Master the essential technical indicators used by successful traders. Learn how to use RSI, MACD, Moving Averages, and more to improve your trading decisions.
What are Technical Indicators?
Technical indicators are mathematical calculations based on price, volume, or open interest that help traders analyze market trends, momentum, volatility, and potential reversal points.
Types of Technical Indicators
- Trend Indicators: Identify direction of market movement
- Momentum Indicators: Measure speed of price changes
- Volatility Indicators: Measure price fluctuation range
- Volume Indicators: Analyze trading activity
Essential Trend Indicators
1. Moving Averages (MA)
Purpose: Smooth price data to identify trend direction
Simple Moving Average (SMA)
- 20-day SMA: Short-term trend
- 50-day SMA: Medium-term trend
- 200-day SMA: Long-term trend
Exponential Moving Average (EMA)
Gives more weight to recent prices, responds faster to changes.
- 9 EMA & 21 EMA: Popular for intraday trading
- 12 EMA & 26 EMA: Used in MACD calculation
Trading Signals:
- Buy when price crosses above MA (bullish crossover)
- Sell when price crosses below MA (bearish crossover)
- Golden Cross: 50 MA crosses above 200 MA (strong buy)
- Death Cross: 50 MA crosses below 200 MA (strong sell)
2. Supertrend Indicator
Popular in Indian markets for its simplicity and effectiveness.
- Settings: Period 10, Multiplier 3 (default)
- Buy Signal: Indicator turns green
- Sell Signal: Indicator turns red
- Best For: Trending markets, not choppy sideways movements
Key Momentum Indicators
1. Relative Strength Index (RSI)
Range: 0 to 100 | Default Period: 14
Interpretation:
- Overbought: RSI > 70 (potential sell signal)
- Oversold: RSI < 30 (potential buy signal)
- Divergence: Price makes new high but RSI doesn't (bearish)
- Midline (50): Above 50 = bullish, below 50 = bearish
Trading Strategy:
- In uptrend: Buy when RSI pulls back to 40-50
- In downtrend: Sell when RSI bounces to 50-60
- Extreme oversold (<20): Wait for reversal confirmation
2. MACD (Moving Average Convergence Divergence)
Components:
- MACD Line: 12 EMA - 26 EMA
- Signal Line: 9 EMA of MACD
- Histogram: MACD - Signal Line
Trading Signals:
- Bullish Crossover: MACD crosses above signal line (buy)
- Bearish Crossover: MACD crosses below signal line (sell)
- Histogram: Increasing = strengthening trend
- Zero Line: Cross above = bullish, below = bearish
3. Stochastic Oscillator
Range: 0 to 100 | Settings: %K (14), %D (3)
- Overbought: >80
- Oversold: <20
- Buy: %K crosses above %D in oversold zone
- Sell: %K crosses below %D in overbought zone
Volatility Indicators
1. Bollinger Bands
Components:
- Middle Band: 20-day SMA
- Upper Band: Middle + (2 × Standard Deviation)
- Lower Band: Middle - (2 × Standard Deviation)
Trading Strategies:
- Bollinger Bounce: Buy at lower band, sell at upper band (ranging market)
- Bollinger Squeeze: Bands narrow = volatility breakout coming
- Breakout: Price close above upper band = strong bullish move
2. Average True Range (ATR)
Purpose: Measure market volatility, not direction
- High ATR = High volatility (wider stop loss needed)
- Low ATR = Low volatility (consolidation phase)
- Stop Loss Placement: Entry ± (1.5 to 2 × ATR)
Volume Indicators
1. Volume (with Moving Average)
- Above Average: Confirms price movement strength
- Below Average: Weak or false breakout
- Volume Spike: Significant event or reversal
2. On-Balance Volume (OBV)
Cumulative volume indicator showing money flow
- Rising OBV + Rising Price = Healthy uptrend
- Falling OBV + Rising Price = Weak uptrend (divergence)
Combining Indicators Effectively
Beginner Combination:
- 20 EMA (trend)
- RSI (momentum)
- Volume (confirmation)
Intermediate Combination:
- Moving Averages (50 & 200 SMA)
- MACD (momentum & trend)
- Bollinger Bands (volatility)
- Volume
Advanced Combination:
- Supertrend (trend direction)
- RSI (entry timing)
- ATR (stop loss placement)
- Volume (confirmation)
- Fibonacci (support/resistance)
Common Indicator Mistakes
- Too Many Indicators: Causes analysis paralysis (max 3-4)
- Using Same Type: Multiple momentum indicators give redundant signals
- Ignoring Context: Indicators work differently in trending vs. ranging markets
- Parameter Tweaking: Constantly changing settings to fit past data
- Indicator Alone: Always combine with price action and market context
Best Practices
- Use trend indicator + momentum indicator + volume
- Multiple timeframe analysis (daily + weekly for confirmation)
- Paper trade new indicator combinations before live trading
- Stick to one proven strategy consistently
- Indicators lag price - use them for confirmation, not prediction
Recommended Setups by Trading Style
Day Trading: 9/21 EMA + RSI + Volume
Swing Trading: 20/50 SMA + MACD + Bollinger Bands
Position Trading: 50/200 SMA + Weekly RSI + Monthly MACD
Remember: No indicator is 100% accurate. Use them as tools to improve probability, not certainty. Always combine technical analysis with risk management.