How to Use Technical Indicators for Smarter Trading Decisions

1. Moving Averages (MA)

What it is: A simple line that shows the average price of a stock over a period of time (e.g., 50-day or 200-day).

How to use it:

• A rising MA indicates an uptrend.
• When the short-term MA (e.g., 50-day) crosses above the long-term MA (200-day), it's a bullish signal (Golden Cross).
• The opposite (short-term falling below long-term) is a bearish signal (Death Cross).

✅ Tip: Use MAs to confirm long-term trends and avoid false signals.

2. Relative Strength Index (RSI)

What it is: A momentum indicator that measures whether a stock is overbought or oversold.

Scale: 0 to 100.

How to use it:

• RSI above 70 → stock is overbought → possible correction.
• RSI below 30 → stock is oversold → possible bounce back.

✅ Tip: RSI works best in sideways or consolidating markets.

3. Moving Average Convergence Divergence (MACD)

What it is: A trend-following momentum indicator.

How to use it:

• When the MACD line crosses above the signal line → buy signal.
• When it crosses below → sell signal.
• A widening gap between MACD and the signal line indicates stronger momentum.

✅ Tip: Combine MACD with volume analysis for stronger confirmation.

4. Bollinger Bands

What it is: Three lines (upper band, middle band, lower band) plotted based on moving averages and volatility.

How to use it:

• Price touching the upper band = overbought.
• Price touching the lower band = oversold.
• When bands squeeze tightly, it signals upcoming high volatility.

✅ Tip: Use Bollinger Bands to identify breakouts.

5. Volume Indicators

What it is: Measures the number of shares traded during a given period.

How to use it:

• Rising volume with rising prices = strong uptrend.
• Rising volume with falling prices = strong downtrend.
• Low volume moves often indicate false breakouts.

✅ Tip: Always confirm price trends with volume data.