Stock Trading Technical Indicators
Technical Indicators in stock trading shows you the direction of the market, when probably to buy or sell, when probably to book profit and importantly when not to do anything.
Investment involves analysis of stocks. It may be fundamental Analysis or technical Analysis. Though, the old school of thought was condemning technical analysis, it has become the hall mark of stock analysis. Technical analysis involves the study of stock charts, created by plotting price, volume and indicators.
Technical Indicators are the mathematical derivatives of price and volume. Some of them are derived from other indicators.
They represent the undercurrent force of the price movements. That is rate of change of price momentum indicating its positive force or the negative force. There are indicators to measure the strength of the either force.
They help us to stay in the direction of the market trend. Or stay in the direction of a beach resort.
Though some of the indicators may be overlaid on the price charts, They are generally shown below or above the main price chart.
Some of the trading indicators are derived from the price of the stock. Some are calculated on the basis of volume of stock traded and its price.
Some are based on absolute numbers. So, they tend to go above or go below the zero line, infinitely. They are sometimes termed unlimited or elastic indicators.
But some are based on percentage of numbers. So, the downward limit of the indicator is always 'Zero” and upward limit is always 'Hundred'. They are sometimes termed limited or inelastic indicators.
These upward and downward limits are termed 'Overbought' and 'Oversold' zones of the indicators.
Here the price of a stock is considered too high for the time being. So the selling pressure is likely to increase, causing the prices to fall.
Here the price of a stock is considered too low for the time being. So the buying pressure is likely to increase, causing the prices to rise.
Leading indicators generate buy and sell signals before the actual change in the trend. There by giving early trade signals. They give more false signals.
Where as lagging indicators generate trade signals after the trend has reversed. But they give less false signals.
Do not make trading decisions based on any one indicator alone.
As the name suggests, all the technical indicators, only indicate the probable movement in the price or trend or momentum. It is not to be taken as absolute prediction.
They are indicating what is happening now, along with what has happened in the past.
So far no one has predicted the market 100% of the time.
Which indicator is more relevant than others? You might ask!
Every indicator is more relevant in certain markets and in certain times. But none is relevant in all the markets and at all the times.
The only thing that matters most is PRICE. Price is most important and most relevant in all the markets and at all the time.
The Economic Indicators are:
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