Make Money in Stock Market using My Favorite Technical Indicators

MACD

Overview
The MACD (“Moving Average Convergence/Divergence”) is a trend following momentum indicator that shows the relationship between two moving averages of prices. The MACD was developed by Gerald Appel, publisher of Systems and Forecasts.

The MACD is the difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving average, called the “signal” (or “trigger”) line is plotted on top of the MACD to show buy/sell opportunities.

Interpretation
The MACD proves most effective in wide-swinging trading markets. There are three popular ways to use the MACD: crossovers, overbought/oversold, and divergences.

Relative Strength Index (RSI)

Overview
The Relative Strength Index (“RSI”) is a popular oscillator. It was first introduced by Welles Wilder in an article in Commodities (now known as Futures) Magazine in June, 1978.
The name “Relative Strength Index” is slightly misleading as the Relative Strength Index does not compare the relative strength of two securities, but rather the internal strength of a single security. A more appropriate name might be “Internal Strength Index.”

Interpretation
When Wilder introduced the Relative Strength Index, he recommended using a 14-day Relative Strength Index. Since then, the 9-day and 25-day Relative Strength Indexs have also gained popularity. The fewer days used to calculate the Relative Strength Index, the more volatile the indicator.

Stochastic Oscillator

Overview
The Stochastic Oscillator compares where a security’s price closed relative to its price range over a given time period.

Interpretation
The Stochastic Oscillator is displayed as two lines. The main line is called “%K.” The second line, called “%D,” is a moving average of %K. The %K line is usually displayed as a solid line and the %D line is usually displayed as a dotted line.

There are several ways to interpret a Stochastic Oscillator. Three popular methods include:

• Buy when the Oscillator (either %K or %D) falls below a specific level (e.g., 20) and then rises above that level. Sell when the Oscillator rises above a specific level (e.g., 80) and then falls below that level.

• Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line.

Support and Resistance

The foundation of most technical analysis tools is rooted in the concept of supply and demand. There is nothing mysterious about support and resistance–it is classic supply and demand. Remembering “Econ 101″ class, supply/demand lines show what the supply and demand will be at a given price.

Resistance is equivalent to a “supply” line. When prices increase, the quantity of sellers also increases as more investors are willing to sell at these higher prices. When too much selling occurs, however, prices retreat. When this happens repeatedly near a specific price level, resistance forms at that price level.

Support is equivalent to a “demand” line. When prices decrease, the quantity of buyers increases as more investors are willing to buy at lower prices. When too much buying occurs, however, prices rise. When this happens repeatedly near a specific price level, support forms at that price level.

Momentum

Overview
The Momentum indicator measures the amount that a security’s price has changed over a given time span.

Interpretation
The interpretation of the Momentum indicator is identical to the interpretation of the Price ROC. Both indicators display the rate-of-change of a security’s price. However, the Price ROC indicator displays the rate-of-change as a percentage whereas the Momentum indicator displays the rate-of-change as a ratio.

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Tagged as: MACD, Momentum, Resistance, RSI, Stochastic, Support