Which Technical Indicators Should I Use?

If you're a a trader, chances are you're using technical analysis to analyse potential stock. Interpreting charts can be confusing, and not mention a steep learning curve for a newbie. But they can very helpful in studying the movement of a particular stock. There are no guarantees in the stock market but indicators can at least steer you in the right direction. With the different indicators out there which do you use?

Technical Analysis - The Basics:

• Trend with Support and Resistance – this basically indicates the general direction of a particular stock. Movement of trends can be either an uptrend, downtrend or horizontal/sideways trend. They can also be classified as either short, long or intermediate depending on the time frame. This is used hand in hand with resistance and support. Resistance provides a general indicator on how high a particular stock can go, enabling traders to be able to profit before it goes down. Support on the other hand indicates how low a stock go, so traders can now when they should be on the buying side of the trade. Both show when a reversal can happen based on previous trends.
• Volume – it confirms trends and shows chart patterns. When the price goes up or down with a high volume, this indicates trader confidence. Volumes that are higher than their daily average can also indicate a reversal. Low volumes on the other hand signal the end of a trend.

Technical Analysis Specifics

• EMA (Exponential Moving Average) – used as signal in a long term trend. It calculates the weighted average of a closing price of a stock. It has the ability to reduce lag between EMA crosses, which active traders use as a signal to buy and sell.
• MACD (Moving Average Convergence Divergence) – follows the trend and shows the relationship between two moving price averages. Its calculated by subtracting the 26 day EMA from the 12 day EMA. A signal line – 9 day EMA of an MACD – is plotted on top of the MACD which is also used as a signal to buy or sell.
• PPO (Percentage Price Oscillator) – is quite similar to MACD since it also shows the relationship of two moving average. The major difference is that PPO reports the difference in percentage. 26 day EMA is subtracted from the 9 day EMA, and then divided by the 26 day EMA. The percentage indicates where the short term average is in relation to the longer term average.

These are the preferred indicators of traders. Price, time, and volume are the main ones that they look after. Technical analysis may require studying countless charts, and you might find yourself cross eyed for days, but they can provide helpful signals to tell you when to act and what to do.