Useful tools for technical analysis in stock trading

October 13, 2020 Finance Talk Valli Sarvani No comments

If you want to gain in the stock market, you must have some knowledge. Untrained stock traders lose in the markets. So, gain some knowledge to minimize your risk. Technical analysis is one of the important things to gain in the stock market.

It helps predict the future from the past price movements. Certain technical analysis tools help you while trading in the stock market.

Use these technical analysis tools to gain. However, use the combination of 2 to 3 tools to earn more.

The On-Balance Volume Indicator (OBV) is used to evaluate the positive and negative flow of volume for stock during a course of time. Joseph Granville, the developer of the tool says that the price will rise when the volume of security increases suddenly without a substantial change in its price. OBV will be calculated using the trend of the closing price.

The current closing price can be higher than or lower than or equals the previous day’s closing price. If today’s closing price is higher than the last day’s closing price, then OBV is equal to the addition of previous OBV and current volume. If the current closing price is lower than the past price, then OBV will be obtained by subtracting current day’s volume from previous OBV. If the closing price of both days is equal, current OBV is equal to the past OBV.

While the rising OBV indicates positive volume, the falling OBV reveals negative volume. Based on that, one can expect the moving up or down of the stock prices.

The Accumulation and Distribution (A/D) line evaluates the cumulative money flow in and out of a security. Marc Chaikin developed it. It measures the demand and supply of a security based on the buying or selling trend of investors.

Calculate the Net Advances by subtracting the number of stocks that have a lower price from the number of stocks that have a higher price on a specific day. Then calculate the Net Advances on the next day. If you obtain a positive value, then add that to the total value of the prior day. If it is negative, then subtract it from the past day’s value.

The A/D line moves in the upward direction if a stock’s price is in a downtrend. It indicates that there is buying pressure. On the other hand, the A/D line moves in a downtrend if the stock price is in an uptrend, which shows selling pressure.

There are many other tools also. You will know about them in the next article.

Photo by Markus Spiske on Unsplash (Free for commercial use)