The 10 most important indicators

popular technical analysis

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Summary

1. What is a technical indicator?.......................................................................................... 3

2. The 10 most popular indicators among active investors.............................................. 4
2.1. The course averages ........................................................................................................... 4
2.2 The MACD.................................................................................................................................. 5
2.3. The SuperTrend
2.4. The KST
2.5. The Parabolic SAR
2.6. The Relative Strength Index (RSI).............................................................. 12
2.7. The dynamic relative strength index (Dynamic RSI)............................................................. 13
2.8. Stochasticity
2.9. The ADX
2.10. Average True Range (ATR)................................................................................................. 18
3. Practical application .................................................................................................................. 19
4. To embark

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 What is a technical indicator?

Technical analysis is the study of historical stock prices aimed at distilling a forecast on
the future evolution of the course. It is impossible to make an exact prediction. Technical analysis
can, however, reveal whether a stock is in a trend, if it is over- or underbought and
whether it is a strong movement or not. Technical analysis is an essential auxiliary for everyone
those who wish to invest actively, especially in the short term.

It does not take into account fundamental data or current events. If fundamental analysis
indicate to the investor which stock or currency pair to buy, the technical analysis indicates him
instead indicate when to buy the stock or the currency pair.

Technical analysis is not an exact science. A good technical analyst manages to determine
correctly more than 60% of future price movements. This means that in 40% of
If he closes his position at a loss, it is therefore crucial to ensure good money management.
risk management.

Technical analysis consists of two disciplines: on one hand, visual analysis, which is the identification of
trend and figures, and on the other hand, statistical analysis through the application of indicators. This manual

focuses on 10 indicators involved in statistical analysis.

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 2. The 10 most popular indicators among investors
assets.

2.1. The course averages

Description

A moving average calculates the average price over a determined number of

periods. The closing prices of the last days, for example, 20 in number, are added together and
the result is divided by 20.

Example

Interpretation

As long as the stocks move above the average price, the stock is worth buying.
If the price falls below the average price, the trend reverses and it is time to sell the stock.

Remark

The 10, 50, and 200-day moving averages are popular indicators. A moving average
A 10-day average reflects a mean over 2 weeks. A 50-day average reflects a
quarterly average. As for the 200-day average, it rather indicates the trend on a base
annual.

Type of indicator

Course averages are indicators of trend tracking.

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2.2 The MACD

Description

The MACD (gray line) or Moving Average Convergence Divergence, developed by Gerald Appel,
measures the difference between 2 moving averages, one for 12 periods and the other for 26 periods. In
In addition, a 9-period average is calculated on this difference. This is called the line of
MACD signal (blue line).

The indicator is also presented in the form of a histogram with the value of the deviation between
the MACD indicator and the MACD signal line. In the case of a positive divergence, the histogram is displayed in green,

in case of a negative deviation, it is displayed in red.

Example

Interpretation

When the MACD lines move towards each other, a trend reversal is preparing.
The reversal is confirmed by the crossing of the two lines if the MACD line crosses the signal line.
From bottom to top, the trend becomes positive. In the opposite direction, the trend becomes negative.

Remark

The MACD is one of the most popular trend-following indicators. However, it is also said
lagging ("décalé"), meaning that it indicates a delay. Generally, the MACD indicates a

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trend reversal with a lag of 3 to 4 periods. It has no value.
Forecasting. It only indicates to traders in which direction the trend is currently evolving.

Type of indicator

The MACD is a trend-following indicator.

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2.3. Le SuperTrend

Description

The SuperTrend indicator, developed by the French trader Olivier Seban, is an indicator of
strongly appreciated trend by futures traders. Unlike other trend indicators, it
also takes into account the current volatility.

In the case of other trend indicators, such as the MACD or the Parabolic SAR, it only takes a
brief but powerful movement to break a trend. Often, the original trend continues.
after this brief movement, but the trader will generally have already exited.

The SuperTrend largely filters these price spikes due to volatility and thus maintains the
trader longer in a trend, which continues. With the SuperTrend, the following trader
trend stays longer in position.

Example

Interpretation

The SuperTrend consists of 2 lines: The gray line is the Average Price, and the red one is the
line stop.

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The trend is bullish according to the SuperTrend when the gray line moves above the stop line.
red.

It is bearish according to this indicator when the red stop line is above the gray line.

Remark

The SuperTrend generates the best results on larger timeframes, such as

charts at four hours, daily and weekly.

Type of indicator

The SuperTrend is a trend-following indicator.

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2.4. The KST

Description

The KST indicator, or "Know Sure Thing", was developed by Martin Pring. It consists of
different series of moving averages on ROC (Rate of Change indicators). In these series, the
The highest weighting is given to the series that has the longest time window.

On the KST line (green line), an average (red line) is also placed.

Example of KST on daily courses

Example of KST on weekly courses

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Example of KST on monthly courses

Interpretation

The KST is a good indicator for evaluating the monthly, weekly, and daily trend. If the
KST (vertical) crosses its signal line (red) from bottom to top, the trend is bullish. If it breaks its
signal line downwards, the trend is rather bearish.

Remark

Swing traders, who use the KST method to take positions for several days (or
weeks), apply the KST to the daily prices. The swing trader starts by checking if the KST
judge the positive trend on a weekly basis and on a monthly basis. If applicable, he acquires
a position if the KST crosses from below to above its signal line on a daily basis. It will close its
position in case of negative crossing.

Type of indicator

The KST is a trend-following indicator.

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2.5. The Parabolic SAR

Description

Developed by Welles Wilder, the Parabolic SAR (Stop And Reverse) is a trend indicator that
reflects the short-term trend. This indicator draws points above or below the
course and is mainly used by short-term investors to determine the best time to
to free oneself.

It proves effective in a market marked by a trend. Pay attention to the ADX indicator for
assess the strength of the trend.

Example

Interpretation

If the point is below the price, the trend is upward. If the point is above the price,
the downward trend. The stop loss level is therefore often set at the point level. If a point
When pierced, the short-term trader closes their position. The Parabolic SAR is primarily used as a
stop to close the positions.

Type of indicator

The Parabolic SAR is a trend indicator

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2.6. The Relative Strength Index (RSI)

Description

The RSI (Relative Strength Index) or relative strength index is a popular indicator among
technical analysts. It was developed by Welles Wilder. The RSI identifies price movements.
extremes. A very high RSI value indicates a strong price movement likely
is followed by a drop in price. A very low RSI value reveals a significant drop in the price, which
may be followed by an increase. The RSI fluctuates between fixed values. If the RSI crosses the threshold of
75%, the value is overbought. If it drops below 25%, the value is oversold.

Example

Interpretation

The RSI gives a buy signal if the indicator falls below the 25% level before crossing back above it.
Bottom to top. A sell signal is given when crossing from top to bottom of the 75% mark.
after the indicator crossed this bar from bottom to top.

Remark

The RSI does not emit a large number of signals, but those it does emit are generally good.
quality.

Type of indicator

The RSI is an oscillator.

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2.7. The Dynamic Relative Strength Index (Dynamic RSI)

Description

The classic RSI uses fixed limits – 25 (oversold) and 75 (overbought) – and presents
the drawback of rarely going below 25 or rarely exceeding 75. The Dynamic RSI offers a
solution to this problem. On this indicator, in fact, two Bollinger bands are drawn. If the RSI
descending below the lower Bollinger band, the stock is oversold and a rise is preparing.
An uptrend begins as soon as the RSI crosses from below to above the lower Bollinger band.

The reverse reasoning is also valid. If the RSI crosses above the upper Bollinger band.
rise, the stock is overbought and one can expect a decline. This decline begins when
The RSI crosses the upper Bollinger band from top to bottom.

Example

Interpretation

The dynamic RSI issues a buy signal when the indicator falls below the Bollinger band.
lower before crossing it again in the other direction. A sell signal is given when the RSI crosses the
upper Bollinger band from top to bottom after crossing it from bottom to top.

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Remark

The dynamic RSI generates more signals than the classic RSI and thus carries the preference of
active traders.

Type of indicator

The RSI Dynamic is an oscillator.

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2.8. Stochastic

Description

The calculation of stochastic, developed by George Lane, is based on the assumption that the
The price movement is more important when the closing price is closer to the highest.
course of the day, while the range of the course weakens when the closing price is closer
from the lowest of the day.

The stochastic indicator is defined by two lines: %K and %D. When the stochastic is
situated near the 100% level, we are facing a buyer's market. Close to the level
null, the stochastic reveals a bearish market.

Example

Interpretation

The form of the stochastic is important. A narrow floor, which falls below the 20% mark,
indicates a bearish trend, which may be followed by a vigorous bullish movement. A
A narrow peak, which exceeds the 80% mark, is often followed by a strong downward movement.

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Remark

The stochastics emit far more signals than the RSI, and even more than the dynamic RSI.
Generally, the timing is good but often, the resulting price movements are
relatively limited. The dynamic use of a stop-loss order is indicated.

Type of indicator

Stochastic is an oscillator.

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2.9. The ADX

Description

The ADX is a derivative of the Directional Movement Index indicator. When a price is in a
trend, the value of the ADX is generally high. If the ADX decreases, we deduce a decrease in
the intensity of the trend. The ADX therefore gives an indication of the intensity of the trend, not on its
direction.

Example

Interpretation

An ADX of over 20 confirms the current trend. In this case, the trend indicators
make complete sense. A rising ADX indicates that the trend is still intensifying. A decreasing ADX
strong decline reveals a weakening of the trend.

An ADX of less than 20 shows a declining market with no trend.

Type of indicator

The ADX is a trend indicator.

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2.10. Average True Range (ATR)

Description

The ATR or Average True Range indicator, developed by Welles Wilder, measures the volatility of the price.
The True Range is the highest absolute value of either the highest price minus the closing price.
previous, either from the lowest price minus the previous closing price. Thus, the change is calculated.
Net price compared to the previous period. The Average True Range is the price variation.
average over a certain number of periods.

Example

Interpretation

The ATR reflects the evolution of volatility. Traders mainly use the ATR to determine the
stop level. In case of high ATR or a volatile market, it is recommended to set the stop at a more
long distance. In a calm market, the stop can be a bit tighter. Generally, the
Traders set the stop at 2 or 2.5 times the ATR.

Type of indicator

Volatility indicator

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3. Application in practice

How to analyze a course in five steps?

Determine the main trend

Le trader qui agit sur un graphique journalier évalue la tendance sur un intervalle de temps
larger, for example over a week, or even over a month. Using an indicator of
trend such as the MACD, moving averages, the SuperTrend or the KST, it is made a
estimation of the main trend.

2. Act only in the presence of a trend

A trader acts when a trend is perceptible. In trendless markets, there is no

no big profits to be made. With the help of the ADX indicator, he checks if the prevailing trend
is strong enough.

3. Act according to the trend

If the main trend is upward, it is not advisable to act against it.

tendency through small downward movements, even if such an approach can
looks attractive. A trader never acts against the trend.

4. The oscillators provide entry points

Oscillators such as the RSI, the Dynamic RSI, or the Stochastic indicate whether a price is
overbought or oversold. Each trend involves price corrections. The oscillators
reveal these intermediate course corrections. It is an opportunity for the trader to
to commit.

Always set a stop

The trader sets their initial stop using the ATR volatility indicator, for example at 2 times the
value of the ATR. If the trade evolves well, he can adjust the stop using the indicator of
Parabolic SAR trend. By doing so, the trader remains in position if the trend continues
continues. If the trend reverses and if the Parabolic SAR point is reached, the trader closes their
position.

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 4. To start

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Legal notice:

This technical analysis guide is informational in nature and cannot be considered as a

offer to buy or sell CFDs or currencies. Clients who trade in CFDs or currencies
must be aware of the risks associated with derivative products.

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