40 technical indicators for your trading strategy
Technical analysis is an art. Becoming an artist is easy, but mastering your art can take practice, effort, and time. The same graph opened by two different persons may be viewed differently. It’s only the time that proves one right.
Traders today tend to take advantage of many different tools for their trading. This includes price-actions theory, patterns created through candlesticks, etc. Some TA-based traders tend to use indicators available for their comfort.
It’s no new news: Indicators may sometimes prove to be extremely helpful to traders. I have gathered a list of 40 indicators that traders may use to benefit their trading strategies.
WMA (Weighted Moving Average)s
The Weighted Moving Average is an indicator calculated by assigning a higher weight to newer data points and lower weights to older data points. It is calculated by multiplying each data point by the predetermined weight assigned. The calculation is more effective than the standard moving average, giving all data points a fixed weight.
The calculation is used to generate a buying signal and sell indications. If a price closes below the weighted moving average, it is an indication to sell. In contrast, if it is above the weighted moving average, it indicates buying since the price is trading higher than the moving average.
KAMA (Kaufman Adaptive MA)
Presented by quantitative financial theorist Perry J. Kaufman in 1998 in his book “Trading Systems and Methods,” the technique has been used since 1972. Kaufman’s Adaptive Moving Average (KAMA) considers price action and market volatility.
When volatility is low, the KAMA will remain near the market price. When volatility is high, the KAMA value will lag. It is useful in removing the impact of short-term, irrelevant movements in prices. Unlike most moving averages, KAMA reduces false signals.
It is calculated by calculating the periods of highs and lows adjusted for their lowest and highest values. The adjustment helps in smoothening out the fluctuations and allows the identification of actual trends
MAMA (MESA Adaptive Moving Average)
John Ehlers designed the MESA Adaptive Moving Average (MAMA) as a trend-following indicator that alters according to price changes. This alteration is according to the rate of change measured by the Hilbert Transform Discriminator. The MAMA is calculated by plotting both fast and slow-moving averages. The indicator adaptation is processed by plotting a composite moving average derived from price changes and averages.
The plotting of the MAMA looks like two MAs. The MAMA moves like a staircase during price changes and produces the FAMA (Following Adaptive Moving Average). FAMA is the result of applying MAMA to the original MAMA plot. Both FAMA And MAMA only overlap during significant market changes and give traders a clear indicator of short-term entry points.
DEMA (Double Exponential Moving Average)
Patrick Mulloy introduced the Double Exponential Moving Average in a January 1994 article “Smoothing Data With Faster Moving Averages” in Technical Analysis of Stocks & Commodities magazine. It uses two exponential moving averages (EMAs) to remove lag in the market. It is calculated by doubling the exponential moving average and subtracting a smoothed EMA. The calculations call for more data than regular EMA calculations but are easy to do on spreadsheets. DEMA shows market trends quicker than other moving averages and is usually preferred by day traders and swing trackers as it enables them to track changes and emerging trends faster.
TEMA (Triple Exponential Moving Average)
The Triple Exponential Moving Average smooths out price changes and makes it easier to identify price trends without the lag that other moving averages have. It is calculated by making many EMAs of the original EMA and removing some of its lag.
Plotting out the TEMA gives traders an idea about the price trend. If the price is above the TEMA point, it is a point of entry as prices rise. If the price is below the TEMA, it indicates a falling price for that period. Traders have to identify their periods to determine the trend for that period.
TEMA also helps identify change points in the trends since if the price moves from above to below the average or vice versa, it signals a change in the pricing trend. Such “crossover” signals help traders decide their entry and exit decisions.
Wilder Moving Average (WMA)
The Wilder Moving Average s a weighted moving average indicator developed by Welles Wilder in 1978 and presented in his book New Concepts in Technical Trading. The WMA also smooths out the market fluctuations and highlights trends like other moving averages. It is calculated by averaging the prices over the period it is being calculated. Some weights are added to the average rates. The WMA is considered more refined and eliminates more lag to give a clearer trend picture.
VWMA (Volume Weighted Moving Average)
Passive investors use Volume Weighted Moving Average (VWMA) to assess price points. It is calculated by using the account volume and gives a clearer picture of the average price for a day. The VWMA focuses on volume by weighing prices against the trading volume in a given period. Users can set the time and an offset factor. Higher trading prices get a higher weight, while prices with lower trading get lower weights.
In lower trading periods, VWMA is similar to a simple moving average. The VMWA can identify and verify trading trends, price crossing points, and other indicators.
Hull Moving Average
Alan Hull developed the Hull Moving Average to reduce market lag. The HMA is considered to be the best formula for removing the lag effects from a pricing trend. It focuses on recent prices over older ones and produces a fast and smooth-moving average that corrects the faults of the SMA and the WMA. It is useful for getting entry signals. A long entry is indicated when the HMA turns upwards, and a short entry when the HMA turns downwards.
Oscillators Group
RSI (Relative Strength Index)
The Relative Strength Index (RSI) was developed by J. Welles Wilder Jr. and introduced in his seminal 1978 book, “New Concepts in Technical Trading Systems.” The RSI is used in technical analysis. It measures the strength of price fluctuations to assess the overbuying or overselling of a stock. It is shown as a line graph and can be read between 0 to 100. Traditionally, RSI values above 70 mean a security is overvalued and may be due for a reversal or pullback. The security is undervalued or oversold if the RSI value is below 30.
Stochastic Oscillator
The stochastic oscillator was designed in the late 1950s by George Lane. The SO presents the closing price of a stock with its low and high price range over 14 days. The sensitivity can be adjusted by changing the price range period to more or less than 14 days or by applying a moving average to the result. The stochastic oscillator also gives a range of 0–100 and indicates overbought and oversold conditions.
Momentum
The actual developer of momentum is unknown; however, the extended version was developed by Martin Pring. The momentum indicator measures the Dynamic between the price movements of the currency over a period. The Momentum curve moves between a 100 centerline. Overbought and oversold states are indicated when the curve is at its peak or trough. It shows overbought or oversold conditions and their intensity. A smoothed move average (SMA) allows a better interpretation of trend changes.
The momentum predicts a change in prices and shows market strength.
CCI (Commodity Channel Index)
The Commodity Channel Index (CCI) is an oscillator developed by Donald Lambert. It also shows overbought or oversold trends. It allows traders to gauge price trends and their intensity.
The CGI helps identify new trends, and its diverging points show weaknesses in the current trends. It is useful for traders to ascertain if they want to enter or exit a trade. When the CGI moves from near zero areas towards the 100 range, traders watch for a new rising trend, and when it moves vice versa, a pullback in prices is expected, and a buying opportunity can emerge.
Chaikin Oscillator
Named after its developer Marc Chaikin, the Chaikin oscillator measures the accumulation and distribution line of moving average convergence divergence (MACD). It is calculated by deducting a ten-day exponential moving average (EMA) from a three-day (EMA) accumulation-distribution line from a 3-day EMA of the accumulation. There are more buyers when the momentum is above the line, and when the indicator is below the line, there are more sellers.
Aroon Oscillator
Tushar Chande developed the Aroon Oscillator in 1995 as part of the Aroon Indicator system. It was designed to highlight short-term changes in trends. Aroon is a word from the Sanskrit language and roughly means morning’s early light.
It is usually plotted for a 25-period frame; however, this can be changed according to requirements. The up and down indicator helps show the intensity of a current trend and the chances of its continuance. Readings above zero show an uptrend, while below zero readings are for downtrends. Zero-line crossings show trend changes.
WPR (Williams’ Percent Range)
Larry Williams developed the Williams Percent Range. It compares a share’s closing price to a 14-day high-low price range. The indicator plots the current rate over the specified periods of high and low and tells traders where the price is. The periods can be changed.
When the indicator is between -20 and 0, it means overbought, which means it is high compared to the selected range. When the indicator is between -80 and -100, the price is oversold. This means that the price is low compared to its current range.
MFI (Money Flow Index)
The Money Flow Index (MFI) uses price and volume to highlight the stocks overbought or oversold signals. It also identifies trend divergences between its movements from 0 to 100. When the MFI moves against the rice indicator, it shows that a change in the price trend is expected. If a low MFI rises above a reading of 20, I an indicator of price reversal and shows a change in price trend.
CMF (Chaikin Money Flow)
Mark Chaikin developed the Chaikin money flow oscillator. It is similar to the more common Moving Average Convergence Divergence (MACD). Like the MACD, it also uses two exponential moving averages (EMA) to assess momentum. It calculates the difference between a 3- and 10-day exponential moving average (EMA).
The accumulation/distribution line is a separate indicator that measures the volume of money and its role in determining stock prices.
CRSI (Connors RSI)
Created by Larry Connors, the Connors RSI (CRSI) is a mix of 3 different factors. It uses Wilder’s Relative Strength Index (RSI), UpDown Length, and Rate-of-Change, to make an oscillator that plots values between 0 and 100. This plot is then used to gauge overbought and oversold conditions.
TMF (Twiggs Money Flow)
Colin Twiggs designed the Twiggs Money Flow (TMF) to improve the Chaikin Money Flow. Twiggs designed this system for the Incredible Charts website. The Twiggs Money Flow (TMF) indicator shows the volume of trades as bearish or bullish, depending on the plot.
The TMF is calculated as a percentage ratio between moving average applied to weighted volume and volume moving average. When the price closes near the high, the amount is considered bullish; when it closes near the low, the volume is considered bearish. The indicator calculates the ratio between a weighted moving average and a simple volume moving average.
TRIX (Triple Exponential Average)
Designed in 1980 by Jack Hutson, the Triple Exponential Average (TRIX) is a
technical analysis tool to help identify diversions and pattern changes in stock trading. TRIX plots are smoother because of the exponential moving averages (EMAs) application. Using triple exponential moving averages (EMAs) removes unimportant or short-term price changes.
TSI (True Strength Index)
William Blau developed the True Strength Index (TSI) in 1991. He introduced it in the Stocks & Commodities Magazine. This indicator helps determine overbought and oversold conditions, divergence, and trend patterns. The signal line crossovers at +20, +30, -20, and -30 show price reversals and price momentum divergences. The centerline acts as a baseline and signals pattern reversals and deviation.
The TSI moves from positive and negative territory. Positive areas mean that trends are bullish, while negative means that trends are bearish. When the indicator diverges from the price, the trend weakens and could reverse.
Ultimate Oscillator
This technical indicator was developed in 1976 by Larry Williams, but it was published in 1985 in Stocks & Commodities Magazine. It measures the changes in price across different time frames. The shortest time frame has the highest weight, while the longer time has the least weight. This indicator has less volatility than others since it uses the weighted averages of three periods.
The Ultimate Oscillator shows fewer divergences because of its multiple time frame calculation. If the divergence is towards the bullish regions, it is taken as a buy signal. Levels below 30 are seen as oversold regions, and above 70 are overbought. When the price moves opposite the indicator, it is taken as a trade signal.
ROC (Rate of Change)
The Price Rate of Change (ROC) calculates the percentage of price variation between the current price and the historical price of a preset period. This change is then plotted on a chart. The price stays in positive areas if it is rising and in negative territory if it is falling.
The plotting helps analysts to identify overbought and oversold states, and crossovers highlight trend deviations. Since the indicator is prone to whipsaws, it is used mainly to highlight trend changes and not as a trading tool.
BOP (Balance Of Power)
Igor Livshin launched this indicator in the August 2001 edition of Technical Analysis of Stocks and Commodities magazine. The
The Balance of Power (BOP) indicator measures the force of buyers and sellers by calculating the ability of each party to push stock prices. It is calculated by subtracting the opening price from the closing price and then dividing by subtracting the high and low prices. The resulting values are then smoothed with a moving average.
The difference between price and the BOP helps identify trends and their reversals for traders to take advance of the conditions. When the BOP rises, it signals a bullish trend, and when it falls, it is a bearish trend. When the BOP rises above the zero lines, it signals to buy and vice versa.
Awesome Oscillator
Bill Williams introduced the Awesome Oscillator. The Awesome Oscillator (AO) is a non-limiting oscillator that gives traders an insight into the strength or weakness of a stock. It also helps in determining projected momentum, trends, and their reversals.
The AO compared recent market momentum against a more extended period of momentum. This comparison is made by comparing Simple Moving Averages of a 34 period and a five period. These Simple Moving Averages are not calculated from opening or closing prices, but their midpoints
When the AO values are above the zero lines, it indicates that the recent activity is higher than the more extended period, the vice versa also holds. This calculation helps traders to take their positions.
Accelerator Oscillator
Also introduced by Bill Williams, the Accelerator Oscillator also measures the acceleration in the market prices. It has been designed to give early warning of changes in a stock price and highlight trend changes to allow trades to get the most out of a trend change. It is calculated from the Awesome Oscillator. The formula calls for deducting a five-period simple moving average of the Awesome Oscillator from the Awesome Oscillator.
For trading purposes, the Accelerator Oscillator requires that traders wait for two successive green or red signals above the zero lines to buy or sell, respectively.
Actual zero line divergence is not significant unless it continues for consecutive periods
Stochastic RSI
Tushar S. Chande and Stanley Kroll developed and launched the Stochastic RSI (StochRSI) in their book “The New Technical Trader.” This book was published in 1994. The Stochastic RSI (StochRSI) is plotted between zero and one or zero and a hundred. It applies the Stochastic oscillator formula to relative strength index (RSI) values. Using RSI values instead of standard stock prices gives traders information on whether a stock is overbought or oversold.
StochRSI values of 0.8 or 80 and above indicate overbought, and values above 0.2 or 20 indicate oversold. In this indicator, overbought and oversold values show that reversals are expected, and the trend is about to end. If the value comes near zero, the StochRSI is at its lowest in 14 periods (this is the standard period selected).
STC (Schaff Trend Cycle)
Doug Schaff introduced this indicator in 1999 to give buy and sell signals to traders. The Schaff Trend Cycle (STC) uses the moving average convergence divergence (MACD) tool and makes it more efficient by applying the Stochastic Indicator over the MACD. This application helps removes the lag that the MACD is vilified for.
The buying and selling points of the STC are 25 points upwards and 75 points downwards, respectively. This benchmark gives buy or sell signals emerging before the trend becomes visible.
RMI (Relative Momentum Indicator)
Roger Altman developed the Relative Momentum Indicator RMI) in 1993 to make the Relative Strength Index (RSI) more effective. The RMI does this by adding a calculation of momentum to RSI. The RMI is calculated as the difference or the ratio between average downward price changes and upwards price changes over time.
The RMI moves between 0 and 100, and as in common with most oscillators, values above 70 show overbought trends, and values under 30 show oversold trends.
Trend reversals mean movements above 30; from below, it indicates buying. The selling trend is shown when the price falls below 70 from above 70.
Many traders use the 50-point bar to change their positions, commonly considered bullish, bearish crossover point.
RCI (Rank Correlation Index)
Developed by Spearman, it uses a formula of price and time change values to identify changes in market trends. The points where the values cross over the zero lines are taken as buy and sell signals, and the peaks and troughs are viewed as overbought and oversold points.
SMA of RSI
J. Welles Wilder initiated the Relative Strength Index (RSI) in his book, New Concepts in Technical Trading Systems, published in 1978. The RSI is a popular indicator, and its’ features are enhanced by applying Simple Moving Averages to smoothen out the indicator and add more detailed overbought and oversold parameters. This application allows for better identification of divergence points and will enable traders to adapt their strategies according to market changes.
EMA of RSI
Again the RSI calculations are finetuned by applying an Exponential Moving Average (EMA) to smoothen out the indicator and add more detailed overbought and oversold parameters.
Traders usually plot a five-period EMA, a 12-period EMA, and the RSI plotted over a 21 period. Where the shorter period crosses over, the more extended period from above, and the RSI values above the 50.00 mark would indicate an exit.
SMI (Stochastic Momentum Indicator)
William Blau developed the Stochastic Momentum Indicator (SMI) in 1993 to give a better overview of the stochastic oscillator. The Stochastic Momentum Indicator (SMI) shows the momentum of security. It is used as an alternate for the stochastic oscillator.
It calculates and presents the distance between a stock’s closing price to the average high and low-price range. This distance is usually displayed with an exponential moving average (EMA). It is used by traders that trade on momentum trends since it works on the theory that stocks will close at a high when rising and at a low when markets are dipping. The SMI ranges from -100 to 100 and helps predict bullish and bearish trends.
SMIE (SMI Ergodic Indicator)
The SMI Ergodic Indicator (SMIE) is very similar to the True Strength Index developed by William Blau. The SMI uses double moving averages that calculate the price subtracted from the previous price of two time periods. A signal line is plotted, an exponential moving average (EMA) of the SMI. This signal line raises trading signals. Traders can change the comparable periods, the EMA, length of the periods, and values.
CHMO (Chande Momentum Oscillator)
Tushar Chande designed the Chande momentum oscillator and launched it in 1994 in his book The New Technical Trader. The formula subtracts the total of recent gains and the total of recent losses and divides it by the sum of all price fluctuation.
This indicator is similar to Wilder’s RSI and Stochastic Oscillator. The indicator is plotted between +100 and -100. The momentum is plotted on all days and does not even out the results. This lack of smoothening makes the resulting chart very detailed and gives many oversold and overbought points. Due to this reason, many traders add in a 10-period moving average as a signal line. Positions above the signal are bullish, and below it are bearish.
KDJ
The KDJ is an advanced form of the Alligator and Stochastic Oscillator. It adds a layer to the Stochastic Oscillator to add details about long-term market status.
It is an excellent calculation for giving a detailed analysis and forecast stock market changes. It also helps predict price patterns in a stock’s price.
Volatility Stop Indicator
Volatility is the level of movement in a market over a period. There are many volatility measures, but the best is usually considered the true average range (ATR). The Volatility Stop Indicator takes multiples of the ATR results, performs addition or subtraction from the close value, and places a stop at the value that results. Stops move higher during rising markets and lower during falling ones. Once a stop has been established, it should not be moved higher or lower.
There will be a movement against the trend, but the multiplication of a factor with the ATR and adding or subtracting from the relative value will help reduce the impact of these movements. This calculation allows traders to identify and hold their positions, improving their bottom lines.
TII (Trend Intensity Index)
M.H. Pee introduced the Trend Intensity Index (TII). The TII allows traders to assess the strength of current trends. The index enables traders to ascertain how long it will continue and helps them identify their preferred entry or exit points for the pattern.
The Trend Intensity Index (TII) is calculated using a 60-period Simple Moving Average (SMA). The SMA is calculated by adding closing prices and then dividing by 60. The deviation of the last 30 closing prices from the 60-day SMA is plotted. The MA is subtracted from the price if the variation exceeds the SMA. While if it is below the SMA, the closing price is deducted from the MA.
Values of the TII above 50 indicate a bullish trend and a bearish one below. The further the TII is from the 50 lines, the stronger the trend is. Traders looking for long entries need TII values above 80, while short entries require below 20.
McGinley Dynamic Indicator
John R. McGinley is a Certified Market Technician and former editor of the Market Technicians Association’s Journal of Technical Analysis. He published his Dynamic in this journal in 1997. The Dynamic is a simple and exponential moving average with a filter built to remove whipsaws.
McGinley advocated using moving averages as smoothing mechanisms instead of trading or signal generators. He also claimed that the separations between prices and moving average lines did not reflect prices accurately. This indicator follows prices closely and eliminates whipsaws. It does this because the Dynamic line adapts to changing markets to speed up and slow down according to the market.
Demand Index
James Sibbet developed the Demand Index (DI). The DI is a complicated technical indicator using over 20 columns of data to work out the relationship between buying pressure to selling pressure. Traders use this ratio to forecast where a stock price will move over the short and long-term. Sibbet also gave six rules for the DI and a baseline for practically using it.
Bottom-line:
Just knowing about these indicators may not be enough. A trader needs to have a higher win ratio against losses to become successful. For this, the traders need to master the trading strategy they use.
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