Sunday, 30 September 2018

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Technical indicators are used to identify market trends and predict future stock prices. 

They are:


Price and volume charts are the most representative tools that are used as technical indicators for technical analysis. A volume chart represents the number of shares of a company that were bought and sold in the market during a day. 

For the principle of technical analysis, we may choose one of the conventional line or bar charts, or alternatively, use a candlestick chart. A candlestick chart is a special kind of chart that is particularly relevant for technical analysis. It is in the form of a series of consecutive candles. Charts are used together with trend lines. Trend lines are used to indicate the direction of movement of a stock over a period of time.


Momentum indicators are statistical stature that are calculated based on price and volume data of stocks. These technical indicators act as supporting tools to charts and moving averages.
Some momentum indicators are signs that occur before the price move we expected occurs. They substantiate that the price is certainly going to move as we thought it would. These are called leading indicators. Other signs come after the stock has started moving in a particular direction. They are called lagging indicators. They corroborate that the stock will continue moving in this direction. Indicators are also used together with moving averages. For example, when a stock price moves in such a way that it starts falling within a moving average, it is an assenting sign that it will continue to move as expected. This is called a crossover. Other momentum indicators include moving average convergence divergence (MACD), accumulation/distribution line.


Moving averages are calculated to remove sharp, frequent fluctuations in a stock chart. From the time to time, stock prices can move very sharply in a small period of time. This formulates it rigid to determine a trend in the stock chart. To remove the impact of this, and make a trend more important, an average of a few days price is calculated. For example, if a five day pattern of a stock’s price is Rs.49, 54, 46, 48 and 51, it is difficult to find the direction in which prices have actually moved. However, if we can calculate the average of these prices and compare them with the average of the next five days and the previous five days, we can determine a broad trend.  This kind of moving average is called simple moving average (SMA). Other generally used moving average concepts are exponential moving average (EMA) and linear weighted average (LWA)

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