On BearsMarkets we give you free of charge this indicator which is noted under the stock charts.
The interpretation of this indicator is quite simple. The higher the RSI (Relative Strength Index), the more it means that the asset is traded and the smaller it is, the lower the trading volumes.
Calculation of the RSI indicator:
The RSI uses a comparison of losses and gains over a period of time. So we can say that his calculation formula is as follows:
100- (100/1 + (G / P))
It should be noted that G corresponds to the average of the gains and P to the average of the losses.
How to use the RSI indicator in trading?
The interpretation of the RSI is intended to provide guidance on the rate at which the market goes up or down. To perform a good RSI analysis, the following areas are used:
We draw your attention to the fact that the RSI, interesting as it is, should not be used alone to determine a sale or purchase opportunity. It is indeed essential to couple the information thus obtained with other types of indicators such as media and resistors. By coupling the indications obtained through several indicators, one can obtain sales signals or purchase much more convincing.
Another interesting indicator to use in parallel with the Relative Strength Index is that of discrepancies. This occurs when the prices of an asset move in the opposite direction to that of the indicator. These discrepancies are extremely reliable when used in oversold or overbought areas of the RSI Index.
It should be recalled here that moving averages are calculated from past asset prices and can therefore be represented graphically by means of a curve on the real-time graph of the asset in question. We can then easily see where the real price of the asset is in relation to these moving averages and therefore know if it is overbought or oversold.
Representations of the MACD:
Like most technical indicators, the MACD is represented visually, on a graph. There are two types of displays and therefore different representations of these indicators:
Some traders use both types of display simultaneously, but if you want to use this method, you will need to consider scales that differ from one method to another.
Thanks to its graphical representation, the MACD is an excellent indicator of trend. It has the advantage of being based on moving averages, making their interpretation even more precise and reliable.
How is the MACD calculated?
To determine the MACD, use the difference between two exponential moving averages. But this method of calculation is rather simple to understand. In this calculation, the last closing price will be more important than the other prices of the same period, but it is the level of this importance that varies according to the exponential percentage used.
Each time a new fence takes place, it is a matter of differentiating between exponential moving averages of two different durations. The result thus obtained is then used for the calculation of the last 8 closing prices in order to achieve a kind of exponential moving average of 9 days on the differences between the exponential moving averages of the two durations used.
How to use the MACD in the context of trading:
The MACD is an indicator of choice for online trading. There are, however, several ways to interpret it.
The first method is to find the crossings between the curve of the MACD and the signal line. When the MACD curve falls below the signal line, it induces a drop indication. Conversely, when the MACD goes above the signal line, it evokes a sign of rising. When crosses occur in areas of overbought or oversold, they are considered more reliable indicators than others.
The other interpretation technique uses this time the divergences between the course evolution and the MACD. More clearly, it is a question of identifying the moments during which the curve of the MACD evolves in opposition to the signal line.
Some of the easiest technical indicators to use, even for beginners, are the support and resistance lines. These two complementary indicators are represented graphically by horizontal lines.
The support line gives the lowest levels reached by the price of an asset over a given period. Most often, this line returns investors a strong buy signal and so may be a good time to enter the market by betting upwards.
Conversely, the resistance line gives the highest levels reached by the price of an asset over a given period. When the asset price approaches this level, traders tend to be cautious and resell their positions, which leads to lower prices. This is a strong sell signal.
Detailed explanation of the supports and resistance:
How to interpret supports and resistances?
To interpret the phenomena of support and resistance, it is advisable to draw a straight line by connecting at least two or three points which one will call “right of support” or “line of resistance”. Of course, the more this line connects points, the more reliable it is.
On the other hand, when a line is hit repeatedly, it indicates a high probability of breaking that line.
Indeed, a support or resistance line does not guarantee a result in the sense of a price correction. In fact, the ability of buyers or sellers to be compromised or a particular market condition pushes asset prices to “break” this line, which then causes a further rise or fall to a new threshold of support or resistance.
Identify areas of support and resistance:
To identify the areas of support and resistance on a graph, it must be understood that these thresholds most often correspond to a psychological phenomenon. So these are often round numbers or historical levels.
If the highest price reached during previous sessions is the same and has been spotted many times, it may for example be a valid resistance threshold. It is therefore necessary to use the volumes to determine the best supports and resistances.
Use the supports and resistances in the context of trading:
The supports and resistances are essential elements of the technical analysis. They can be used in this way:
This is another stock market technical indicator that uses moving averages as a starting point. By studying these moving averages, the Bollinger bands are used to determine and graphically display the up and down channels.
When the price of an asset passes in one or other of these channels, it is then possible to take advantage of the full extent of the movement by taking a position rapidly upwards or downwards.
There are of course other technical indicators applicable to the stock market, but this time require a very good control of the markets and a lot of time and experience to carry out these analyzes yourself. On the other hand, the technical indicators that we have just presented must never be used alone but in correlation with a complete financial and economic analysis in order to be correctly interpreted according to the market conditions.
Detailed explanations on the bollinger strips:
How to use Bollinger Bands in trading?
We have therefore admitted that the Bollinger bands are primarily used to assess the level of volatility that is exerted on the price of an asset for a given period. But they can also be used to detect other useful information of which the main ones are:
The use of the indicator that expresses and compares the gap between the two Bollinger bands (upper and lower) is also interesting. When the latter tends to increase, this indicates that the gap between the two extreme bands compared to the simple moving average is increasing. This means that volatility is growing. This indicates that the price of the asset fits into a specific trend and is the right time to take a position. It is therefore when the gap between these bands decreases that the trend fades and the volatility is lower.
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