Interested to do trades but not having a helping hand? Don’t worry! Some indicators can help you to predict the price movement of securities in no time. Moreover, there are many indicators available today. However, these 3 indicators are enough for the strategy discussed in this article. Also, technical analysis is important for trading. Click here to learn more about technical analysis.
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WHAT IS INDICATOR?
What comes to your mind when you hear the word “indicator”? For a common man, The indicator of a vehicle such as a car or a motorcycle comes to his/her mind. Moreover, this indicator indicates the direction the vehicle is going to take. Likewise, In the stock market, Indicator helps you to determine the direction of price movement of the stock or other securities.
Indicators are mathematical calculations that help traders to predict the price movement on a chart or the market trend. For example, with the help of indicators, one can predict the movement of stock price and conclude the trend as bullish or bearish.
3 INDICATORS
There are plenty of indicators available in the market. Moreover, each of the indicators serves its purpose. However, we are going to consider only 3 indicators that help to predict the market movement.
HOW TO ENABLE INDICATORS?
Below are the steps to enable indicators for a stock.
- Open the chart of the desired stock.
- Click on studies/Indicators.
- Search for the Indicator name.(Ex: Bollinger bands).
- Select the indicator with the default configuration/setting.
After doing the above steps, start your trading journey with the help of indicators.
1.Relative Strength Index (RSI)
Relative Strength Index or RSI is an indicator that indicates the price movement and speed of price change. It was developed by J.Welles Wilder. Moreover, this indicator has a range or band that can be customized as per the trader’s wish. Also, the RSI indicator ranges from 0 to 100. Further, the lower band is called the overbought zone and the upper band is called an oversold zone.
It is suggested to set the overbought as 30 and oversold as 70
How to trade?
When a stock is overbought in the market, people will start selling it. Similarly, when a stock is oversold in the market, people will start buying it. RSI also follows the same. Whenever the RSI line crossed the oversold zone, it indicates a “Buy” signal. On the contrary, If the RSI line crosses the overbought zone, it indicates a “Sell” signal. Ultimately, the trader can initiate trade according to the buy or sell signal.
2.Moving Average Convergence and Divergence (MACD)
MACD is a type of moving average indicator where we can predict the price movement of securities. Moreover, it has a configuration setting of three parameters named Fast MA period, Slow MA period, and the signal period. Further, Fast MA indicates 12-day Exponential Moving Average (EMA). Slow MA indicates 26-day EMA and MACD is the difference between the fast and slow MA. The signal line is the MA of MACD. We don’t need to get confused about moving averages. However, just understand there are 3 settings in the configuration and we can use the default setting. Also, the default setting is 12-26-8 (Fast-Slow-Signal).
Convergence means two lines meeting each other. On the contrary, divergence means two lines running away from each other. Since the MACD and signal line converges and diverges justifying the name.
How to trade?
A trader is suggested to go with either lines or histogram but not both
Prediction with lines
There will be a center line which is at the axis plotted at zero. Moreover, this zero can act as the reference line. Further, anything below the zero line is negative and above the zero line is positive. Firstly, Below the reference line, if the black line(MACD) cuts the red line(Signal) it is considered as a buy signal. As a result, the trader can initiate buying security. Secondly, the Selling signal just follows the opposite of buying signal. Above the reference line, if the black line cuts the red line it is considered as a sell signal. As a result, the trader can initiate the selling of a security.
Prediction with histogram
Histograms are bars plotted on the reference line. Moreover, By default, the Increasing bar will be in green color and decreasing bar will be given in red color. Whenever there is a start of a green bar above the reference line, it indicates a bullish or buys signal. Further, the bullish trend is expected to continue until we get a long red bar above the reference line. On the contrary, whenever a red candle forms below the reference line, it indicates a bearish or a signal for selling. Further, the bearish trend is expected to continue until we get a long green bar below the reference line.
3.BOLLINGER BANDS
Bollinger band is a type of indicator which has two standard deviation lines plotted away from the simple moving average line. Moreover, this indicator is used to predict the volatility of the price movement of stocks or securities. It was developed by a technical trader named “John Bollinger”. Further, the Bollinger bands consist of three lines named “Upper band”, Lower band, and Middle band. Firstly, the middle band is the 20-day SMA (Simple Moving Average). Secondly, the upper band and the lower band are made of standard deviation +/-.
How to Trade?
Whenever the candle sticks touch or cross the upper band, it is considered a sell signal. On the contrary, If the candle stick is at the lower band, it is considered a Buy signal. Moreover, these bands can be considered to be the resemblance of a crocodile’s mouth. whenever the band opens like a crocodile mouth, the volatility increases (which means the price movement will be directional). On the contrary, if the band closes (crocodile mouth closing), the volatility decreases (which means the price movement is sideways).
COMBINATION OF 3 INDICATORS
Trades can be made with the help of single or multiple indicators. However, it is suggested that combining all the above three indicators will give good accuracy on buy or sell signals. Finally, the trader can initiate a trade when these indicators give a buy or sell signal. The below shows the indicator set up for a stock named TATAELXSI.
TO WRAP THINGS UP!
Trades can be made with other strategies or using other indicators as well. However, the above three indicators can give traders a better accuracy level. As suggested always, Do your research before starting any trade.
Do your analysis and post the stock name you have selected for trade in the comments box!
REFERAL LINKS FOR BROKERAGES:
Please use the below referral links for opening account with the brokerages:
- Zerodha: https://zerodha.com/open-account?c=JL3357
- PaytmMoney: https://paytmmoney.page.link/3L1iSDbjqQM3aVHRA
- IIFL Markets: https://cutt.ly/dK3gS0e
- Finvasia: https://prism.finvasia.com/register/?franchiseLead=NjM5MjI=
- Wazirx: https://wazirx.com/invite/8c24h4ay
- Binance: https://accounts.binance.me/en/register?ref=144281232
Click here to learn how to select the broker and a detailed view on Demat account.
Nice one!
I bet on SAIL, IEX & BSE in short term
Hi Harish,
great picks. Make a successful trade!
Good one !
Hi Praveen .
Do we have have any numeric parameters or conditions to define bolinger bands movements .
Example like RSI > 30
MACD – Red line crossing blue
Similar like that for Bollinger
Mohan, You can use the default setting which is 20 for period, 2 for standard deviation.