What is a Stock Market Technical Indicator?
May 18, 2017
A stock market technical indicator is a series of data points that are derived from the application of a formula to the price data of a security.
Technical indicators serve to predict the future price levels, or simply the price direction of a security by examining the past patterns.Technical indicators can be developed using only core elements of chart analysis, such as patterns and mathematical functions.
Stock market technical indicators are mostly used by active traders to analyze short-term price movements. They offer a different perspective from which to study price action.
The following are some of the top stock market technical indicators:
Support and resistance
These barriers are used by stock traders to establish the ideal time to enter or exit the market. Besides, they give clues about the direction of the market. The unique thing about these technical indicators is that they do not become obsolete as they are caused by human nature. Support and resistance have always been and will always be a natural occurrence in all liquid markets.
Price action in conjunction with moving average and support and resistance helps traders to go with the trend and identify the path of least resistance.
Volume serves as an effective indicator of the conviction of traders. Volume placed in context with price movement, allows one to trade effectively. In order to measure the significance of volume, a trader needs a baseline to establish the percentage change over an average day.
This stock market technical indicator helps traders to identify a change in trend. They measure buying and selling pressures by assuming that no commodity can sustain an upward or downward trend without consistent buying and selling pressure.
Relative strength index (RSI)
This is a great tool that helps trades to time their trading signals. When a stock is overbought, the RSI will show a level above 70 and a stock is oversold if the RSI indicates a level below 30.
These tools identify periods of high and low volatility for stock. Besides, they can be used to identify the trend of a stock. Together with moving averages, a trader can use these bands to identify support and resistance.
Why use stock market technical indicators?
The core purposes of technical indicators is to alert, confirm and to predict.
Technical indicators alert traders to study price action keenly. If momentum is warning, it may be a signal to watch for a break of support. A momentum warning signifies the likelihood of a break of support while a large positive divergence building indicates the possibility of a resistance breakout.
A trader can utilize technical indicators to confirm other technical analysis tools. In the event of a breakout on the price chart, an equivalent corresponding moving average crossover can confirm the breakout. On the other hand, if a stock breaks support, an equivalent low in the On-Balance-Volume (OBV) could serve to confirm the weakness.
Securities traders can use technical indicators to predict the direction of future prices.
Stock market technical indicators help traders to make trading signals. With the right method, traders can use the indicators to signal trading opportunities and come up with effective strategies.
What are Candlestick Charts?
March 16, 2017
Candlestick Charts are also well known by the name Japanese Candlestick Charts. This type of chart is used to represent financial data and its movements. Visual representation provided by the candlestick pattern is easy to understand for analysis and better decision making purpose.
While creating a candlestick chart data about the prices high, low, open and close are necessary for the financial purpose. High and low are presented by the lines. Stock can close when they have high or low value.
If a stock is closed with the low value then the opening value it is represented by filling the body of a chart. If it’s opposite than the body part of candlestick will not be shaded. The body of the candle chart can be shorter or longer in size. The longer candle there is it means that there is more movement in stock and the value could be increasing or decreasing depending if it’s shaded or unshaded. So if the body part is unshaded then its good time to buy the stock since it’s cheaper at that time. But if the body part is shaded then the price has increased its time to sell the stock and it will help financially.
Most used Candlestick Chart Patterns
- Shooting star
- Blending Candlesticks
Formation of Doji occurs when the open value and the close value equal to each other. It’s hard to determine if the stock should be sold or to buy more with Doji Chart Pattern. Doji pattern is of various types such as Long-legged Doji, Dragonfly Doji, Tombstone Doji and Gravestone Doji. When Harami pattern is shown in a chart it represents that on the first day of stock market. The pressure is high for both the sellers and buyers. It is used when each day the prices are going to be increasing. Hammer formation and shooting star formations are similar to each other but little bit of opposite kinds. The shooting star always points upwards while the hammer points downwards. But both provide information that helps in selling the stock.
The Blending candlesticks are formed with uniting of candles with each other so they are blended together. Basically, the pattern has more than one candle used in this candlestick pattern. With the blending candles the opening, closing and high and low values exist same as other types of patterns is representing. But with the blending of candlesticks pattern, it also requires the open value of first candle and close value of the last candle in blended candlesticks. Blended candles are represented by the visual representation of hammer, shooting star, and other candlestick patterns as well. In blending candlesticks there could be a use of more than just two candles in forming the pattern of blending candlesticks.
Candlesticks are being used for many years now. A way of representing financial movements is easier to understand with candlestick charts. Each candlestick in the chart only shows the change in movement of a single day. So each day in a month a new candle formation takes place on the chart to compare everyday stock market details. The method of using candlestick charts is easier and better way for anyone to use. With its visual representation, the chart helps make decisions of selling and buying stock easier.