Do you know what are the best indicators...???

David377

Hello,
I was wondering what is your opinion in this subject , I am a beginner and want to invest my time to learn the best indicators.
WHAT YOU USE AND WHY ... ?

Your help will be highly appreciated.
Thanks

markd

All indicators have some value or they wouldn't have gained recognition. Probably the most well known are MACD and RSI along with the moving averages (technically these are overlays, not indicators) 50 and 200 in the daily time frame. These just happen to be on the Stockcharts default chart style.

All indicators have strengths and weaknesses and all work better in some markets than in others. Read the Chart School article on indicators to understand the differences:

https://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:introduction_to_technical_indicators_and_oscillators

markd

Many authors recommend keeping things simple and using just a very few indicators. They argue that using more leads to "analysis paralysis". And in fact indicators will seldom agree because they are measuring different things - or the same thing differently. The main thing is, I think, don't use an indicator if you don't thoroughly understand what it measures, what causes it to move and what kinds of things happen when it does move. So you will start with maybe one or two, and gradually add or delete as your understanding grows.

That said, I'll just give a brief description of what I use and why.

Price Performance - this measures the relative strength of one symbol to another. For individual stocks, I think the most important ratios are stock to market (e.g. IBM:$SPX) and stock to industry (IBM:$DJUSDV) - for IBM that is Computer Hardware. At least for short term trading, you want this line to be moving generally upward (or turning up after falling for a while). A rising line indicates that price is moving up faster (or falling less) than other stocks in the market or industry. Stocks that are moving faster tend to attract more money, up to a point.

Force Index - this is supposed to measure how much money is moving into or out of a stock, so it is like On Balance Volume, or Chaiken Money Flow or Accumulation/Distribution. In theory, if more money is moving into the stock, it should generally rise. Sometimes price rises with the Force Line, in which case it confirms price, but sometimes it doesn't. If price makes a new high, but Force does not, it may indicate distribution and future lower prices. Conversely, if price makes a new low, but Force doesn't, it may indicate accumulation and future higher prices. I use custom parameters and moving averages of Force to get a long term view (which may or may not be valid), but it's also useful with its default parameters.

SCTR - this is an indicator unique to Stockcharts that ranks peer stocks within certain groups by their technical strength. It combines a number of indicators from different time frames. An improving SCTR suggests increasing strength.

Fast Stochastics - This measures where a stock is trading in the range it has traced out over a given time frame. In an up trend, when a stock nears the bottom of its range, it tends to turn up to resume the trend. Vice versa in a down trend. I also use custom parameters here and several time frames. Most people prefer Slow Stochastics because it's less choppy.

Price Channels - This overlay draws a horizontal line from the highest high and lowest low within a given time frame. It shows whether price is making new highs or lows in that time frame, or returning to previous levels. New prices indicate strength in that direction in that time frame. Weakness when returning to a past price suggests price will turn again near that level. (Channels and Stochastics are somewhat similar).

Moving averages - moving averages tell you the general trend of prices in the time frame of the moving average. Generally, you want to trade in the direction of the moving average, at least until prices get "too far away" from the average. Sometimes, the moving average will act as "support" - so if price returns to say, the rising 200 day moving average, it may make a bottom there and turn higher again. An MA can also work as resistance when it falls.

For all my indicators and averages, I like using parameters based on the number of trading days in a calendar period - so, one or more of the following: two weeks = 10, one month = 21, one quarter = 63 and one year = 251. I think the length of natural cycles probably influences trader and investor psychology and most of them also coincide with length of business reporting cycles.

Volume = Some authors ignore volume, arguing that price is all that matters. I think it adds useful information. Generally, the range of prices and the volume level should more or less fluctuate together. In an up trend, you want up days to have more volume and down days to have less. If you get different behavior, up days on lower volume, and/or down days on heavier volume, prices probably won't rise much more, or if they do, they will come back quickly. Vice versa in a down trend. Conversely, in an up trend, if you get heavy volume, you want to see prices rise in line with the increase in volume. If you get big volume but a small gain late in a trend, it means there is a lot of selling and it's time to be careful. Again, vice versa in a down trend.

So, you can make things as simple or as complicated as you want. Just know why you are using whatever it is you choose.

Spersonal

Have a read of Alex Elder's 'come into my trading room' and 'trading for a living' books, they are available as audio-books too. He lays out in easy terms, what is to my mind (and my bank account) the best simple plan for trading including indicators.

Si