Technical indicators are used when wanting to determine a specific trend in the global financial market. Many traders do not make use of technical indicators but according to Mohammed Daya, one of the top financial analysts at Wilkins Finance, these are the individuals who will potentially lose all their profit. Daya recommends using at least two of technical indicators when trading on the financial markets as it can clearly indicate when the market will be at its most or least favourable. With that said, what are the top technical indicators to use when wanting to analyse the direction the financial market will go?
Volume is a great indicator when analysing the financial market. On-Balance Volume or OBV takes information from market price volumes and arranges the data in a line indicator. This type of indicator takes the data accumulated from buying and selling actions on the stock market. It is done by adding to the trading volume on good days and subtracting from the trading volume on bad days. A rising OBV indicates a rising stock price a falling OBV indicates a falling price. If an OBV indicator is rising but the market price is not, the price will potentially follow the OBV indicator and rise again. If the stock market price is rising but the OBV is falling, it is a potential indicator that the market price is nearing its maximum value and will start falling soon. If the stock market price is falling but the OBV indicator is raising the price should be at its lowest value before starting to rise again.
The Moving Averages technical indicator
When talking about a moving averages technical indicator, one can say that it creates price data making use of a single line across a trading chart. This line indicates the average stock market price over the course of a couple of days or weeks. If the direction of a moving average is indicated by a horizontal line the price should not be seen as trending but ranging. If the line is indicated upwards, an uptrend can be expected. It is important to remember that moving averages do not predict what the financial market will do next; it only shows what direction the price is heading in, on average, during the course of time.
Relative Strength Index
The RSI is also a great technical indicator but it should be noted that its indicators only function between zero and one hundred. When the indicator is above 70, a trader should get a clear indicator that the specific stock at hand is overbought. Should the indicator fall below 30, it is a clear indication that the stock is oversold. If the stock market price is moving up, the RSI indicators will reach 70 or more for a certain period of time. When the market price is moving downward, the indicators will fall below 30 for a certain period of time.
Moving Average Convergence Divergence
The Moving Average Convergence Divergence or MACD is a technical indicator that moves above and below the number zero. The most basic way of looking at this type of indication strategy is to determine whether the line is above or below zero. If the line is above zero for a couple of days or weeks, it is an indication that the market is moving upwards and when the line is under the number zero, it is an indication that the market is moving downwards. When the MACD moves above zero, it indicates that you can purchase stock and when it moves under zero, it is a clear indication that you should sell your stock. A MACD can also be divided into two separate line groups which are named a fast line and a slow line. When the fast line crosses through and below the slow line, it is an indication that you should sell your stock. When the fast line crosses through and above the slow line, it is an indication that you should buy stock.
As indicated above, the use of technical indicators can give a trader valuable information about what the stock market will do next. When analysing this information, it is easy to determine whether to buy or sell stock without making a trade that will cost you a huge amount of capital.