3 Key Indicators That You Should Use on your Chart

When it comes to reading stock chart, the sheer number of indicators can be overwhelming. With so many options available, it’s easy to feel lost.

This article will introduce you to 3 key (but simple) indicators — Moving Averages, Volume, and MACD, to help you make sense of the price data, identify trading opportunities and simplify your overall trading process.

Moving Averages

Moving Average (MA) is a lagging indicator that shows the average price of a security over a specific time period. It helps to understand momentum, confirm trends, and identify support and resistance levels. Since it reacts to past events, it is used for confirming and analyzing trends, not predicting them.

There are a few types of moving averages — Simple, Exponential and Weighted.

For our team, we use Simple Moving Averages (20d, 100d and 200d) for our price chart analysis. 20d MA would represent short-term trend, 100d for mid-term trend and 200d for long-term trend.

If price is above/crosses above the moving averages and all 3 moving averages are on the upswing, it could be a confirmation of the bullish trend, vice versa.

If a shorter-term MA (e.g. 20d) crosses above the long-term MA (e.g. 100d), it is also a bullish trend confirmation, vice versa.

Volume

Volume measures how much of a financial instrument, like shares or contracts, is traded over a specific time. It’s shown in colored columns on charts: green for up volume and red for down volume, often with a moving average. Unlike most indicators, volume isn’t based on price.

A sudden increase in volume suggests the price might change, often due to news events. Strong price trends usually come with high trading volume, making it a measure of strength.

For our team, we use volume indicator with 20d MA length for our price chart analysis.

If price break and hold above a resistance level with volume above average by at least 2 times, it provides more conviction for a bullish entry.

Moving Average Convergence/Divergence (MACD)

Moving Average Convergence/Divergence (MACD) is an indicator used to show momentum, trend direction, and duration. The three key parts of MACD are the MACD Line, the Signal Line, and the MACD Histogram.

The MACD Line is a result of taking a longer term EMA (26d) and subtracting it from a shorter term EMA (12d).

The Signal Line is an EMA (9d) of the MACD Line.

The MACD Histogram plots the difference between MACD Line and Signal Line, which oscillate around a zero line.

For our team, we look out for both MACD Line and Signal Line crossing above the zero line from negative to positive to have further confirmation for a bullish entry, vice versa.

Conclusion

By focusing on Moving Averages, Volume, and MACD, you can cut through the noise and concentrate on the most important aspects of chart reading. These indicators provide crucial information about trends, momentum, and trading activity, making it easier to identify and act on trading opportunities.

Hope you have found the above content useful 😃 

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