Technical Indicators

In my previous post  http://analyzestockmarket.blogspot.in/2012/08/invest-fundamentally-and-play.html I had mentioned about how to play technically. I had also given reference about how stocks get oversold at one stage and then moves up and reaches over bought situation as well. 

I'll be discussing different kinds of technical indicators and then explain a word or two for general understanding and finally provide you links that would help you to learn technical indicators yourself

Technical Indicators

Technical indicators are those which give you an indication of stock price movement basis series of observations recorded through collection of data points over a period of time and then it relatively reveals the change or direction of price movement

There are different types of indicators which can help us do day or short term trading

At a broader level there are two types of indicators

1. Leading Indicators

2. Lagging Indicators

1. Leading Indicators

This type of indicator usually predicts the movement in price without waiting for a trend or pattern to occur. Mostly all leading indicators are oscillators for the simple reason that they have an over bought & an over sold zone in which they operate

Many leading indicators can also be called as momentum oscillators. We use the word momentum because the oscillator considers change in price movement and the rate at which it occurs

Some examples of leading indicators or oscillators which give a price prediction are

• Relative Strength Index (RSI)
• Full, Slow & Fast Stochastics
• Commodity Channel Index
• Williams%R
• Williams Accumulation/Distribution

All the above indicators use data points which tell us the direction of stock price as it occurs and can help us take a well informed call. This is also helpful in understanding if it is good to buy at current levels or wait for stock price to change and then take a call

2. Lagging Indicators

Unlike leading indicators, lagging indicators look for patterns and trends. Entry may be slightly late however if you understand the pattern then as people say trend is your friend. I love using lagging indicators as it tells you how the trend may follow basis past data registered on charts

Some examples of lagging indicators are

• Moving averages both simple & exponential i.e. SMA & EMA
• Moving average convergence & divergence (MACD)
• Elliot Wave
• Parabolic SAR
• TRIX
• Linear regression 
• Coppock

Momentum indicators usually give trends and patterns as mentioned above however it considers only price movements but not volume changes etc

Some of the volume indicators which also show trend and pattern basis change in volume are. A stock price movement backed up with volume increase is extremely reliable than price and volume being inversely proportional

• Chaikin Money Flow (CMF)
• Force Index
• Ease of Movement
• Money Flow Index

Similarly to understand trends and patterns we can also use volatility indicators

• Bollinger Band
• Average True Range
• Keltner Channel