presents

Technical Indicators
What are technical indicators?

Mathematical formulas based on price & volume used to forecast future price

movements.

Indicates or confirms the price action or trend.

They are used along with other technical tools for high-probability trade setups.

Example: RSI, ADX, MACD, etc.

 Categories of Indicators

Leading Lagging
Indicator Indicator

Gives signals ahead of price Confirms after the price

action. movement.
Example: RSI, Stochastic, etc. Example: Moving Average,
Parabolic SAR, etc.
 Types of Indicators

Momentum Indicators Trend Indicators Volume Indicators

Volatility Indicators Breath Indicators

 Momentum

The force that makes something move faster & faster.

 Momentum Indicators

It help a trader to understand the rate at which the price of a stock fluctuates.

Indicates the strength of price movements.

Useful to spot divergences. It can be positive or negative.

Studies indicates that these indicators are more useful when markets are trending.

Examples: MACD, RSI, ADX, RoC, Stochastic, Relative Strength & many more.
 Types of Divergence

Positive Negative
Divergence Divergence

Price makes lower highs & lower Price makes higher highs & higher
lows, but the indicator makes lows, but the indicator makes lower
higher highs & higher lows. highs & lower lows.
 Positive Negative
Divergence Divergence

Price Price

Indicator Indicator
Moving Average Convergence Divergence
(MACD)
It consists of 2 lines. MACD Line & Signal Line.

Depicts the relationship between two moving averages - 26 EMA & 12 EMA

MACD crossovers generates a buy & sell signal.

Price divergences also signals momentum of the underlying trend

MACD Line= (26-12) EMA

Signal Line= 9 EMA of MACD line
Applications of MACD

When the MACD line crosses the signal line from below
When the MACD line crosses the signal line from above

MACD crossing above zero is considered bullish

MACD crossing below zero is considered bearish

When the price falls but MACD rises- Bullish Divergence

When the price rises but MACD falls- Bearish Divergence
MACD Crossovers MACD Line
Script: Bank Nifty Futures Signal Line
Time Frame: Daily

Head & Shoulder

Descending triangle

Sell
Buy
Sell
Buy Sell
MACD Bullish Divergence
Script: VOLTAS
Time Frame: Daily

Price falling

MACD rising
MACD Bearish Divergence
Script: NIFTY
Time Frame: Daily
Price rising

MACD falling
 Relative Strength Index (RSI)
Developed by J. Welles Wilder.

A leading indicator that measures the speed & change in price movement.

The default value of RSI is 14 period, but one can change to a higher or lower value based
on sensitivity.

RSI= 100-[100 / 1 + RS]

RS= Average Gain over specified period/ Average loss over the same period

It oscillates between 0 to 100 & helps in evaluating overbought & oversold zones.

Divergences can be spotted when the price moves in the opposite direction of RSI,
generating buy/sell signals.
Applications of RSI

When RSI > 70 - Overbought

When RSI < 30 - Oversold

When RSI rises but the price falls- Bullish Divergence

When RSI falls but the price rises- Bearish Divergence

When RSI > 50, the price gains momentum on the upside- Bullish
When RSI < 50, the price gains momentum on the downside- Bearish

Trendlines can also be drawn on RSI to signal the trend of the momentum. A
break in the RSI trendline usually occurs before a break in the price chart.

RSI Range Shift is another phenomenon that occurs when the RSI indicator
'shifts' from one range to another, indicating bullishness or bearishness in the
stock.
RSI Overbought (70)
Script: Nifty 50 Futures
Time Frame: 2 hours
RSI (14)

Overbought

RSI trendline
breakdown
RSI Oversold (30)
Script: Nifty 50 Futures
Time Frame: Weekly
RSI (14)

Oversold
RSI Bullish Divergence
Script: CNX IT
Time Frame: Daily
RSI (14)

Price falling

RSI rising
RSI Bearish Divergence
Script: SUNPHARMA
Time Frame: Daily
RSI (14)
Price rising

RSI falling
RSI (14) > 50 & RSI (14) < 50
Script: SUNPHARMA
Time Frame: Daily

Bearish rectangle
breakdown

RSI(14) crossed below 50

Momentum slowing down RSI(14) crossed above 50

RSI Range Shift
Script: Nifty 50 Futures
Time Frame: Daily

Range Shift
 Average Directional Index (ADX)

Developed by Welles Wilde.

It is helpful for determining the strength of the trend.

It is non-directional indicator that measures only the strength of the trend regardless
of whether the price is trending up or down.

It is plotted as a single line that ranges between 0 to 100.

A high ADX value suggests a strong trend, whereas a low ADX value suggests a weak
trend.

Many trader also follow +DI & -DI on ADX. +DI indicates bullishness & -DI indicated
bearishness.
 ADX Indicator Scale

ADX Value Trend Strength

0-25 Absent or Weak trend

25-50 Strong trend

50-75 Very strong trend

75-100 Extremely strong trend

ADX (14)
Script: VEDANTA
Time Frame: Daily

Upward sloping Flag breakout

>50 - Very strong trend

>25 - strong trend
 Rate of Change (RoC)

It indicates the speed at which the price changes over time.

It compares today's price to the price "n" periods ago.

ROC = [(Close – Close n periods ago) / (Close n periods ago)] x 100

It oscillates between the above & below 0.

RoC > 0 - Positive zone- Price rise
RoC < 0 - Negative Zone- Price falls

Price divergence depicts an increase & decrease in momentum that signals price
reversal.
RoC (12)
Script: TATA MOTORS
Time Frame: Daily

Momentum decreasing
 Stochastic

Developed by George C. Lane in the late 1950s.

Calculations
It compares the most recent closing price to its highest and
lowest prices over a specified time period. %K = 100[(C – L14) / (H14 – L14)]

Where,
It is comprised of two lines.
%K (Slow stochastic) & %D (Fast stochastic). C = current closing price
H14 = the highest price during a
It oscillates between 0 to 100. Stoch > 80 overbought zone & 14-day period.
L14 = the lowest price during a
Stoch < 20 oversold zone.
14-day period.

When %K crosses the %D from below %D is 3 period moving average

when the %K crosses the %D from above of %K line.
Stochastic %K (14) %D (3) Overbought
Script: TATA MOTORS Oversold
Time Frame: Daily
Dark Cloud Cover

Multiple Doji's
indicating exhaustion

Doji Candle

Crossovers
 Relative Strength
It compares the performance of a stock to a benchmark or any other stock over a particular
period.

It is calculated by dividing stock price by current index value or any other stock price.

It helps to identify outperforming & underperforming stocks.

RS is positive (RS > 0) - Bullish

RS is negative (RS < 0) - Bearish

A 55-day RS is extremely effective for identifying strong or weak stocks in the market.

Note: RSI and RS are two distinct indicators. RS compares a stock's performance to a benchmark,
whereas RSI compares a stock's performance to the most recent performance of the same stock.
RS (55) vis a' vis Nifty 50
Script: BAJAJ FINANCE LTD.
Time Frame: Daily

Downward Sloping Flag

Breakout

RS > 0
RS (55) vis a' vis Nifty 50
Script: HDFC BANK
Time Frame: Daily

Triangle
breakdown

RS < 0