Technical Analysis Indicator

The most popular tools used by traders are technical indicators, such as moving average, RSI, MACD, Momentum and stochastic oscillator. These oscillators may be useful especially during stagnant periods in the market without any apparent trend.

Moving average is an indicator based on average quotations from specified amount of sessions. Primary analysis is based on a crossover of prices and the moving average. If the price line breaks the moving average from below, this is regarded as "buy" signal. Breaching the average from above results in a "sell" signal. It is possible to apply a combination of averages with various periods parameter. Moving averages are one of the most popular and easy to use tools available to the technical analysts. They smooth the data series and make it easier to spot trends, which can be especially helpful with volatile markets. They also constitute the basis for many other technical indicators and studies.
MACD is one of the most popular technical indicators. It is based on two exponential moving averages with a different periods parameter. The moving average of the indicator forms a signal line. Primary interpretation assumes that breaking the signal line by MACD from below represents a "buy" signal, whereas crossing from above a sell signal. Breaking of the balance level ("0") is considered as confirmation of the signals. Developed by Gerald Appel, Moving Average Convergence/Divergence (MACD) is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, turned into a momentum oscillator by subtracting the longer moving average from the shorter one. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits. MACD is a centered oscillator.

RSI constitutes a popular technical analysis indicator, widely used in order to trade against the main trend. It is capable of providing relatively reliable signals of overbought and outsold market conditions. RSI values range from 0 to 100. Value above 70 is usually considered as an overbought market signal, whereas values below 30 signifies outsold market conditions.
When RSI is in an overbought or outsold condition, there may occur divergences between oscillator movements and price movements. RSI divergences may suggest future trend reversals.

Positive divergences – appear when RSI continuing downward trend in outsold section forms consecutive threads, which are placed increasingly higher, however price chart sets up accordingly decreasingly lower threads. This situation suggests reversal of downward trend and possible future bull market. RSI precedes future price growths generating a buy signal.

Negative divergences – appear when RSI is in an overbought section sets up consecutive peaks, which are placed decreasingly lower. Price chart however forms accordingly higher peaks. Preceding future price dips, RSI indicates trend reversal and possible bear market.

Stochastic slow similar to RSI ranges within 0 and 100 value scale. There are two lines in this oscillator: %K and %D. %K is a primary source for signals. %K and %D lines make for a quick stochastic oscillator, which is rather rarely used because of it’s over sensitivity to market moves. Slow stochastic oscillator is a polished quick version, which comes from using an average of 3 time units &%K and %D lines. Primary oscillator signal is an intersection of %K and %D lines. Outsold area for %D is less then 30, and overbought area is more then 70. Sell signals are usually generated when %K line (quicker) crosses from above falling line %D. Buy signal occurs when %K line crosses from below increasing %D line. Like in RSI a key issue while observing stochastic oscillator is an analysis of divergence between %D line and a price chart.