Indicators

Indicators are a useful instrument to the technical analyst, allowing one to get insight into the formation of trends and their strength. A good technical analyst chooses his tools wisely, and always uses Indicators which complement each other, allowing for better comprehension of the state of the asset.

RSI – Relative Strength Index

RSI is an oscillator type indicator which allows one to estimate whether an asset is oversold or overbought. The RSI was introduced by J. Welles Wilder in a 1978 book, New Concepts in Technical Trading Systems. Back then the RSI was calculated by hand with and plotted on 14 day graphs. Today the RSI comes with any prominent trading toolkit. The RSI oscillates between 0 and 100, with a low point market at 30, and a high point at 70. Generally speaking, if the RSI line moves below 30, the asset is oversold, and you should buy. If the RSI line moves above 70, the asset is oversold, and you should sell.

Stochastic Oscillator

The Stochastic Oscillator is a momentum type indicator. It compares the closing price of an asset to its price range in a certain time period. Much like the RSI it moves within a range of 0 to 100. With the stochastic oscillator, an asset moving below the 20 line is oversold, and when moving above the 80 line it is overbought.

Moving Averages

Moving Averages are trend following indictors which are widely used in technical analysis. There are two basic kind of moving averages, simple (SMA), which is the simple average of a security over a specific time period, and exponential (EMA), which gives grater value to more recent prices. Typically, Moving Averages are used to identify trend direction and draw support and resistance line.

Bollinger Bands

Bollinger Bands are technical Indicators used by trader on a virtually all asset classes. There are a number of Bollinger Bands, including those for determining overbought and oversold levels, and for identifying emerging trend and trend changes. Some traders use several bands to have a more detailed view of the market.