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TWG EDUCATION PRESENTS,

TECHNICAL
INDICATORS
TRADE WITH GRADE ANIKET MISTRY

Aniket Mistry
TECHNICAL INDICATORS

F
irstly let's understand why Technical Indicators are
important while trading or Investing.

1. Usefulness Varies: Technical indicators can be e ective tools for

analysing stock market trends, but their e ectiveness varies depending on
market conditions, the speci ic indicator used, and individual trading
strategies.

2. Short-Term Focus: They are particularly useful for short-term trading

strategies, helping traders identify potential entry and exit points based
on historical price patterns, volume trends, and momentum indicators.

3. Signal Interpretation: However, interpreting signals from technical

indicators requires skill and experience. False signals and market noise
can lead to incorrect decisions if not properly understood or iltered out.

4. Complement Fundamental Analysis: While technical indicators focus

solely on price and volume data, they can complement fundamental
analysis, which considers factors like company inancials, industry trends,
and macroeconomic conditions.

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5. Risk Management: Technical indicators also play a crucial role in risk

management by helping traders set stop-loss orders, determine position
sizes, and identify potential areas of support and resistance.

6. Subjectivity: One limitation is the subjective nature of interpretation.

Di erent traders may interpret the same indicator di erently, leading to
con licting analyses and trading decisions.

7. Market Sentiment: Technical indicators can also re lect market

sentiment and investor psychology, providing insights into whether a
stock is overbought, oversold, or experiencing strong momentum.

8. Continual Learning: Successful use of technical indicators requires

continual learning and adaptation to changing market conditions. Traders
need to stay updated on new indicators, re ine their strategies, and
constantly assess their e ectiveness.

9. Not Foolproof: It's important to recognise that no technical indicator is

foolproof. They are just one tool among many in a trader's toolkit and
should be used in conjunction with other forms of analysis and risk
management techniques.

10. Individual Preference: Ultimately, the e ectiveness of technical

indicators in the stock market depends on individual preference, trading
style, risk tolerance, and the ability to interpret and apply them correctly
in real-world trading scenarios.

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We will discuss 7 most Helpful Indicators according to me, So let's get

Started.

1. RSI – RELATIVE STRENGTH INDEX

One of the fundamental aspects that traders look for is assessing the
momentum of the stock price. The Relative Strength Index or RSI is one of
the most commonly used momentum indicators. It measures the extent of
the recent luctuations in price and assesses if the stock has been
oversold or over-purchased.

You can choose the RSI indicator via the Indicator tab at the top of the
screen. As soon as you click it, a line graph is displayed on the screen,
below the existing chart (as selected by you). This is an oscillator graph
that reads between 0 and 100.

Typically, an RSI reading of less than 30 indicates a stock that is oversold

or undervalued; and reading of greater than 70 indicates a stock that is
overvalued or over-purchased. Here is what an RSI oscillator looks like:

This indicator o ers valuable insights into the volume/price condition of

the stock.

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2. MACD – MOVING AVERAGE CONVERGENCE DIVERGENCE

For traders who understand statistics, MACD is a common function used

to assess if the bullish or bearish trends in the price of a stock are getting
weaker or stronger.

MACD is a momentum indicator that plots the relationship between two

moving averages (MAs) of the price of a security. To calculate MACD, the
26-period exponential moving average or EMA is subtracted from the 12-
period EMA.

Further, a nine-day exponential moving average of the MACD called the

Signal line, which o ers triggers for buy and sells transactions, is also
displayed on the chart.

MACD is displayed along with a histogram that highlights the distance

between the MACD line and the Signal line. MACD, along with the RSI
indicator can o er a clearer perspective about the price momentum of a
stock. Here is how a MACD graph looks:

Lastly, you can right-click on the MACD area and customise the settings to
choose values as needed by you for your analysis.

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3. VWAP – VOLUME WEIGHTED AVERAGE PRICE

The Volume Weighted Average Price or VWAP is an excellent

indicator of the relative strength of a stock. It is the average trading
price of a stock in a day based on the stock price and trading
volume. It is used primarily by short-term stock traders to get a more
accurate estimate of the price action. There are various ways in
which this indicator can be used to make pro table trading decisions
quickly including:

• VWAP Pullback Entry

• VWAP Breakout Entry
• Aggressive trade Stop
• Pullback Stop
• Selling at the day’s high
• Selling at a Fibonacci Extension Level

It is preferred by traders since it allows them to:

• Buy low and sell high

• Receive a signal of change in the market bias
• Get dynamic support and resistance levels
• Be sure about counter-trend trading opportunities
• Beat the high-frequency trading algorithms

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As a trader, using a VWAP indicator will require a lot of practice of

reading it and correlating it with trading opportunities.

Here is what it looks like:

You also have the option of plotting the standard deviation bands above
and below the VWAP line.

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There are three options available as shown below:

Observing how the stock price performs within these standard deviation
bands can o er interesting buying and selling areas to traders.

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4. MOVING AVERAGE
As a trader, one of the most dif cult things to do is predict trends in
the Stock Markets. To avoid complete speculation, chart analysis
and using the right indicators is crucial.

A Moving Average indicator is widely used by traders to identify an

up-trend, down-trend, upward momentum, and downward
momentum. It is also used to identify support and resistance levels.

This is what a moving average looks like on a candlestick chart:

You can choose the period for which you want to view the moving
average. Usually, traders opt for a 50 or 200-day moving average. It
is important to remember that since this is a moving average, a
shorter period would make it highly sensitive to price movements,
and a longer period would make it less sensitive.

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Depending on your needs, you can choose the period and view the
moving average for the stock.

Here is some information provided by a Moving Average (MA)

indicator:

• Up-trend – when the MA line is rising

• Down-trend – when the MA line is dipping
• Upward momentum – when the short-term MA line crosses
over the long-term MA line.
• Downward momentum – when the short-term MA line crosses
below the long-term MA line.

You can choose from the following options:

1. Period – A free- owing text box where you can enter the
number of days you want to view the moving average of.
2. Field – The price for which you want to calculate the moving
average. This includes:
1. Open or opening price
2. High or the highest price in a trading day
3. Low or the lowest price in a trading day
4. Close or closing price
5. Adi_Close or the adjusted closing price calculated after
accounting for any corporate actions

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6. HL/2 or (Highest Price + Lowest Price)/2 – offers a moving

average of the average price between the highest and
lowest price every day.
7. HLC/3 or (Highest Price + Lowest Price + Closing Price)/3
– offers a moving average of the average price between
the highest, lowest, and closing price every day.
8. HLCC/4 or (Highest Price + Lowest Price + 2*Closing
Price)/4 – this is also known as the weighted close moving
average and offers a moving average of the average price
between the highest, lowest, and 2 times the closing price
every day.
9. OHLC/4 or (Opening Price + Highest Price + Lowest Price
+ Closing Price)/4 – offers a moving average of the
average price between the opening, highest, lowest, and
closing price every day.

3. Type or the moving average type that you want to use to plot
the line. There are various types of moving averages including:

1. Simple – a simple average of all prices.

2. Exponential – gives more weight to recent price points.

3. Time Series – plotted using linear regression techniques.

4. Triangular – averaged twice.

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5. Variable – sensitive to the increasing volatility in the

market.

6. VIDYA – or Volatility Index Dynamic Average adjust the

speed of averaging based on the volatility in the market.

7. Weighted – offers more weight to recent price points and

less to the older ones.

8. Welles Wilder – smoothes price movements to help

identify bullish/bearish trends.

9. Hull – manages to offer a smooth line with minimal lag.

10. Double Exponential – uses two exponential moving

averages to eliminate lag.

11. Triple Exponential – uses three exponential moving

averages to eliminate lag.

4. OFFSET – this can be a positive or negative value based on

whether you want to forecast trends better or t the price
movements of the stock.

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5. BOLLINGER BANDS

Bollinger Bands de ne a price range plotted at one (or more)

standard deviation levels above and below the simple moving
average of the price of the stock. Hence, they are excellent
indicators of high or low prices on a relative basis. This is what a
Bollinger band plot looks like:

Here are some tips to help you understand Bollinger bands and use
them to make trading decisions:

• If the market volatility is low, the bands tighten. Hence, it

increases the possibility of the price moving sharply in either
direction.
• On the other hand, when market volatility increases, the bands
separate by a large amount. This can be seen as an indicator
of the end of the current trend.

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• Most traders spend time understanding the Bollinger band

indicator and estimating entry/exit points to book pro ts. For
example, some traders believe that if the stock price starts
rising from the lower band and crosses the moving average
line, then it usually hits the upper band. Hence, they invest
accordingly.
• There are times when price trends continue for an extended
period. While Bollinger bands cannot help identify them, you
can use other indicators like a momentum indicator and
conduct additional research.

You get the following options for customisation:

1. PERIOD – a free- owing text box where you can enter the
number of days you want to view the moving average of.
2. FIELD – the price for which you want to calculate the moving
average. This includes:
1. Open
2. High
3. Low
4. Close
5. Adi_Close
6. HL/2
7. HLC/3
8. HLCC/4
9. OHLC/4

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1. STANDARD DEVIATION – The number of standard deviation

levels that you want to plot the bands for. The higher the
standard deviation, the wider the bands.

2. MOVING AVERAGE TYPE – the moving average type that you

want to use to plot the line. There are various types of moving
averages including:

1. Simple
2. Exponential
3. Time Series
4. Triangular
5. Variable
6. VIDYA
7. Weighted
8. Welles Wilder
9. Hull
10. Double Exponential
11. Triple Exponential

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6. PIVOT POINTS
Pivot Points are indicators used by traders to determine the trends of
the market over different time periods. A pivot point is calculated by
taking a simple average of the highest, lowest, and closing price of
the stock from the previous trading day. When you use this point on
the next day, any trade above the pivot point is considered to be
bullish and below the point is considered to be bearish. This is what
it looks like:

As you can see (more clearly in the Continuous Pivot Points chart),
there are three levels of support and resistance displayed. These
can help traders make buy/sell decisions by creating cut-off points.

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We have following options for customisation:

1. TYPE – There are two types of Pivot points available –

Standard and Fibonacci. Traders can use Fibonacci if they are
conversant with Fibonacci ratios and want to use them to make
trading decisions.
2. CONTINUES – You can choose between having pivot points
plotted individually (lower part of the above image), or as a
continuous line (upper part of the above image) based on which
helps you understand trends better.

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7. MOMENTUM INDICATOR

This indicator offers information about the rate at which the price of
the stock changes. They only offer information about the speed of
the change and NOT the direction. This is how it looks:

We have 2 following options for customisation:

• Period.
• Panel – within the plot area of the chart or as a separate panel.

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A stock market is an exciting place where fortunes are made and lost
almost daily. It is also a complex place as there is no one simple way of
reading charts in the stock market.

However, with the Right tools, charts can be easy to read, Informative,
and may even help predict future stock prices.

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