Investors use indicators to understand the data surrounding securities. They help to confirm price movement while indicating if the move is likely to continue in the same direction or correct itself. They can be used in trading strategy. Here are a few different indicators you can use which fit your strategy.

 

On-Balance Volume

This indicator, known as OBV, measures the flow of volume in a security and its relativity to price. It records the cumulative volume total and either adds or subtracts the volume for each period. The idea for how this indicator works is that because volume change precedes any movement in price, you can know when price is going to move either upward or downward.

 

Accumulation/Distribution Line

Traders use this indicator to determine the flow of money. It not only considers the closing price of the security, it includes the range for the entire period. The idea behind this indicator is that it is more accurate than other indicators. The line that trends upward is showing a buying trend while the line that trends downward indicates selling pressure.

 

Average Directional Index

A popular indicator, the average directional index measures the strength and momentum of a current trend. The momentum is more important than the direction. If the ADX is above 40, it means the trend is strong regardless of which direction it’s going.

 

Aroon Indicator

The Aroon Indicator tells you if a security is in a current trend and how big the trend is. It will also alert you to when a new trend is about to start. The indicator has two lines – one up and one down. When the up line is above 70, the security is moving in an uptrend. When the down line is over 70, the security is moving downward.

 

MACD

The MACD is the moving average convergence divergence. It is one of the best-known indicators, which tells the trader both the momentum and the trend in a security. It uses two exponential moving averages, which looks at two different periods of time. It compares short-term momentum to long-term momentum, which indicates where the security is going in the future.

 

Relative Strength Index

This indicator lets you know the overbought and oversold conditions to help traders determine the strength of the security’s moves. The result is an indication of whether the security is seeing more pressure for selling or buying.

 

Stochastic Oscillator

If a security is on an upward trend, it should close near the high of its range. For a downward trend, the close should be at the low range. This tells you that the security is continuing in both strength and momentum in the same direction.

 

The goal of using any of these indicators is that they will tell a trader the momentum of a security so they can make a profit. These are just a few of the indicators available for traders, which make good starting points for new investors. Once they master these, they can move on to other indicators to help them develop powerful trading strategies.

 

 

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