Lecture Notes: Technical Indicators in Trading

Relative Strength Index (RSI)

• Purpose: Identifies overbought and oversold zones.
• Key Levels:
  • 70: Above 70 indicates overbought; potential price drop.
  • 50: Above 50 suggests a bullish trend; below 50 suggests bearish.
  • 30: Below 30 indicates oversold; potential price increase.
• Default Period: 14, but adjustable.

Moving Average (Simple Moving Average - SMA)

• Definition: Average of share price over a period.
• Periods: Common settings include 9, 50, and 200.
• Interpretation:
  • Price above SMA = potential price increase.
  • Price below SMA = potential price decrease.
• Crossovers: 50-period SMA crossing 200-period SMA:
  • Downward cross = potential price drop.
  • Upward cross = potential price rise.

Exponential Moving Average (EMA)

• Definition: Weighted average that gives more importance to recent prices.
• Comparison to SMA: EMA is considered more accurate but differences are minor.
• Interpretation: Similar to SMA (price above EMA is bullish, below is bearish).
• Default Period: Example given is 50-period EMA.

Bollinger Bands

• Components:
  • Middle Line: 20-period SMA.
  • Upper Band: Upper standard deviation.
  • Lower Band: Lower standard deviation.
• Interpretation:
  • Near lower band = potential price increase.
  • Near upper band = potential price decrease.
  • Personal Note: Price often reverses after touching bands, not before.

Volume

• Purpose: Indicates the number of buyers and sellers.
• Usage: Confirms potential price movements.
  • Increasing volume = high trading activity.
  • Indicator Settings: Volume Moving Average to see blue line indicating average volume.

Moving Average Convergence Divergence (MACD)

• Components:
  • MACD Line (Blue): Difference between 26-period and 12-period EMA.
  • Signal Line (Orange): 9-period EMA.
  • Histogram: Difference between MACD and Signal lines.
• Signals:
  • Histogram above zero = bullish, below zero = bearish.
  • MACD line crossing Signal line upwards = bullish.
  • MACD line crossing Signal line downwards = bearish.
  • Crossing the baseline = buy (above) or sell (below) signals.

Super Trend

• Purpose: Simplifies buy/sell signals.
• Interpretation:
  • Above line = bearish.
  • Below line = bullish.
  • Caution: Works best in trending markets, not sideways.

Parabolic SAR

• Purpose: Identifies trends and helps set trailing stop loss.
• Interpretation:
  • Dots above price = downtrend.
  • Dots below price = uptrend.
  • Caution: Use with other indicators for better accuracy.

Pivot Point Standard

• Purpose: Identifies support and resistance levels.
• Components: R1, R2 (resistances), S1, S2 (supports), and Pivot Line (P).
• Interpretation:
  • Price above Pivot Line = bullish.
  • Price below Pivot Line = bearish.
  • Breaking resistance/support = strong price trend in that direction.

Volume Weighted Average Price (VWAP)

• Definition: Average price weighted by volume.
• Usage: Used for intraday trading and provides session-based trends.
• Interpretation: Price above VWAP = bullish; Price below VWAP = bearish.

Average Directional Index (ADX)

• Purpose: Measures trend strength.
• Interpretation:
  • ADX below 20 = weak trend.
  • ADX above 20 = strong trend.

Stochastic Oscillator

• Purpose: Shows overbought and oversold conditions.
• Key Levels:
  • 50: Above 50 = bullish; below 50 = bearish.
  • 80: Above 80 and falling = overbought.
  • 20: Below 20 and rising = oversold.
• Lines:
  • %K Line (Blue): Stochastic line.
  • %D Line (Orange): 3-period SMA of %K line.
• Crossovers: Indicate potential short-term price direction changes.

Conclusion

• Reminder: Use multiple indicators for confirmation and avoid relying on a single indicator.
• Additional Note: Check the description for recommended trading tools and account links.

If interested in learning about 30 candlestick patterns in just 20 minutes, refer to the additional resources provided.