In order to predict the change of course in price patterns of stock effectively, traders and technical analysts require a best-suited technical indicator. A technical indicator is sequence of data points, which are obtained by implementing certain formulae to the previous price data of any stock or security. In this definition, the price data implies any grouping of open, high, low or close over certain time period.
Some of the indicators just use price of the stocks, while some use volume of the stocks over a period and few use both price and volume simultaneously. Price data of the stocks are the input of the formula used and the output produced by those formulae are data points. These data points help analysts to understand the market trend and the future expectation of the price of stock.
However, traders believe that one right indicator cannot be that magical as what magic can be created by the combination of the two technical indicators. This article will throw some light on implementation of two technical indicators together. Bullish MACD crossover along with a bullish stochastic crossover is the best combination for traders to implement and use this as entry point to trade.
The technical analysts searched for the two most compatible technical indicators that can perform well in technical analysis of the stocks and found Moving Average Convergence Divergence and Stochastic Oscillator. This is complete package as the comparison of stock’s closing price to its price range over certain period is done by stochastic and the formation of moving averages diverging and converging with each other is done by MACD. If used to its fullest potential this active amalgamation is extremely effectual.
Stochastic oscillator is mainly comprised of two main components: the %K and the %D. Here, the %K represents the number of time periods and is the main line and on the other hand, %D is the moving average of the %K.