indicator is the ADX. You can also see two additional lines: DI+ and DI-. These lines are mostly red and green; these three lines work together to indicate the momentum and direction of a trend. When the DI- is above DI+ and the ADX is above 20 then it is a downtrend. Alternatively, when the ADX is above 20, and the DI+ is above DI- then it is an uptrend.
6. Stochastic Oscillator
This indicator helps measure the current price and how far the price range can go over numerous periods, thus, making the stock market analysis more effective. The Stochastic Oscillator will track whether a stock is making new highs when it is an uptrend and new lows when it is a downtrend. If the price of a stock does not hit continual highs, then the indicator moves relatively quickly. When the values are below twenty (20), then it’s considered as oversold and Overbought when it’s above 80.
7. Aroon Indicator
If you want to measure whether a security is a trend, then one of the best indicators is the Aroon Oscillator. It can also indicate the price hitting highs or lows over the calculation period. You can also use this indicator to know when a new trend begins. That makes it an appropriate tool for stock market analysis.
There are two lines in Aroon Indicator: Aroon Down Line, Aroon Up Line. If the Aroon Up Line goes above the Aroon Down Line, it indicates a trend change. When the Aroon Up Line is over 100 and stable while the Aroon Down is zero, then it is an uptrend and vice versa. If you are a short-term investor, your goal should always be to track the direction of a stock’s momentum and make maximum profits from it.