The 5 Effective Stock Index Indicators That Stock Index Traders Should Know

Many stock index traders will use different methods of stock index trading. One of these methods of stock index trading is the use of stock index indicators. Stock Index indicators are technical stock index trading tools that are placed on stock index charts and help to determine the stock index trading price chart movement.

Among the most commonly used technical indicators are:

Moving Averages Indices Trading Technical Indicator RSI MACD Bollinger Band Technical Indicator Stochastic Oscillator Technical Indicator

These stock index indicators are used by traders to identify stock index trends, analyze stock index trends and also analyze stock index trend momentum.

To trade with these indicators stock index traders will come up with a few stock index trading rules that will ascertain that this is when to open a stock index trade based on the specified stock index trading rules. These stock index rules form what is known as a stock index trading strategy.

This stock index trading strategy which is a set of stock index trading rules will be used by traders when trading the stock indices market. To come up with a stock index trading strategy that is indicator based stock index trader will first need to know about these indicators used in the stock index trading market.

The five commonly used technical indicators are explained below:

Moving Averages Technical Indicator

Moving average stock index indicator is used to identify stock index trading opportunities by determining the overall trend direction of the market. Stock Index moving average is drawn as a line that shows the average of stock index trading prices on the stock index chart.

When the stock index market is moving in an upward stock index trend the moving average stock index indicator will also be moving upwards.

When the stock index market is moving in a downward trend the moving average stock index indicator will also be moving downwards.

Stock Index traders will use two moving averages a shorter stock index period moving average and a longer stock index period moving average - stock index trading signals will be generated when both of these moving averages are heading in the same direction.

An exit stock index trading signal is generated when moving averages begin to move in opposite direction.

Stock Index Trading with Moving Average Technical Indicator

RSI Indicator

RSI indicator is used to determine if stock index trading prices are generally closing higher than where they opened or if stock index trading prices are closing lower than where they opened.

RSI indicator values above 50 signals that stock index trading prices are closing higher than where they opened RSI indicator values below 50 signals that stock index trading prices are closing lower than where they opened

When stock index trading using the RSI indicator stock index buy and stock index sell signals are generated when the RSI moves above or below the 50 center line mark - RSI indicator values above 50 is a buy signal while RSI technical indicator values below 50 is a sell signal.

The RSI indicator is drawn with values of between 0 and 100. RSI 50 is the center line mark used to generate stock index trading signals when the RSI indicator moves above or below this center-line mark.

RSI technical indicator levels below 30 are used to show over-sold levels RSI technical indicator levels above 30 are used to show over-bought levels

Stock Index Trading with RSI Technical Indicator

MACD Technical Indicator

MACD indicator is used to analyze the momentum of stock index trends.

The MACD indicator is used to generate stock index trading signals when MACD moves above or below the zero center line mark.

MACD indicator above Zero center-line is interpreted as a buy signal. MACD indicator below Zero center-line is interpreted as a sell signal.

MACD indicator is comprised of two lines - MACD line and MACD Signal Line - MACD line is drawn as a red line while MACD Signal line is drawn as a blue line.

Stock Index Trading with MACD Technical Indicator

Bollinger Band Indicator

Bollinger bands stock index indicator uses a 20 period moving average as the middle Bollinger band and then calculate the stock index trading price movement magnitude from these moving average line using standard deviation.

When stock index trading price volatility is high the Bollinger bands will widen When stock index trading price volatility is low the Bollinger bands will narrow

When Bollinger bands widen the stock index trading price trend is likely to continue moving in the same direction whereas when Bollinger band narrow the stock index trading price is likely to breakout and move in the direction of the stock index price breakout.

Stock Index Trading with Bollinger Bands Technical Indicator

Stochastic Oscillator Indicator

Stochastic oscillator stock index indicator is used to determine overbought and oversold levels. Stochastic oscillator values below 20 are interpreted as oversold levels and stock index stochastic oscillator values above 80 are considered as overbought.

Stochastic oscillator stock index indicator is made up of two line %K and %D lines which oscillate between values of 0 and 100. Stock Index Trading with Stochastic Oscillator Technical Indicator