RSI is one of the commonly used indicator used to trade stocks. RSI stands for Relative Strength Index. It was invented by Welles Wilder. The indicator, RSI, measures the markets activity to determine if the stock is over bought or over sold. It gives a trader an indication as to which way the Market is moving. It is important to note, that this is a leading indicator and thus allows one to see what the market is about to do and then act accordingly. Some argue that the purpose of this indicator is to measure the strength or weakness of an individual issue or of the overall market.
Generally, higher the RSI number, the more over bought it is and conversely the lower the RSI number, the more over sold it is. A threshold of above 80 would indicate over bought conditions. If the indicator value is below 20 it would indicate over sold condition. Many analyst use it as an indicator to spot potential price reversal in the stock market.
Relative Strength Indicator
Simple Moving Average
Stock Trading using technical indicators, such as Simple Moving Average, also referred to as SMA, could be fun. The simple moving average is calculated as the average price for last X period.
The Following is the Formula for Simple moving average:
Formula SMA = (Closing Price(zero days ago) + (Closing Price(One day ago) + ... + a1(Closing Price Period ago)) / period
Moving Averages are used to smooth the time series data to help eliminate noise and identify trends when analyzing stocks. It is one of the basic tools in the stock trading arsenal for a technical analyst.
The SMA is commonly interpreted as a trend line. Commonly used periods for SMA are 20, 50, 100, 200.
Trading StrategiesStrategy One:
- Buy if the price closes above the SMA
- Sell if the price closes below the SMA
- Buy if the SMA of 5 period crosses above the SMA of 20 period
- Sell if the SMA of 5 period crosses below the SMA of 20 period
This method is that the price of the stock cannot go up significantly without triggering a buy signal. Similarly, it cannot go down significantly without tiggering a sell signal.
It is a very simple and practical indicator that should really improve your trading results as you implement the strategy
What is MACD
What is MACD ?
MACD is used as an indicator to trade stocks. Moving Average Convergence/Divergence, commonly referred to as MACD, pronounced macD, is an indicator used in technical analysis. It was invented in the 1960s as a means of showing the differences between both the fast and slow EMAs (Exponential Moving Average) of closing prices.
MACD = EMA[Fast ] of price - EMA[Slow], for Example EMA[12] - EMA[26].
In addition, MACD is also represented by signal line, which is an average of the MACD value. So, it would be something like, 9 period EMA for MACD.
How are the plotted ?
Generally, MACD is plotted as a histogram on the bottom of the chart. The signal line is plotted as a line along with MACD histogram.
How MACD is used ?
Generally, it is considered that when the MACD falls below the signal line it can be regarded as bearish and may well indicate a time to sell, whereas when the MACD rises above the signal line indicating a bullish trend which may indicate an upward trend in price
Free Stock Trading Tools
Most people look up a stock price on Yahoo, Google or MSN. These sites offer price quotes and news, but they rarely help you decide which, when and at what price to buy stocks or sell stocks. Recently, I scoured the Internet looking for an interesting website that would give me information that I can use to make good stock trading decisions.
In my quest to find a good stock trading website, I stumbled upon a gem. The site, www.askStockGuru.com, provides information in a very useful manner and is free. The website tracks about 4000 stocks. The creator of the website combines fundamental and technical indicators to aid those who want to try their hand at stock investing.
Here are the three features that I find the most useful.
- I like the precise way it tells you how to trade a stock. For example, when I looked up Google stock, this is what it said under “How to trade Google?” section. It said “Retracement Stock Trade: Consider sell/shorting when the price retraces around 550.52 if you are aggressive. Alternatively, a conservative sell would be around 600.79.” This type of a professional and disciplined method to trade stock is difficult to get.
- The market phase indicator helps an investor understand life cycle of a stock. The indicator classifies the stock into 6 distinct phases: Bullish, Recovery, Accumulation, Bearish, Warning and Distribution. This indicator along with summary for each stock proves to be very useful in making stock trading decision.
- Lastly, I find their research section very innovative. This section helps you quickly identify stocks that are breaking out. While other websites offer such service for a premium price, askStockGuru.com gives it all for free.
