To The Moon

Technical analysts normally use technical indicators formed by historical data derive from past price and volume to predict the movement of share price.

The stock market and the world situation are very volatile right now. I will use Technical indicators as a reference only as sometimes the share price don’t really follow the historical trend/data at all.

There are 5 categories of Technical Indicators: Trend, Mean Reversion, Relative strength, volume and momentum.

Some examples of common technical indicators are as follow:

1) Relative strength index (RSI) measures the speed and magnitude of a security's recent price changes to evaluate overvalued or undervalued conditions in the price of that security.

2)The Money Flow Index (MFI) is a technical oscillator that uses price and volume data for identifying overbought or oversold signals in an asset. It can also be used to spot divergences which warn of a trend change in price. The oscillator moves between 0 and 100.

3)Moving average convergence divergence (MACD) shows the relationship between two exponential moving averages (EMAs) of a security’s price. The MACD line is calculated by subtracting the 26-period EMA from the 12-period EMA.

4)Bollinger Bands is a set of trendlines plotted two standard deviations (positively and negatively) away from a simple moving average (SMA) of a security's price, but which can be adjusted to user preferences.

5)ATR (Average True Range), is the calculation of the true volatility range of each stock on a daily basis.

6)On-balance volume (OBV) utilizes the positive or negative flow of the volume of trading to reflect the relative buying and selling pressure

7)Accumulation/distribution line uses volume and price to assess whether a stock is being accumulated or distributed

8)Average directional Movement index is an average of expanding price range values.

9)Aroon oscillator is an average of expanding price range values.

10)Stochastic oscillator shows the location of the close relative to the high-low range over a set number of periods

Moving Average Convergence/Divergence line (MACD) is the one of most widely used technical Indicators.

1. MACD crossovers

This is one of the most popular ways of MACD application. In an uptrend (when the signal line and MACD are above the zero line), if the signal line crosses below the MACD histogram, it means the prevailing trend will be weak. However, after the weakness, the signal line crosses above the MACD, it indicates a bullish trend continuation. In a downtrend (when the MACD and the signal line are below the zero line), if the signal line crosses the MACD upwards, it indicates bearish trend weakness. If after the weakness, the signal line crosses the MACD downwards, it indicates bearish trend continuation.

2. Price-MACD divergence

When the MACD makes a high and low that diverge from the corresponding highs and lows on the price, this scenario is called a divergence.

Pros of using MACD

MACD can be used as a trend indicator and a momentum indicator.

MACD provides clear buy and sell signals using the MACD crossover and the divergence explained above

MACD can be used in combination with other technical methods for more clarity.

Cons of using MACD

It can provide false reversals. Sometimes reversal signals shown by the MACD divergence does not mean a significant reversal would happen. It could mean that a temporary pause or sideways move is underway before the trend continues. Therefore, MACD cannot forecast all reversals.

MACD does not often give an accurate analysis of a trend many times. Trend following signals could also fail or provide insignificant move before a trend reversal.