The stock markets offer many opportunities for investors to increase their wealth. Many stock markets use technology to help investors take right decisions. There are many technical indicators (also known as technicals) which help investors analyze the short-term price movements. They help investors in deciding when to sell their stocks. Investopedia defines indicator as “Any class of metrics whose value is derived from generic price activity in a stock or asset”.
Here is a brief description of some technical indicators which are frequently used by successful traders.
Relative Strength Index
The Relative Strength Index (RSI) is a momentum oscillator which is used extensively by successful traders. It oscillates between zero and 100 and is used to measure the speed and change of price movements. If the RSI is above 70 it is considered as “overbought”. If it is below 30 it is considered as “oversold”.
Money Flow Index
The Money Flow Index (MFI) is also known as volume-weighted RSI. It uses both price and volume to measure buying and selling pressure. The MFI is an oscillator which can be used effectively to identify reversals and price extremes. It is similar to the relative strength index formula.
Parabolic SAR
The Parabolic SAR (stop and reverse) is useful to identify trends in market prices. It combines price and time components to generate buy and sell signals. Successful traders use this indicator to determine where to place stop loss orders. It is a great tool to predict a stock’s future direction.
Stochastic Oscillator
This indicator was developed by George C. Lane in the 1950s. It is easy to follow and has low fail rate. It follows the speed or the momentum (rate of the rise and fall) of the price. It compares a stock’s closing price to its price range over a given time period. It can be effectively used to predict reversals. It can also be used to identify overbought or oversold levels.
MACD
The MACD (Moving Average Convergence-Divergence) was developed by Gerald Appel in the 1970s. This momentum indicator is an absolute price oscillator (APO) because it deals with the actual prices of moving averages.
Bollinger Bands
The Bollinger Bands, which were created by the famous technical trader John Bollinger in the 1980s, consist of a set of three curves. These curves are drawn in relation to stock prices. The center curve is an exponential moving average. The Bollinger Bands help in measuring the volatility of a particular stock.
The Death Cross
The Death Cross occurs when the short moving average price of a particular stock falls below the longer moving average. It is a clear indication that the market sentiment has turned against the stock. It is a clear “sell” signal for the investor.
Knowing when to sell your stock is the key to success in the stock market. The above mentioned technical indicators will definitely help you in taking wise selling decisions.