Trend Indicators
Moving Averages
Moving averages smooth out price data to identify trends. Common types include:
- Simple Moving Average (SMA): Average price over a specific time period
- Exponential Moving Average (EMA): Weighted average giving more importance to recent prices
- Most popular periods: 20-day, 50-day, and 200-day
- Golden Cross (50-day crossing above 200-day): Considered bullish
- Death Cross (50-day crossing below 200-day): Considered bearish
Moving Average Convergence Divergence (MACD)
Combines multiple moving averages to show momentum changes:
- Calculated using difference between 26-day and 12-day EMAs
- Signal line is 9-day EMA of MACD
- Histogram shows difference between MACD and signal line
- Helps identify trend changes and momentum shifts
Bollinger Bands
Shows price volatility and potential overbought/oversold conditions:
- Middle band is typically 20-day SMA
- Upper and lower bands are 2 standard deviations from middle
- Price touching bands indicates potential reversal
- Band width shows volatility levels
Momentum Indicators
Relative Strength Index (RSI)
Measures speed and magnitude of recent price changes:
- Scale of 0 to 100
- Above 70 typically indicates overbought
- Below 30 typically indicates oversold
- Divergences can signal potential reversals
- Default period is 14 days
Stochastic Oscillator
Compares current price to price range over time:
- Shows where price is relative to recent high-low range
- Above 80 suggests overbought
- Below 20 suggests oversold
- %K line shows current reading
- %D line shows moving average of %K
Rate of Change (ROC)
Measures percentage change in price over time:
- Shows acceleration or deceleration of price movement
- Positive values indicate upward momentum
- Negative values indicate downward momentum
- Zero line crossovers can signal trend changes
Volume Indicators
On-Balance Volume (OBV)
Links volume to price movement:
- Adds volume on up days, subtracts on down days
- Rising OBV suggests buying pressure
- Falling OBV suggests selling pressure
- Divergences from price can signal reversals
Volume Profile
Shows trading activity at different price levels:
- Identifies high and low volume areas
- Points of Control (POC) show highest volume prices
- Value Areas show where majority of trading occurs
- Helps identify support and resistance levels
Accumulation/Distribution Line
Measures money flow into or out of an asset:
- Combines price and volume data
- Rising line suggests accumulation
- Falling line suggests distribution
- Divergences from price can signal strength or weakness
Pattern Recognition Indicators
Average Directional Index (ADX)
Measures trend strength:
- Scale of 0 to 100
- Above 25 indicates strong trend
- Below 20 indicates weak trend
- Does not show trend direction
- Used with DMI (Directional Movement Index)
Ichimoku Cloud
Complex indicator showing multiple aspects:
- Conversion Line (Tenkan-sen)
- Base Line (Kijun-sen)
- Leading Span A and B (forming “cloud”)
- Lagging Span
- Shows support, resistance, momentum, and trend
Price Action Patterns
Support and Resistance
Key price levels where trends often pause or reverse:
- Historical price points where buying or selling emerged
- Often align with round numbers
- Previous highs/lows often become support/resistance
- More touches increase significance
Chart Patterns
Common formations that may predict future movement:
- Head and Shoulders (reversal pattern)
- Double Tops/Bottoms (reversal pattern)
- Triangles (continuation or reversal)
- Flags and Pennants (continuation)
- Cup and Handle (continuation)
Using Technical Indicators Effectively
Best Practices
- Use multiple indicators for confirmation
- Avoid redundant indicators
- Consider timeframe alignment
- Watch for divergences
- Combine with fundamental analysis
- Remember no indicator is perfect
Common Mistakes to Avoid
- Over-relying on single indicators
- Using too many indicators
- Ignoring broader market context
- Not considering timeframe
- Fighting strong trends
- Ignoring volume confirmation
