Technical indicators are a crucial tool to have in your trading toolbox. They can help day traders and swing traders determine the potential direction of a stock, entry and exit points, and whether the price action is bullish or bearish. 

 

Read up on all of them below and see how they look on a StocksToTrade chart. Then try them out and see which ones make sense to you… 

 

You don’t have to use all of them — in fact, using too many can sometimes create analysis paralysis. But find one or two that you think can be helpful. 

 

These indicators often become self-fulfilling prophecies because when enough traders think the signals they create are important and they act on them, then the more chance they have of coming true. 

Awesome Oscillator

The Awesome Oscillator is a simple yet powerful momentum indicator that can be used to measure the strength of a trend and identify potential trend changes. 

 

The Awesome Oscillator is calculated by subtracting the 34-period simple moving average (SMA) from the 5-period SMA. This difference is then plotted as a histogram, with positive values indicating buying pressure and negative values indicating selling pressure.

 

One of the main advantages of the Awesome Oscillator is that it is easy to interpret. 

 

If the histogram is above the zero line, it indicates that the short-term SMA is higher than the long-term SMA, which is a bullish sign. If the histogram is below the zero line, it indicates that the long-term SMA is higher than the short-term SMA, which is a bearish sign.

 

The Awesome Oscillator can also be used to identify potential trend changes. If the histogram is crossing over the zero line, it could indicate that the trend is reversing. Similarly, if the histogram is moving in the opposite direction as the price, it could also be a sign of a potential trend change.

 

Here’s what it looks like on an intraday chart of Tesla, Inc. (NASDAQ: TSLA)...

 

You can see when the stock pulls back after noon, the histogram turns below zero, indicating a potential trend change. 

 

When it went back above zero, TSLA continued higher and made new highs for the day.

Bollinger Bands

Bollinger Bands are a technical indicator that measures volatility. 

 

They consist of a central moving average (typically a 20-period simple moving average) and two outer bands. The outer bands are typically set two standard deviations above and below the moving average, although this can be adjusted based on the trader's preference.

 

The Bollinger Bands indicator is designed to help traders identify potential entry and exit points. 

 

When a stock is trending higher, it tends to stay within the upper and lower Bollinger Bands. Conversely, when the price is trending lower, it tends to stay within the upper and lower Bollinger Bands.

 

Traders often use Bollinger Bands in conjunction with other technical indicators to confirm potential entry and exit points. 

 

For example, if the price is approaching the upper Bollinger Band and the relative strength index (RSI) is overbought, it could be a signal to sell. Similarly, if the price is approaching the lower Bollinger Band and the RSI is oversold, it could be a signal to buy.

 

Bollinger Bands can also be used to identify periods of low volatility, which can be an indication that a breakout is imminent. If the bands are narrow and the price is trading near the middle of the bands, it could be a sign that a breakout is about to occur.

 

 

In this chart example you can see that between 1 p.m. and 2 p.m., Motorsport Games Inc. (NASDAQ: MSGM) was trading in a period of low volatility. And after trading in a tight range it broke out slightly to the upside. The same thing happened when it traded in a tight range between around 2:30 p.m. and 3:30 p.m.

Ichimoku Cloud

The Ichimoku Cloud, also known as the Ichimoku Kinko Hyo, is a technical indicator that has been widely used in Japan since the 1970s. It’s now used by traders around the world to identify potential entry and exit points, as well as to confirm trends and identify potential areas of support and resistance.

 

The Ichimoku Cloud consists of several lines, or "cloud," which are plotted on a chart. 

 

The first line is called the "tenkan-sen," which is the conversion line and represents the average of the highest high and the lowest low over the past nine periods. 

 

The second line is the "kijun-sen," which is the baseline and represents the average of the highest high and the lowest low over the past 26 periods.

 

The "chikou span" is the third line, which is plotted 26 periods behind the current price. It’s used to measure the momentum of the price. If the chikou span is above the price, it’s considered a bullish sign. If the chikou span is below the price, it’s considered a bearish sign.

 

The fourth line is the "senkou span A," which is the average of the tenkan-sen and the kijun-sen, plotted 26 periods ahead of the current price. 

 

The fifth line is the "senkou span B," which is the average of the highest high and the lowest low over the past 52 periods, plotted 26 periods ahead of the current price. The area between the senkou span A and senkou span B is shaded, and this is known as the "cloud."

 

One of the main benefits of the Ichimoku Cloud is that it provides a lot of information in a single chart. 

 

But traders often use the Ichimoku Cloud in conjunction with other technical indicators to confirm their analysis. For example, if the price is above the cloud and the relative strength index (RSI) is overbought, it could be a signal to sell. Similarly, if the price is below the cloud and the RSI is oversold, it could be a signal to buy.

 

Here’s an example of this indicator on a 1-minute chart of Motorsport Games Inc. (NASDAQ: MSGM). 

 

 

In the chart above, Tenkan-Sen (light blue line) and the Kijun-Sen (red line) are kind of like moving averages. 

 

When both are clearly above the cloud, as they were in the early part of the day, then the underlying trend is bullish.

 

Conversely, when both are well below the cloud, the trend is bearish.

 

The cloud itself can also be used to determine the trend. In this case, when the price is above the cloud, again shown in the first part of the day, the trend is up - below the cloud is bearish.

 

These signals can be reinforced when the Tenkan-Sen crosses above the Kijun-Sen when both are above the cloud. It’s kind of like an acceleration higher in an uptrend. Again, we see that in the early part of the trading day in the chart above.

 

The converse is true for bearish signals.

MACD

Moving Average Convergence Divergence (MACD) is a momentum indicator that shows the relationship between two moving averages of prices.

 

The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. 

 

This difference is then plotted as a histogram on a chart, with positive values indicating bullish momentum and negative values indicating bearish momentum.

 

Along with the MACD histogram, traders also often use a 9-period EMA of the MACD, called the "signal line," to help identify potential entry and exit points. If the MACD crosses above the signal line, it is considered a bullish signal. If the MACD crosses below the signal line, it is considered a bearish signal.

 

The MACD can also be used to identify divergences, which can be an early warning of a potential trend change. 

 

A bullish divergence occurs when the MACD is making higher highs while the price is making lower lows, which could be a sign that the price is about to turn higher. A bearish divergence occurs when the MACD is making lower lows while the price is making higher highs, which could be a sign that the price is about to turn lower.

 

You can see on the MACD indicator along the bottom of this Amazon.com, Inc. (NASDAQ: AMZN) chart, that when there was a divergence of moving averages after the stock had a big uptrend or downtrend, the stock changed directions.

 

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a technical indicator that measures the speed and strength of price movements.

 

The RSI is calculated using the average of the gains and losses over a specified period of time, typically 14 periods. It is plotted on a scale of 0 to 100, with values above 70 indicating overbought conditions and values below 30 indicating oversold conditions.

 

Traders often use the RSI to identify overbought and oversold conditions. . 

 

If the RSI is above 70 and then starts to decline, it could be a sign that the uptrend is losing momentum and a potential sell signal. Similarly, if the RSI is below 30 and then starts to rise, it could be a sign that the downtrend is losing momentum and is a potential buy signal.

 

You can see on the same chart of Amazon.com, Inc. (NASDAQ: AMZN), that almost every time the RSI went above 70, the stock reversed and went back down.

 

Momentum

A momentum indicator is a technical analysis tool used to measure the strength of a trend. It’s a type of oscillator that compares the current price of an asset to its past price to identify the momentum of the price movement.

 

There are several types of momentum indicators, including the relative strength index (RSI), the moving average convergence divergence (MACD), and the average true range (ATR). These indicators use past price data to calculate the momentum of an asset and plot it on a chart.

 

Traders often use momentum indicators to identify potential trends. 

 

For example, if the momentum of an asset is increasing and the price is trending higher, it could be a sign that the uptrend will continue. Conversely, if the momentum is decreasing and the price is trending lower, it could be a sign that the downtrend will continue.

 

This 6-month C3.ai, Inc. (NYSE: AI) chart shows the stock has been in an uptrend for over a month. As the stock continues to climb, so does the momentum indicator, which could indicate this uptrend could continue.

 

Stochastic Fast

The Stochastic Fast is a momentum indicator that shows the location of the current price relative to the price range over a specified period of time.

 

The Stochastic Fast is calculated using the highest high and the lowest low over a specified period of time, typically 14 periods. It is plotted on a scale of 0 to 100, with values above 80 indicating overbought conditions and values below 20 indicating oversold conditions.

 

If the Stochastic Fast is above 80 and then starts to decline, it could be a sign that the uptrend is losing momentum and a potential sell signal. 

 

Similarly, if the Stochastic Fast is below 20 and then starts to rise, it could be a sign that the downtrend is losing momentum and it’s a potential buy signal.

 

 

Check out the chart above of Amazon.com, Inc. (NASDAQ: AMZN). When stochastics fast dipped below 20 and coincided with a pullback on the chart, the stock bounced. 

Stochastic Slow

The Stochastic Slow is a technical indicator used in the analysis of financial markets. It is a momentum indicator that shows the location of the current price relative to the price range over a specified period of time.

 

The Stochastic Slow is similar to the Stochastic Fast, but it uses a longer period of time to calculate the indicator, typically 14 periods. It is also plotted on a scale of 0 to 100, with values above 80 indicating overbought conditions and values below 20 indicating oversold conditions.

 

Traders often use the Stochastic Slow to identify potential entry and exit points, as well as to confirm trends. 

 

If the Stochastic Slow is above 80 and then starts to decline, it could be a sign that the uptrend is losing momentum and a potential sell signal. Similarly, if the Stochastic Slow is below 20 and then starts to rise, it could be a sign that the downtrend is losing momentum and a potential buy signal.

 

 

You can see on this Amazon.com, Inc. (NASDAQ: AMZN) chart that as the stock went sideways and slowly ramped up in the afternoon, the Stochastic Slow didn’t go below 20. And as it sped up and spiked before the close, Stochastic Slow rose to over 80 and the stock’s ramp slowed down. 

VWAP

The Volume Weighted Average Price (VWAP) is a technical indicator used to measure the average price of an asset based on the volume of trades.

 

VWAP is calculated by dividing the total value of all trades in a particular period by the total volume of trades in that period. It is typically plotted as a line on a chart, and it can be used to identify potential entry and exit points, as well as to confirm trends.

 

Traders often use VWAP as a reference point to determine if the price of an asset is trading at a discount or a premium. If the price is above the VWAP, it could be considered overbought, while if the price is below the VWAP, it could be considered oversold.

 

Traders can also use it to determine if the stock is bullish or bearish. If the stock is trading below VWAP it could be a bearish sign that bears are in control. If the stock is trading above VWAP it can be considered bullish or indicate that buyers are in control and the stock is in an uptrend.

 

VWAP is commonly used by institutional traders and is considered a more accurate measure of the average price of an asset compared to other indicators such as the simple moving average (SMA).

 

 

You can see on this Motorsport Games Inc. (NASDAQ: MSGM) chart that the stock is in a downtrend and trading below VWAP. 

 

On this day, the company did an offering, which can be considered bearish news. And as you can see the stock stayed below VWAP throughout the day. But VWAP also acted as resistance. Every time the stock tried to bounce, it hit VWAP and reversed to make new lows. 

Moving VWAP

Moving Volume Weighted Average Price (Moving VWAP) is a technical indicator similar to the standard VWAP.  But moving VWAP uses a moving window to calculate the average price of an asset based on the volume of trades.

 

Moving VWAP is calculated by dividing the total value of all trades in a particular period by the total volume of trades in that period, and then plotting the result as a line on a chart. 

 

The moving window can be adjusted based on the trader's preference, with shorter periods resulting in a more sensitive indicator and longer periods resulting in a less sensitive indicator.

 

If the price is above the Moving VWAP, it could be considered overbought, while if the price is below the Moving VWAP, it could be considered oversold.

 

Moving VWAP is commonly used by institutional traders and is considered a more accurate measure of the average price of an asset compared to other indicators such as the simple moving average (SMA).

 

 

Again, using the Motorsport Games Inc. (NASDAQ: MSGM) chart you can see the moving VWAP follows the stock’s moves more closely. 

 

When the stock is trading below the moving VWAP, it continues in a downtrend. But when the stock crosses above the moving VWAP, it enters a slight uptrend or bounce. Then again when it crosses below it, the stock continues lower. 

PPO

The Percentage Price Oscillator (PPO) is a technical indicator that shows the relationship between two moving averages of prices.

 

The PPO is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA, and then dividing the result by the 26-period EMA. 

 

The result is then plotted as a line on a chart, with positive values indicating bullish momentum and negative values indicating bearish momentum.

 

If the PPO is above zero and then starts to decline, it could be a sign that the uptrend is losing momentum and a potential sell signal. Similarly, if the PPO is below zero and then starts to rise, it could be a sign that the downtrend is losing momentum and a potential buy signal.

 

 

On this three-month chart of C3.ai, Inc. (NYSE: AI) you can see that when the PPO rose back above 0, the stock started a slight uptrend. And just a few days later it had a multi-month breakout and a big upside trend. 

Pivot Points

Pivot points are technical analysis tools used by traders to identify potential support and resistance levels in the market. They are calculated using the high, low, and close prices of a security or index over a specified period of time, typically the previous day or week.

 

There are several types of pivot points, including standard, Fibonacci, and Camarilla. The most common type is the standard pivot point, which is calculated using the following formula:

 

Pivot Point (PP) = (High + Low + Close) / 3

 

From the pivot point, traders can then calculate the support and resistance levels using the following formulas:

 

First Level Support (S1) = (2 * PP) - High

First Level Resistance (R1) = (2 * PP) - Low

Second Level Support (S2) = PP - (R1 - S1)

Second Level Resistance (R2) = PP + (R1 - S1)

Third Level Support (S3) = Low - 2 * (High - PP)

Third Level Resistance (R3) = High + 2 * (PP - Low)

 

Traders often use pivot points as a reference point to determine the overall trend of the market, as well as to identify potential entry and exit points. 

 

If the price is above the pivot point, it is generally considered bullish, while if it is below the pivot point, it is generally considered bearish.

 

You can see on this intraday chart of C3.ai, Inc. (NYSE: AI) that the last pivot point acted as resistance in the morning. But once the stock broke above it, the stock had a big $4 per share move to the upside. 

 

Fibonacci Retracement

Fibonacci retracement is a technical analysis tool based on the idea that prices will often retrace a predictable portion of a move, then they will continue to move in the original direction.

 

To use Fibonacci retracement, traders first identify the high and low points of a price move. Then divide the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%. These ratios are commonly known as the "Fibonacci levels."

 

Traders can then draw horizontal lines on the chart at these levels to identify potential areas where the price may experience support or resistance. If the price reaches a Fibonacci level and starts to bounce, it could be a sign that the level is acting as a support or resistance level.

 

Fibonacci retracement is commonly used in conjunction with other technical analysis tools, such as trend lines and moving averages, to confirm potential entry and exit points.

 

Again, we’re using the intraday chart of C3.ai, Inc. (NYSE: AI) as an example…

 

You can see where the stock broke above some of the Fibonacci retracement levels, but then pulled back and held them as support before continuing higher. 

 

Parabolic SAR

The Parabolic SAR (Stop and Reverse) is a technical indicator used to determine the direction of an asset's price and to identify potential entry and exit points.

 

The Parabolic SAR is plotted as dots on a chart and is used to identify trends and potential reversal points. If the dots are above the price, it is a bearish trend and a potential sell signal. If the dots are below the price, it is a bullish trend and a potential buy signal.

 

The Parabolic SAR is calculated using a formula that adjusts the dots based on the asset's price and the strength of the trend. 

 

On this BigBear.ai Holdings, Inc. (NYSE: BBAI) intraday chart you can see the dots are below the candlesticks when it’s in an uptrend and above them when it’s in a downtrend. 

 

If you’re riding the uptrend and see the dot has reversed and is plotted above the candlesticks, it may be a signal to sell. 

 

You can also see that as a trend intensifies, the dots become more spread out.

Average True Range

The Average True Range (ATR) is a measure of volatility that helps traders identify the degree of price movement over a specified period of time.

 

The ATR is calculated using the high, low, and close prices of an asset over a specified period of time. It is typically plotted as a line on a chart, and it can be used to identify potential entry and exit points, as well as to confirm trends.

 

Traders often use the ATR to determine the level of risk associated with a trade. A higher ATR indicates a higher level of risk, while a lower ATR indicates a lower level of risk. 

 

ATR can also be used to set stop-loss orders, as it can help traders determine the appropriate distance from the entry price to place the stop-loss order.

 

In this 6-month Tesla, Inc. (NASDAQ: TSLA) chart, you can see that the average true range of the stock has increased after it gapped up and entered a strong uptrend with high volume. 

 

It indicates the stock has experienced volatility and a big price movement compared to its average over the time period. 

Bid/Ask Trend Indicator

The Bid/Ask Trend Indicator is a technical analysis tool used by traders to identify trends in the market. It is based on the difference between the bid price and the ask price of a security or index, and it is calculated using the following formula:

 

Bid/Ask Trend Indicator = (Ask Price - Bid Price) / (Ask Price + Bid Price)

 

The Bid/Ask Trend Indicator is plotted as a line on a chart, and it can be used to identify potential entry and exit points, as well as to confirm trends. 

 

If the line is rising, it indicates a bullish trend and a potential buy signal. If the line is falling, it indicates a bearish trend and a potential sell signal.

 

Traders often use the Bid/Ask Trend Indicator in conjunction with other technical analysis tools, such as moving averages and oscillators.

 

Only shows during market hours?

 

Accumulation Distribution Line

The Accumulation Distribution Line (ADL) is a technical analysis tool used by traders to identify trends in the market and to confirm the strength of price movements. It is based on the idea that the more volume that is associated with a price movement, the more significant the move is likely to be.

 

The ADL is calculated using the following formula:

 

ADL = Previous ADL + ((Close - Low) - (High - Close)) / (High - Low)

 

The ADL is plotted as a line on a chart, and it can be used to identify potential entry and exit points, as well as to confirm trends. If the line is rising, it indicates a bullish trend and a potential buy signal. If the line is falling, it indicates a bearish trend and a potential sell signal.

 

Traders often use the ADL in conjunction with other technical analysis tools, such as moving averages and oscillators, to confirm potential entry and exit points.

 

Commodity Channel Index

The Commodity Channel Index (CCI) is a technical indicator that measures the deviation of an asset's price from its statistical mean.

 

The CCI is calculated using the following formula:

 

CCI = (Price - Simple Moving Average (SMA)) / (0.015 x Mean Deviation)

 

The CCI is plotted as a line on a chart, and it is typically measured on a scale of -100 to 100. Values above 100 indicate overbought conditions, while values below -100 indicate oversold conditions.

 

If the CCI is above 100 and then starts to decline, it could be a sign that the uptrend is losing momentum and a potential sell signal. Similarly, if the CCI is below -100 and then starts to rise, it could be a sign that the downtrend is losing momentum and a potential buy signal.

 

On this Tesla, Inc. (NASDAQ: TSLA) chart, you can see the CCI number is over 100 and starting to decline. The stock has also hit against the $200 whole dollar level multiple items and it is acting as resistance. 

 

This could mean the uptrend is losing momentum and the trend could reverse. 

 

Darvas Box

The Darvas Box is a technical analysis tool based on the idea that the price of an asset will often fluctuate within a defined range, and that breakouts from this range can indicate a potential trend change.

 

To use the Darvas Box, traders first identify the high and low points of the asset's price over a specified period of time. They then draw a box on the chart between these points, with the top of the box representing the high point and the bottom of the box representing the low point.

 

If the price of the asset breaks out above the top of the box, it could be a sign of a bullish trend and a potential buy signal. If the price breaks out below the bottom of the box, it could be a sign of a bearish trend and a potential sell signal.

 

The Darvas Box is a technical analysis tool based on the idea that the price of an asset will often fluctuate within a defined range, and that breakouts from this range can indicate a potential trend change. 

 

You can see on this Tesla, Inc. (NASDAQ: TSLA) chart, the Darvas box outlines the $200 level as resistance. If the stock can break that level, it could be a bullish sign and a potential buy signal. 

 

Conclusion

In conclusion, technical indicators are used by traders to identify potential entry and exit points, confirm trends, and identify divergences or potential ranges of stocks. 

 

But it's important to note that all of these individual indicators are just one tool in a trader's toolbox. None of them should be used as an absolute buy or signal in your trading. 

 

It’s always best to use multiple indicators and tools to get a complete picture of the market.