Top Five Technical Indicators

It is common knowledge that some of the world’s most successful traders utilises the various methods of technical analysis in order to pin point when to buy and when to sell.

Stratos Market Analyst analyses the markets using nine proven technical indicators and provides you with the necessary readings to make an informed trading decision. Therefore it eliminates the need for you to spend hours studying charts or calculating market sentiment.

Our Educational courses and mentor program will enable you to learn how to utilise technical analysis and apply these proven methods to your investment strategy.

Below are short descriptions of our top 5 technical indicators. Should you wish to learn more about these indicators and how to apply them to your strategy please do not hesitate to call us on 0800 0116 103 and we will be more than happy to point you in the right direction.

  • 30/50 Day Moving Average
  • 30 Day Moving Average
  • MACD
  • Stochastic
  • DMI/ADX

What is a moving average?

A 30 day moving average adds up the closing prices for a share from the last 30 trading days and then divides by 30. The 30 day moving average in Stratos Market Analyst is the red line you see when you select the tick box for MA to the left of the chart, and type 30 in the field to the right. Let’s use Rio Tinto as an example:

1

The advantage of using an average of the price is that is smoothes out the bumps in the price you get from day to day volatility. The black line (the price) has several small peaks and troughs but the red line is smooth and shows the general trend for the share. We call it a 30 day moving average because it is a window on what has happened to the share price in the last 30 days. When you get to day 31, day 1 is crossed off and day 31 is added into the calculation.

It is hence a calculation made over a rolling period of 30 days.

The shorter the time period for a moving average, the faster it will react to a change in the price of the share. As well as the 30 day moving average (30 DMA), the Stratos Market Analyst Program has the ability to use any moving average we require. Using the MA2 and MA3 tick boxes to the left of the chart we can add further Moving averages.

We now use a 50 day moving average (50 DMA). This is the green line on the chart.

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Notice that when the price starts to move downwards, the 30 DMA (red line) will move down before the 50 DMA (green line). Furthermore, the 30 DMA crosses down through the 50 DMA at the beginning of the trend. This is what we call a moving average crossover and we can use this charting indicator to shortlist shares.

While using moving average crossovers is a very simple technique to find a bullish stock, you will notice that it will only give you one or two opportunities to find that share before it takes off.  Once the crossover has occurred, the 30 DMA may stay above the 50 DMA for a long time.

30 Day Moving Average

A 30 day moving average is useful as a confirmation signal. This is the red line on the chart.

The 30 day moving average is an average of how the share price has been performing over the last 30 days. If the price is above the 30 day moving average, the price is stronger on average than what is has been in the last 30 days. If the price is below the 30 day moving average, the price is weaker on average than what is has been in the last 30 days.

With our chart of CNE, the price breaks up through the 30 day moving average just nine days prior to breaking through the resistance line. This is a strong confirmation signal.

MACD

The MACD (pronounced mac d) is similar to the 30 day moving average. Instead of one moving average, two are used. The calculation involves taking the difference between these two moving averages and charting them as bars.

If the bars on the MACD chart point upwards, the indicator is bullish.
If the bars on the MACD chart point downwards, the indicator is bearish.

The MACD for CMR turns bullish the day before the break of resistance. This is a strong confirmation signal.

LEARN HOW TO USE THE MACD TO MAKE MONEY BY PURCHASING YOUR VERY OWN STRATOS MARKET ANALYST TODAY

 

Stochastic

The next charting indicator we will discuss is the stochastic. The stochastic is a measure of how the expensive the share price has been recently.

The stochastic chart is measured from 0% to 100%. If the line is at 0%, the share price is close to the cheapest it has been recently. If the line is at 100%, the share price is close to the most expensive it has been recently. We want the share price to be rising, and if are specifically looking for a break out from resistance, we want the stochastic to be close to the top of the chart.

The criteria we use for a stochastic line are –

If the line crossed up through 25% (the 25 on the side of the chart), the stochastic is bullish.

If the line drops down through 75% (the 75 on the side of the chart), the stochastic is bearish.

The stochastic line for CNE crossed up through 25% several days before the break of resistance. This is a strong confirmation signal. 

STRATOS TECHNOLOGY’S EXPERIENCED MENTORS WILL TEACH YOU HOW TO READ THE STOCHASTIC CHARTS AT A GLANCE

DMI/ADX

The Directional Movement Index incorporates the intra-day highs and lows of a stock price instead of the closing price. The DMI lines plot daily changes in those highs and lows. Intuitively, higher highs would be bullish, and lower lows would be bearish.

  1. There are three components to DMI analysis.
  2. The DMI+ line charts the difference in highs from one day to the next. If the DMI+ line is rising, that is bullish since we are making consecutively higher highs.
  3. The DMI- line charts the difference in lows from one day to the next. If the DMI- line is rising, that is bearish since we’re making consecutively lower lows.
  4. The ADX line is the average difference between the two DMI lines. A high ADX line indicates a high degree of separation between the two DMI lines, and therefore indicates a strong trend.


ADX lines and DMI lines are typically all overlaid on one another, since we are looking for crossovers of each of these lines as our signals. To the right, on the bottom half of the chart, we can see that the DMI- (thin solid line) line rose to very high levels in September, as the Nasdaq made lower lows nearly every day.
In September, you can see that as the DMI+ line and DMI- line continued to separate, the ADX (dashed) line started to rise, indicating a strengthening downtrend. In October we saw the DMI+
(thicker solid) line move very high, coinciding with a bullish market.

USERS OF THE STRATOS MARKET ANALYST WILL BENEFIT FROM HAVING THE DMI ALREADY INCORPORATED INTO THE SYSTEM’S EXTENSIVE ANALYSIS