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Top-10 Technical Indicators in Stock Market Trading

Updated: Feb 21

Technical Indicators are helpful for beginners in the stock market as they bring some discipline by avoiding unnecessary trades. They also help Algo Traders to design a mechanical system to manage their work.

All technical indicators can be broadly classified into two categories: Leading Indicators and Lagging Indicators.

Leading indicators are those who lead the price movement. They give a signal before a new trend or reversal occurs.

Lagging indicators are those who follow the price action. They give a signal after the trend or reversal has started.

Top 10 Technical Indicators in Stock Market Trading India

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Technically all the technical indicators can be divided into four types, as shown below:

  1. Trend Indicators,

  2. Momentum Indicators,

  3. Volatility Indicators, and

  4. Volume Indicators

Trend Indicators

The traders who use the “Trend following” technique use any Trend indicators to support their trading decisions.

Moving Averages (MA), MACD, Average Directional Index (ADX), Parabolic SAR (PSAR), Linear Regression are some of the examples of Trend Indicators.

These indicators are designed to show the direction and strength of any script. The direction of the trend can be upwards, downwards, or sideways.

These indicators belong to the Lagging Indicator concept.

Momentum Oscillators

These indicators are used to measure the speed of a script in a given period.

Short-term traders focus on scrips moving significantly in one direction with adequate volume to make quick money. For this reason, they use momentum indicators like RSI, Stochastics, CCI, Williams %R, etc.

Below are the two widely used essential characteristics of the Momentum Oscillators:

  1. Overbought and Oversold conditions

  2. Bullish and Bearish Divergences

Overbought/oversold conditions are used to predict the end of the trend. Then traders plan to take the trades in the opposite direction of the existing trend.

For example, if a momentum indicator shows an overbought condition for a script, traders will look to sell the stock.

Similarly, divergences are used to pick the end of the trend by identifying its weakness and taking the trades in the opposite direction.

Volatility Indicators

The volatility is the relative rate at which the price of stock moves (up and down).

A high volatility condition is suitable for short-term traders. Hence, many volatility indicators such as Bollinger Band (BB), Average True Range (ATR), Donchin channel, and Volatility Chaikin are used by many traders.

Volume Indicators

The ‘Volume’ plays a crucial role in trading after ‘Price’ and ‘Time’ parameters.

A trend with high volume indicates the probability of the price moving in the trend direction is high. Hence this can be used to get the confirmation of a trend or reversal of a trend.

A few examples are Volume Profile, Money Flow index, Chaikin money flow, Force Index, and On balance volume, etc.

Let us explore the top 10 technical indicators in the stock market.

Top-10 Indicators in Trading

Below are the widely used top-10 indicators in stock market trading:

Moving Average (MA)


Relative Strength Index (RSI)

Average Directional Index (ADX)

Bollinger Bands

Moving Average Convergence Divergence (MACD)

Average True Range (ATR)

Volume Profile

Parabolic SAR (PSAR)

Ichimoku Cloud

Moving Average (MA) Indicator

Moving Averages calculate the mean value of a stock’s price movements over a selected period; hence they negate all the short-term spikes or quick moves.

The moving average is a lagging indicator as they are calculated using the past price action. As a lagging indicator, the moving average is the best tool to confirm a stock trend, rather than predicting the future direction or momentum.

Image 1 – Moving Average Indicator
Image 1 – Moving Average Indicator

There are two types of moving averages:

Simple Moving Averages (SMA) – It takes the candles' closing price, calculates the average over the mentioned period, and plots on the chart.

Exponential Moving Averages (EMA) – It gives more weightage to recent price action and calculates the average of the mentioned period.

SMA is helpful for long-term traders, and EMA is useful for short-term traders. As the swing trade holding period is between 2 days to 3 weeks, it's better to use EMA.

One simple and effective way to use SMA for swing trading is to watch out for a short-term moving average (like 5 SMA) that crosses a long-term moving average (50 SMA).

Image 2 – Moving Average Crossover
Image 2 – Moving Average Crossover

When a faster-moving average crosses a slower-moving average from below, it can indicate a big move on the upside in the coming days.

Similarly, when a faster-moving average crosses a slower moving average from above, it can indicate a big move on the downside in the coming days.


Stochastics is an oscillator that compares the closing price to the range of its prices over a given period in the selected instrument. Then it plots the values within the range of 0-100.

A reading of 80 and above is considered overbought, and a reading of 20 and below indicates oversold.

Image 3 – Stochastics Indicator
Image 3 – Stochastics Indicator

One should not look for a long trade just because stochastics reached the oversold region. The price can stay in the oversold or overbought zone for more periods in a trending environment.

Hence, one can plan a trade when the price is coming out of that range. For example, you can plan a long trade if the price shows rejection at the support line, and the stochastics moved above 20 from the downside.

Similarly, one can plan a short trade when the price shows rejection at the resistance trend line, and stochastics moved below 80 from the upside.

Relative Strength Index (RSI)

Whenever a person starts learning technical analysis, he will be introduced to RSI. It is an oscillator used to measure the magnitude (both speed and change) of the recent price changes.

J. Welles Wilder developed RSI, and it was first introduced in the book “New Concepts in Technical Systems” in 1978.

The RSI oscillates between zero and 100, and traditionally people consider that the stock is in an overbought situation when the RSI is above 70 and oversold when RSI is below 30. Many systems generate trading ideas by looking for divergences and failure swings.

Below are the two traditional characteristics of RSI which are used by many Traders to take the trades:

1. Bullish and Bearish Divergences

2. Overbought and Oversold conditions (30 and 70 rule)

RSI Formula

The basic formula for RSI is below:

RSI = 100 – [100 / ( 1 + (Average gain / Average loss ) ) ]

The average gain or loss used in the above formula is the average percentage gain or loss during a look-back period.

RSI uses 14-days as the standard period to calculate its value. Anyone can change these settings.

Traditional RSI usage will not provide better results as it always suggests taking the trades against the trend and attempting to catch the Tops and Bottoms.

RSI Hidden Divergence

RSI Hidden Divergences (Bullish and Bearish) are the best ways to use RSI because of the below reasons:

  • Trades will be in the direction of the trend

  • The success ratio is better as compared to conventional RSI divergence

  • Good Risk-Reward as a trend can continue at higher levels.

Andrew Cardwell and John Hayden first propose RSI hidden divergences. In the book “RSI – The Complete Guide,” John Hayden has explained these hidden divergences in detail.

Image 4 – RSI Hidden Divergence
Image 4 – RSI Hidden Divergence

The above image shows the formation of both Hidden Bullish and Hidden Bearish Divergences.

Some examples of both bullish hidden divergence and bearish hidden divergence are shown below.

Image 5 – Amazon showing RSI Hidden Bullish Divergence
Image 5 – Amazon showing RSI Hidden Bullish Divergence
Image 6 – Facebook showing RSI Hidden Bullish Divergence
Image 6 – Facebook showing RSI Hidden Bullish Divergence
Image 7 – Coca-Cola showing RSI Hidden Bearish Divergence
Image 7 – Coca-Cola showing RSI Hidden Bearish Divergence
Image 8 – TESLA showing RSI Hidden Bearish Divergence
Image 8 – TESLA showing RSI Hidden Bearish Divergence

To know more about RSI Indicator, please read this article.

Average Directional Index (ADX)

ADX indicator has three components: ADX line, +DMI, and –DMI. An ADX line above 25 is considered a strong trend (either uptrend or downtrend), and if the +DMI line is above –DMI, then it is considered bulls are in control, and similarly, if –DMI is above +DMI, the bears are in control over Bulls.

A trader can plan a long trade only if the ADX line is above 25 and if +DMI is above –DMI, and if the price takes support at the trend line. Similarly, he can plan a short trade only if the ADX line is above 25 and if –DMI is above +DMI and if price resistance at the trend line.

Image 9 – ADX Indicator
Image 9 – ADX Indicator

Traders should know ADX works well as a trend-following system. Hence, holding successful stocks until the end of their trend is essential to maximizing profits. Besides, it’s better to note that it doesn’t work well in a sideways market.

Bollinger Bands

John Bollinger develops Bollinger Bands in the mid-1980s, and it consists of 3 different lines :

  1. A 20 period SMA as midline

  2. Two lines as two standard deviations above and below the midline

Image 10 – Bollinger Band Indicator
Image 10 – Bollinger Band Indicator

The distance between bands is based on the standard deviation; hence they contrast and expand based on the price fluctuations, which is nothing but volatility.

If the volatility is high, then the band will expand, and if the volatility is less, then the band would contrast. Hence, these bands also can be used to identify the overbought and oversold conditions in any scrip.

When the band squeezes due to low volatility, there is a high probability of a sharp and quick price move in any direction. It is recognized as the ‘Bollinger Band Squeeze Breakout’ trading method. Some traders use methods for their trading. As the price moves in any direction, the bands will expand slowly.

Image 11 – Bollinger Band squeeze and Breakout
Image 11 – Bollinger Band squeeze and Breakout

The price keeps on hugging any band (upper or lower) in a robust trending environment. In case of a sideways move, the price keeps on rotating between upper and lower bands.

Moving Average Convergence Divergence MACD

MACD acts as both trend following and momentum oscillator. Technically it belongs to the momentum oscillator category. However, it is not typically used to identify overbought and oversold situations like any other oscillator.

The MACD fluctuates above and below the zero line based on whether the two MA converge or diverge.

Image 12 – MACD Indicator
Image 12 – MACD Indicator

MACD indicator consists of 3 components:

1. MACD line

2. Signal line

3. MACD Histogram

MACD line is drawn after subtracting 26 days EMA from 12 days EMA (MACD line = 12 days EMA – 26 day EMA).

A signal line is nothing but 9 days EMA.

MACD Histogram is drawn using the difference between the MACD line and the Signal line. It is positive when the MACD line crosses above the signal line, and it turns negative when the MACD line crosses below the signal line.

As the name suggests, MACD is all about the ‘convergence’ and ‘divergence’ of the two moving averages on the chart. Convergence occurs when the moving averages are close to each other. When the moving averages move away from each other, divergence occurs.

Image 13 – MACD Indicator – Trading Based on MACD line with Zero
Image 13 – MACD Indicator – Trading Based on MACD line with Zero
Image 14 – MACD Indicator – Trading Based on MACD line with Signal Line
Image 14 – MACD Indicator – Trading Based on MACD line with Signal Line