technical analysis of stocks

Do You Know the Difference between MACD and RSI – Also Know Their Uses

Stock Market

Various people use various techniques to trade in the Indian Stock Market. However, some follow the technical analysis; the others use techniques like pattern analysis, candlestick analysis and so on. Analysis of stock is a wide field with a lot of time and efforts required to master it. Significant indicators involved in technical analysis are simple moving averages, exponential moving averages, RSI, MACD and Bollinger bands.

If we talk about Moving average indicator then here the moving average is the average of the latest n values of the price movement. In this indicator, n indicates the period of the moving average. You can calculate the moving average for any period. If you are using exponential moving averages, then the exponential weight-age is added along with the individual price values. Hence, the response given by exponential moving average is faster than that of simple moving averages. Analysts use the same strategy while using the simple moving averages (SMA) or exponential moving average (EMA) and the strategy is that the two SMA or EMA of different periods are drawn. Now the movements of the two moving averages are watched for a crossover.

Here, crossover of the moving averages indicates the potential chance of trend reversals and the buy and sell calls can be initiated at these levels. Generally, it is advised to the analyst that he should change the period of SMA or EMA to see which moving average is following the price signals closely and giving better results and fewer error signals.

Another common indicator like RSI comes under the category of oscillators. Indicator RSI is used to indicate the overbought and oversold levels. Usually, the value of RSI falls between 0 and 100. Remember, that a level of above 70 indicates the overbought level and a level of below 30 indicates an oversold level. It is believed that the overbought and oversold levels are important indicators of trend reversals. This indicator is used in conjunction with other indicators to confirm the trend reversal opportunities.

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