The Power of

Technical Indicators:
Optimizing Stock
Prediction

by - Sinjan Dey
 Candle Sticks :
 Candlestick charts are a popular tool in technical analysis
for visualizing price movements of stocks over a specific
time-period ( like – 1 min, 1 hr, 1 day, 1 week, 1 month)

• Candles are basically of 2 types –

1. Bullish candle (OLHC – open-low close-high)
2. Bearish candle (OHLC – open-high close-low)
 Chart Patterns :
 Reversal Patterns :  Continuation Patterns :
• Head and Shoulders: • Triangles:

• Flags :

• Double Top/ Double Bottom:

• Channels:

• Rising Wedge (Bearish):

• Cup and Handle :

• Falling Wedge (Bullish):
 Understanding of Technical Indicators :

a. Leading Indicators: b. Lagging Indicators:

• These are to predict future price movements • Lagging indicators follow price movements to
before they occur. ensure the validity of signals by leading
• They provide early buying or selling signals, indicators.
helping traders anticipate potential reversals or • They are more reliable for identifying established
breakouts. trends or momentum.
• However, they can sometimes produce false • But this gives delayed signals.
signals.

** For improving accuracy, a traders should use a combination of both-

leading indicators (like- RSI, PIVOT POINTS, EMA crossovers etc.) &
lagging indicators (like– Moving Average, MACD, Bollinger Bands etc.)
 1. Pivot Points :

 A pivot point is a price level calculated from previous prices.

• It's used to indicate potential areas of support or resistance, based upon Fibonacci ratios.
• It is a basic intraday technical indicator.
• Determines levels of entry, stop-losses, and profit-taking targets & predicts reversals.
 2. Moving Average :
The moving average is a simple technical analysis tool available on most trading platforms that smooths out price data by
creating a constantly updated average price.
• There can be SMA/ EMA on an open/ close basis.
• Commonly used to identify - a. trends and b. trend-reversals.

1 EMA Crossover :
In Up-trend - The price action is above an exponential
moving average & EMA acts as support.
In Down-trend - The price action is below an exponential
moving average & EMA acts as resistance.

2 Golden/Death Cross-Over strategy :

 A golden cross occurs when a shorter-term moving  A death cross happens when the shorter-term MA
average (50 EMA) crosses above a longer-term crosses below the longer-term MA, indicating a
moving average (200EMA), signaling an uptrend and downtrend and a potential sell signal.
a potential buy opportunity.
 3. VWAP
Volume-Weighted Average Price, represents –
Average price weighted by volume of a security (unlike MA)

Price action above the VWAP suggests strong buying pressure,

while the price below suggests selling pressure.

• It’s a lagging indicator.

• VWAP can’t be plotted in indexes (as volume is missing)
• It is best suitable for intraday or scalping as VWAP resets
with each new trading session.
• VWAP Can give false signals. So always follow the broader
trend.

• ** VWAP-EMA strategy: It’s used to spot bullish signals when the

EMA(blueline) crosses above the VWAP(redline) and bearish signals when it
crosses below.
 4. MACD :

When the MACD line goes above the signal line -

sell or short.
when the MACD line crosses below the signal line-
buy or long.

where traditional settings – 26/12/9 days as Slow MA/

Fast MA/ Signal Period- is the default.

The histogram provides insight about – strength of

momentum.
Increased Histogram = Increased Momentum

** wait for both lines to cross the Base/zero Line & an increased histogram, to
catch the momentum, avoiding a false signal.
 5. RSI :
RSI measures the speed and magnitude of recent price
changes to detect overbought or oversold conditions in
the price of that security.

• When the RSI reading is above 80, is considered

overbought and oversold when it is below 20.

• RSI 14 is a Relative Strength Index (RSI) calculation

that uses a 14-day period to measure price changes.

• During trends, the RSI readings may fall into a band

or range.

** RSI divergence gives early signals of bearish or bullish

reversals.
 6. Stochastic Oscillator::
 It is a popular momentum indicator used in technical analysis to
compare a security's closing price to its price range over a specific
period.
• It helps traders identify overbought or oversold conditions.
• It also gives effective signals in sideways market, where RSI fails.

 In this oscillator, three key parameters that traders can adjust

- %K(fast line), %D(slow line) & smoothing period, for –
1. Intraday (15min chart) : use (14, 3, 3) **default
2. Swing Trade (1day chart) : use (21, 7,7)

** To avoid false signals & to understand broader trends; traders often use EMA & Stochastic Oscillator together…
 7. ATR indicators :

The ATR is like the speedometer to give idea of price volatility. It calculates avg. of true range values over specific period (usually 14)

 ATR as a volatility indicator :  ATR (Avg. True Range) in Trading :

• ATR values indicate the average range of • Stop-Loss Placing: When ATR is high, a wider stop-
price movements. loss is required; when ATR is low, a tighter stop-loss
• Higher ATR = Higher volatility (large price can be used.
swings). • Trend Confirmation: Increasing ATR confirms strong
• Lower ATR = Lower volatility (smaller price momentum during both up-trend and down-trend.
swings). • ATR spikes signal breakouts or breakdowns.
 8. Super Trend :

 It is used for identifying trends taking account  When the Super-Trend line is below the price, it
of volatility using two key components: average indicates a bullish trend (buy signal).
true range (ATR) and a multiplying factor.

• It generates buy/sell signals.  When it is above the price, it indicates a bearish

• Can be used to identify potential breakouts or trend (sell signal).
reversals.
9. Average Directional Index –ADX :
 What is it ?
ADX is used to measure the strength of a trend.
It does not indicate the direction of the trend (up or
down).

 ADX Range:
0-25: Weak or no trend (ranging market).
25-50: Strong trend.
50-75: Very strong trend.

 Using +DI and -DI for Trade Signals :

+DI > -DI: Indicates bullish momentum.
-DI > +DI: Indicates bearish momentum.

 Crossovers:
When +DI crosses above -DI, it’s a buy signal.
when -DI crosses above +DI, it’s a sell signal.
10. Bollinger Bands :  What is it?
Bollinger Bands are lagging indicator, consist of 3
lines:
• the middle band (red) is a simple moving average
(SMA) typically set to 20 periods,
• The two outer bands (blue) are std. deviation
lines, placed above & below the middle band.
 Use Cases :
1. Trend Identification –Help traders identify the
beginning and end of trends by showing when an asset
moves outside its typical range, indicating strong
trends.

2. Volatility Analysis – Wider bands signal higher

volatility, while narrower bands indicate lower volatility.

3. Price Targeting – The bands act as dynamic support

and resistance levels.

4. ** Squeeze Strategy – A Bollinger Band squeeze,

where the bands contract tightly, often signals a
potentially significant price movement. i.e. breakout or
breakdown.
 11. Fibonacci Retracement :
 Fibonacci retracements are often used as part of a trend-
trading strategy.

 By depicting Fibonacci retracement levels by taking high and

low points on a chart, we can predict ---
1. Trend Confirmation – Use retracement levels (23.6%,
38.2%, 50%, 61.8%) to identify potential support or
resistance within an existing trend.

2. Entry Points – Buy near retracement levels in an uptrend or

sell near them in a downtrend, confirming with other
indicators.

3. Stop-Loss Placement– Place stop-loss orders just beyond

key Fibonacci levels to minimize risk.

4. Target Setting– Use Fibonacci extensions (127.2%,

161.8%) to set profit targets after a retracement.

5. Breakout/ Reversal Prediction– If price breaks a key

Fibonacci level, it may signal a trend reversal or
continuation.
THANK YOU