Useful tools for technical analysis in stock trading – 2 | Fusion - WeRIndia

Useful tools for technical analysis in stock trading – 2

Useful tools for technical analysis in stock trading – 2

In the previous article, you have known the importance of technical analysis and a few tools used for it.

Here are some more useful tools for technical analysis in stock trading:

Average Directional Index (ADX) is used to estimate the momentum of a stock trend so that the investors can reduce their risk. ADX also reveals the strength of price trending. It is calculated based on a moving average of price range growth for a certain period. ADX readings of above 25 show a strong price trend.

Aroon indicator measures the trend and direction of a stock. It is used to measure how much time it takes for a price change to reach the highest or lowest point during a course of time. It has two lines, Aroon up and Aroon down. Aroon indicator is applied to 25 periods of data. The price behaviour of traders is known by the Aroon Up is above the Aroon Down, or the Aroon Down is above the Aroon Up. While the former indicates the bullish price, the latter reveals the bearish price.

Relative Strength Index (RSI) evaluates the range of current prices changes. J. Welles Wilder developed this tool. The undervalue or overvalue of a stock is estimated using RSI. If the RSI is above 70 per cent, then the stock is overbought, or if it is below 30 per cent, then it is oversold.

Moving Average Convergence Divergence (MACD) indicator reveals the relationship between two moving averages of a stock price. To get MACD, you have to calculate 12-period exponential moving average and 26-period exponential moving average (EMA) of the close price first. Then, subtract 26-period EMA from 12-period EMA. If the MACD is above the signal line, it shows bullish movement, or if it falls below the signal line, then it indicates a bearish trend.

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