Which technical indicator do you follow to buy and sell the stock?

There are many technical indicators available for prediction of market trend. None of them is perfect that we can follow for sure shot gains. These indicators only help us in predicting the trends and then we have to use our wisdom and prudence along with the experience in managing our portfolio. It is true that share market is not everyone's cup of tea but by using these indicators and other informations, intelligent decisions can be taken. Let us try to understand the philosophy behind these indicators. Share market analysts and experts have divided these indicators in mainly four categories which are Trend, Momentum, Volume and Volatility.

Trend indicators are used to find the direction of the market as most of the times fluctuations would be there and out of this data with mathematical computations one can find out the trend. Some examples of trend indicators are Moving Average Convergence Divergence (MACD) and Parabolic SAR.

In momentum category those indicators are present from which one can derive the information about the probable top and bottom prices. Relative Strength Index (RSI) and Average Directional Index (ADX) belong to this category.

Volume of trading is a very good indicator as it provides us the information as why so much volume is there. Is it due to the expected bull trend or due to panic selling? On-balance Volume and Klinger Volume Oscillator belong to this category.

Volatility tells us about the price changes expected. More the volatility faster would be price change. Interestingly it does not tell much about the direction of the market but assures changes in the price.

Many people believe that with a robust knowledge of these indicators one can make money in the share market. It is not exactly so. But yes, some traders who trade in options and futures can use them to their advantage in limiting their losses by following the trends and directions. At the same time if predictions come true, they make good profits also. So, we can only say that their predictions would be better then the ordinary investors. These methods work well for the daily or frequent traders and a long time investor should not bother for these meticulous methods.

In addition to all that academic knowledge share market investment requires some common sense also. Today we all are seeing that the market is under the grip of bears and a downtrend is there. So common sense says that it is time to pick up some good stocks or even some mutual funds which are lying so low. It makes sense to buy in a falling market and also it makes a sense in selling in a rising market. So, using the trends and indicators along with the common sense would be the better approach.

There are some pessimistic people who are thinking that the world is at the brink of doom and what is the use of investing in the market. So, if that is the apprehension then no one would be able to invest at the present juncture. Remember share market investment is always a risky proposition but there are chances of handsome returns also.

Generally the following 4 indicators of share market. They are as follows.

1, Trend
2. Momentum
3. Volume
4. Volatility


1. Trend indicators. They are also called oscillators. They move between high and low values like a wave. If we want to purchase the share we should see trends and decide. Moving Average Convergence Divergence (MACD) is one of the items which will give us an idea about the trends of a particular share.

2. Momentum: This will show you the strength of the share. This will also give an indication of the downfall of the share value. This can be used to know the high and low of different shares. Relative Strength Index (RSI) is an example of a momentum indicator.

3. Volume: This is the measure of volumes of shares traded in a particular period of time. When the prices are changing the volumes will give an idea to us about the strength of a particular share. On - Balance Volume is an example of this class.

4. Volatility: This is a good indicator to know about the strength of the share. The higher the volatility, the faster the change in the share price. It gives you an indication in the range of the price but not the direction.

I generally see all the above four. But I will never make a decision on selling or purchasing. I will go with the advice of my financial advisers.

These parameters can be understood better by the brokers and not by a common man who is not in the share market.

It is difficult to understand how the stock market behaves in a challenging environment. Due to financial crisis or Global pressure the market tends to slide down in gain and loss. Technical indicators are all a way to understand how the market moves and how much will it increase in a day or in a week. We have to do daily homework and then only we must invest in stock market. Some of the Technical indicators are as follows,

1. Trend Line:
It is a straight line which connects 2 or more price levels which acts as a resistance and support. When the stock price of an item goes above the uptrend line, then we can assume that market is in bullish and specified stock can move upwards. If price is going below the downtrend line, the market is in bear condition and stock price can fall.

2. Simple Moving Average:
It is a moving average which is find out by adding recent closing prices and then divide it by time periods gives exact simple moving average. Moving average is used in stock markets to find exact daily price averages over a period of time. Usually 15, 30 and 100, 200 day time period is used. In Market we use 21 and 50 day moving average to find exact trend of stock market.

3. Relative Strength Index(RSI):
It is an indicator which is used to find the strength and weakness of a stock. It is based on the recent closing prices of a concerned trading period. First divide percentage change over the time period by percentage change of a particular index and using same time periods we can find the Relative Strength Index.

4. MACD(Moving Average Convergence Divergence):
This indicator is used to find the change in strength, direction, momentum and duration of a particular stock price. Normally we use 2 moving averages. It is calculated by subtracting 26 Exponential Moving Average from the 12 day EMA. This is one of best technical indicators and is used in daily, weekly and in monthly price charts.

5. Bollinger Bands:
It is a type of chart which differentiates with the price and volatility over a commodity. It is developed by John Bollinger in 1980. These volatility bands are placed below the moving average. When volatility increases the band widens and when it decreases the band becomes narrow. It is a useful indicator where we can find the over brought and over sold levels.

Technical analysis in respect of selling and buying shares can be defined as an art used to identify trend changes at an early stage and tracking its position closely so as to ensure that there is no further abrupt fall during its monitoring.
Technical- analysis would indicate the study of the different shares based on price movements, past datas and supporting indicators signifying the behaviours of the stocks.
The technical analysis is based upon the following parameters-
1) Moving Average Convergence and Divergence ( MACD) - MACD indicates the pattern of the market. The buying and selling signals known as cross over of MACD and its accompanying signal line. When MACD shows a negative cross over, a sell signal is to be predicted. This is defined as a lead indicator.
2) Rate of Change - This alone cannot be taken for the prediction of share behaviours. This would require other related parameters such as divergence indicators which could show relative momentum to prices and can also function as oversold indicator.
3) Relative Strength Index - This would show the strength of the stock against its own fluctuation - background. It would indicate the strength of a particular stock in a given time against its own past price history.
The chart moves from zero to hundred. Any movement beyond 50 would be indicative of its upward trend movements and vice versa.
4) Head and Shoulder Pattern - This can also be defined as the Reversal Pattern where the left pattern would indicate a strong movement accompanying high volumes coupled with a minor declines with relatively much lesser volumes.
However, the trend is followed by a decline until the level of previous decline is attained. A stage would reach when the volumes are entering to the low price zone. A drop less than 3 % of the level neckline usually shows the confirmation of downward breakout.
5) Inverted Head Shoulders- This is a type of erratic curve in nature indicating reversal pattern and a bottom line can seen after a significant decline. Here one can see Head and Shoulder regimes. The Head and Shoulder form TOP being inverted in shape and again bottom can be gauged with the accompanying Head and Shoulder. There would be a third decline on very less volumes and this forms the right shoulder. Finally the advancement of price may be noticeable pushing up the necklines and would close above by an amount equivalent to 3% of the stock market and an increase of the volume may be seen. This is known as confirmation of upward breakout.

Price action gives better result in any trade. Yes, Indicators also plays important role but understand that indicators are only for indicating purpose, They show trend of the stock of market but actual decision should be based upon the price action only.
However there are few important indicators that one can refer;
1) Moving average (Simple or exponential)
2) Relative Strength Index
3) Bollinger bands
4) Volume weighted average price (VWAP)

RSI should be used as prime Indicator both for trading or investing. This is my experience.
Read the charts carefully and define strategy based on indictors and execute trades.

Information given above is for knowledge purpose, use your capital wisely.

Happy learning.