Using the right indicators is crucial for making informed trading decisions in the Indian stock market. Here are some of the best free indicators that can help you enhance your trading strategy:
1.Moving Averages:
Types:
a. Simple Moving Average (SMA)
b. Exponential Moving Average (EMA)
Purpose:
* Identify trends by smoothing out price data.
* SMA calculates the average price over a specific period, while EMA gives more weight to recent prices.
Usage:
Use crossover strategies, such as the 50-day SMA crossing above the 200-day SMA (golden cross) as a buy signal and vice versa (death cross) as a sell signal.
2. Relative Strength Index (RSI)
Purpose:
a. Measures the speed and change of price movements.
b. Indicates overbought or oversold conditions.
Usage:
* RSI values above 70 suggest overbought conditions (potential sell signal).
* RSI values below 30 suggest oversold conditions (potential buy signal).
3. Bollinger Bands
Purpose:
a. Provides a range within which a stock is expected to trade.
b. Consists of a middle band (SMA) and two outer bands (standard deviations from the SMA).
Usage:
* Price touching the upper band suggests overbought conditions.
* Price touching the lower band suggests oversold conditions.
* Squeeze (bands coming closer) indicates low volatility and potential breakout.
4. Moving Average Convergence Divergence (MACD)
Purpose:
Identifies changes in the strength, direction, momentum, and duration of a trend.
Usage:
* MACD line crossing above the signal line (bullish signal).
* MACD line crossing below the signal line (bearish signal).
* Divergence between MACD and price indicates potential reversal.
5. Fibonacci Retracement
Purpose:
Identifies potential support and resistance levels using horizontal lines based on Fibonacci ratios.
Usage:
* Commonly used ratios: 23.6%, 38.2%, 50%, 61.8%, and 100%.
* Traders look for price reversal or continuation at these levels.