Equity Indicators That You Should Look Out For
Trading on equity is no doubt rewarding. However, you need in depth as well as expert analysis to pick up the overbought and oversold stocks to take the trade. Technical analysis and fundamental analysis are the two major schools of study that gauge equity market and then suggest the buy price of a stock.Technical analysts use candlestick charts to find out high probability buy levels of a stock. They study the past history of the stock and along with the trend identify patterns and the support and resistance zones. Fundamental analysts, on the other hand, read financial reports and judge the prospects of a company. They find out the intrinsic value of the stock.
Indicators That Should Be Used To Trade Equities
When trading the Indian equity market, you can use a few indicators to get high probable trades.
Average Directional Index (ADX)
For equity trading, you first need to know the trend of the market and then take a trade according to the dominant trend. ADX is a tool, which measures the strength and the momentum of the trend. ADX will not tell you what the trend is. However, it tells you if the prevailing trend is strong or about to die. An ADX value above 20 indicates that the strength of the current trend is strong. A value over 40 indicates that the trend is getting weak and may start to reverse.
Equity shares can also be picked up on the basis of moving averages. Moving averages denote the trend of the market. Two moving averages are usually drawn together on a chart. A cross over towards the upside indicates an up trending market. Similarly, a crossover towards the downside indicates a strong downtrend in the market.
Relative Strength Index (RSI)
RSI indicates the overbought and oversold condition of a stock. If the RSI is indicating an oversold value, then the stock is a good buy.Equity indicators can give confirmation of the trade, but they cannot be used as the sole criteria to choose stocks. Price, volume, trend, support and resistance levels and many other factors decide if the stock is at a good price to buy. Indicators are always lagging and thus, they should be used only as an additional tool.
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