Your guide to stock trading indicators

Your guide to stock trading indicators

Stock trading consists of many different components, each one being key in creating a more successful, profitable trading journey. Among these different aspects, you’ll find an essential area of stock trading is the use of technical indicators.

Stock trading indicators play a huge role in the strategies, executions, and evaluations of trades, and it’s no wonder why millions of investors use these features in their own trading journeys.

With these indicators, you can possess all the tools necessary to pursue more accurate trades, which may provide more profitable returns, and minimise the level of risk in your investments.

Therefore, whether you’re a beginner to stock trading, or a seasoned professional who is always looking to learn more about stock trading, then this guide to stock trading indicators is the perfect aid for you.

What are stock trading indicators?

Stock trading indicators are forms of analysis using mathematical calculations, which identify any trends, patterns, and signals present within the stock market. Change is a constant in the stock market, and in order to make the most appropriate trades, you need to accurately predict what these changes will be.

These indicators contribute towards technical analysis, and can analyse things such as the prices, volumes, and amount of interest in various assets in the market. This will allow traders to have a better idea of market movement, and apply this knowledge to their trading plans, as well as their trade alterations.

For instance, let’s say you are looking to invest in a particular company’s shares, you can use technical indicators to measure the current, and future performance, and decide whether the investment is appropriate.

Also, these indicators can also offer trade alerts, depending on the trading platform, which warn you of any changes or drastic movements identified by the indicators’ analysis.

What types of different indicators are there?

There are various different stock trading indicators available, which may depend on your trading platform of choice. These include, but are not limited to:

–       Moving Average (MA)

The MA tool is used to establish the average price of an asset over a certain period of time. This will show the direction of movement of the asset’s value, and where it’s likely to go in the future.

–       Relative Strength Index (RSI)

The RSI is used to calculate the strength of a trend in a particular asset, which will help predict the stocks momentum. The momentum is measured in stages over a certain number of periods – often 14 – to reveal any likely changes. For instance, a stock might have a continuous upward trend, but show periodic dips in value, and this would certainly need to be taken into account before executing a trade.

–       Bollinger Bands

The Bollinger Bands indicator also presents a moving average, but with an upper and lower band for the asset price. These bands are usually two standard deviations placed either side of the moving average (above and below), to take into account 95% of the data. This can help show when stock prices are being overbought (the upper band) and oversold (the lower band), which can reveal its volatility to any potential traders.

–       On Balance Volume (OBV)

The OBV tool is used to measure the total accumulation of volume for an asset, which is essentially the amount of overall money being invested into this particular stock. This can help identify assets likely to rise or fall in price, and ones which are in higher investment demand than others.

Stock trading indicators are undoubtedly crucial for any professional trader. In every investment, regardless of sector, asset type, or capital, the aim is always to make the right prediction of where the asset value is set to move in the market.

Understanding, predicting, and evaluating stock market performance is one of the ways to increase the opportunity for the most profitable returns on each of your investments. With these indicators applied to your trading journey, you’ll have every tool necessary in your trading arsenal to make this happen.