Most Relevant Technical Analysis Tools for the Indian Stock Market


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RSI momentum generally favors the bulls when the indicator is above 50 and the bears when below 50. Even though MFI is considered a volume-weighted RSI, using the centerline to determine a bullish or bearish bias does not work as well. Instead, MFI is better suited to identify potential reversals with overbought/oversold levels, bullish/bearish divergences and bullish/bearish failure swings. As with all indicators, MFI should not be used by itself.

As we can see most of the times when the price of Starbucks touches the envelopes, trend reversal occurs. But there are also times when there is no reversal and prices continue to trend which further leads to losses. However, that’s not the only benefit of using moving average envelope.

The rate of change clearly measures the speed at which the price is moving. Traders variously use the indicator to take advantage of it. Average True Range is indicated either in percentage or absolute terms. Say the Average True Range of Bank Nifty is 600 points for a 20-day period or it can also be represented as 2.5 percent of Bank Nifty price. It would mean that the Bank Nifty moves in a price range of 600 points in the last 20 days or in a range of 2.5 percent. Rather than look at all the indicators we would look at some of the other important indicators that are widely followed by traders in the market.

The bands expand and contract as volatility expands and contracts. In summary, Bollinger Bands are a useful technical analysis tool. Traders should remember that Bollinger Bands are based on historical information. Therefore, the bands react to price movements but don’t anticipate future price movements.

The longer the moving average periods, the greater the lag in the signals. However, a moving average crossover system will produce lots of whipsaws in the absence of a strong trend. A Keltner Channel is a volatility based technical indicator composed of three separate lines. The middle line is an exponential moving average of the price. The upper band is typically set two times the Average True Range above the EMA, and the lower band is typically set two times the ATR below the EMA.

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Current prices above or below the Median price will indicate strength in that direction. Bearish divergences are commonplace in a strong uptrend, while bullish divergences occur often in a strong downtrend. Uptrends often start with a strong advance that produces a surge in upside momentum . Even though the uptrend continues, it continues at a slower pace that causes the MACD to decline from its highs.


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A trader may sell options or buy options as per his/ her calculations. If the trader thinks volatility will come down in the future, he sells or if he thinks volatility will increase in the future, he may buy options. This indicator basically represents the traders’ perception. When VIX is high, the volatility is high and there is a significant change in the Nifty.

By analyzing and studying the patterns minutely, you can decide on your entry and exit actions and pave the path to gaining profits. Moreover, these indicators can be also incorporated into automatic trading systems. With a plethora of different options, traders must select the best indicators and can become familiar with how they operate.

Conversely, prices are falling when the Rate-of-Change is negative. ROC expands into positive territory as an advance accelerates. ROC dives deeper into negative territory as a decline accelerates. This can be of very high value for a trader who wants to know what is the current days trend.

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Even though the move may continue, is accrued investment income a current asset is likely to slow and this will usually produce a signal line crossover at the extremities. Volatility in the underlying security can also increase the number of crossovers. The Average Directional Index is used to measure the strength or weakness of a trend, not the actual direction.

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The exponential moving average dictates direction and the Average True Range sets channel width. Keltner Channels are a trend following indicator used to identify reversals with channel breakouts and channel direction. Channels can also be used to identify overbought and oversold levels when the trend is flat.

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A trader can choose the moving average around which he would like to fit the Average True Range. The width of the band can also be changed by varying the multiple of the Average True Range. Most software comes with a default setting of two times, but one can change it to any number that best encompasses the entire chart.

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Moving Average Envelopes

At this point, the prices would usually become stable and move to more realistic levels. When the price of securities touches the upper band and then goes downwards, we can say that the securities are presently at an overbought level. In the chart above, the use of all three indicators is explained.

This would indicate that the trader could go long, targeting the middle band. This indicator is placed on either side of the stock’s price and helps in determining the trend direction. As the Keltner channel identifies trend continuation by breaking both above and below the top and bottom barriers, it uses the average-true range . VPT or Volume Price Trend indicator helps in ascertaining the stock’s price direction and also the price change strength. Parabolic SAR accentuates the direction in which the asset is moving.

For example, the price may gap up above the upper Bollinger Band, but close near the low for the interval. This can be a signal that the trend will reverse in the near term. The trader may take a short position, targeting the middle band. In the same way, the price may fall below its lower Bollinger Band, but close near the high for the interval.


Technical analysts estimate a security’s strength or weakness by analyzing trading signals, price movements, patterns, and other analytical charting tools. The upper and lower lines are typically 2 standard deviations +/- from a simple moving average. These are calculated on the basis of past volatility of the stock. In a countertrend strategy, the method endeavours to generate small gains against the current trading trend. Under this method, traders try to buy shares when a stock’s price is low and sell it when it is high. may not be as strong, but upside momentum is still outpacing downside momentum as long as the MACD Line is above zero. The opposite occurs at the beginning of a strong downtrend. The interpretation is similar to other averages, VIDYA is also used for confirming trends and overall price direction. A typical range trader will turn to overbought areas for resistance and oversold areas for support.

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As the middle line is an exponential moving average, Keltner Channels are also a trend following indicator and lag price action. The upper and lower bands are set two times the Average True Range . Oversold/ overbought levels, crossover below/above 50%, and bearish/bullish divergences can be used to generate signals. A bullish bias is exhibited when the indicator is exceeding 50%. This indicates that the index contains more than half of the stocks that are above a particular moving average. A bearish bias is present when the indicator is below 50%.

As a technical indicator​​, Bollinger Bands show when an instrument is in overbought or oversold territory. If the instrument’s price moves towards the upper band, this is usually a signal that it is overbought. If the price moves towards the lower band, this usually signals that it is oversold.

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