Technical Indicators

Technical Indicators

Indicators are mathematical calculations based on price, volume, and/or open interest. They help identify trends, momentum, and overbought/oversold situations. Important: Indicators should always be used only as confirmation, never as the sole signal.

Trend Indicators

Moving Averages

• SMA (Simple Moving Average) – Simple average of the last X periods. The SMA 200 is considered the most important long-term trend indicator.
• EMA (Exponential Moving Average) – Weights current prices more heavily. Responds faster to price changes than the SMA.
• Golden Cross – The 50 EMA crosses the 200 EMA from bottom to top → bullish signal
• Death Cross – The 50 EMA crosses the 200 EMA from top to bottom → bearish signal

Bollinger Bands

Consist of three lines: SMA 20 (middle line), upper band (+2 standard deviations), lower band (-2 standard deviations). Price moves within the bands 95% of the time.

• Squeeze – Tight bands signal low volatility and an upcoming strong move
• Walk the Bands – In strong trends, price "walks" along the upper or lower band

Momentum Indicators

RSI (Relative Strength Index)

Measures the strength of price movements on a scale of 0-100:

• Above 70 – Overbought, possible correction downward
• Below 30 – Oversold, possible recovery upward
• RSI Divergence – When price makes new highs but RSI does not → warning signal for trend reversal

MACD (Moving Average Convergence Divergence)

Consists of MACD line (12 EMA - 26 EMA), signal line (9 EMA of MACD), and histogram:

• Bullish Crossover – MACD crosses signal line upward
• Bearish Crossover – MACD crosses signal line downward
• Histogram – Shows the strength of momentum

Stochastic Oscillator

Compares the current closing price with the price range of the last X periods (0-100):

• Above 80 = overbought, below 20 = oversold
• Crossovers of %K and %D lines provide signals

Volume Indicators

• Volume – High volume confirms price movements. Lower volume indicates weakness.
• OBV (On-Balance Volume) – Accumulates volume on rising/falling days
• VWAP (Volume Weighted Average Price) – The volume-weighted average price, especially important for day traders

Practical Tips

• Use a maximum of 2-3 indicators at once to avoid overanalysis
• Combine trend and momentum indicators (e.g., EMA + RSI)
• Indicators work best in combination with price action and S/R levels
• Adjust the settings to your timeframe