Looking for the best indicators for the stock market? This article can help you to clear all your doubts
If you are beginning your journey in the stock markets or have recently started exploring stock markets to make some money, then you would have surely heard people literally screaming and shouting about some secret indicators to make money. And if you’re among the section of people who believe that there is some remote indicator out there that will make money, then this article will not be of help.
However, this article will be helpful if you understand that there are no secrets and you want to be aware of some of the common technical indicators.
These are the 4 best indicators for the stock market
Let us see these indicators, but be very careful because all of them are lagging in nature. Hence, these should be used with other fundamental and technical analysis tools.
Moving Averages
Undoubtedly, this is the most popular technical indicator used in the stock market. It is calculated by averaging the price of a stock over a specific period of time, such as 10, 20, 50, or 200 days. It can be any number that you desire, but people usually these standard numbers. Basically, it is used to identify not only the trend but also potential support and resistance levels.
Bollinger Bands
Bollinger Bands is another popular technical indicator that helps traders understand market sentiment/trends based on prices. It comprises three bands – one for the upper level, another for the lower level, and the third for the moving average. When the price reaches the upper band, we say the security could be overbought. On the other hand, security could be oversold when the price reaches the lower band.
Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a momentum-based oscillator calculated by comparing the average gain and average loss of a security over a specific period. It helps traders identify overbought and oversold conditions as well as potential trend reversals.
Moving Average Convergence Divergence (MACD)
The Moving Average Convergence Divergence (MACD) is another trend-following momentum indicator that consists of two moving averages – a faster one and a slower moving average. It can help traders identify whether a stock is in an overbought or oversold condition, and also potential trend reversals. Additionally, it also displays the strength of a directional move.
Fibonacci Retracement
Fibonacci retracement levels are horizontal lines that depict potential support and resistance areas. Common retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. Sometimes traders also use 50% levels. These levels enable traders to identify potential retracement levels, which in turn helps them make trading decisions.
Conclusion
While we have touched upon a few common technical indicators/tools, we have barely scratched the surface. There are hundreds of indicators developed by some of the legends in the stock market that can help any upcoming trader. The important to remember is that there is no secret strategy or indicator.
Technical indicators help traders to make trading decisions by providing information on the trend, momentum, support & resistance, and many other key characteristics. It is not advised to use technical indicators solely, rather the key is to combine technical indicators with other fundamental and price action strategies.
