In this list, you'll learn about seven technical indicators to add to your trading toolkit. You don't need to use all of them, rather pick a few that you find help in making better trading decisions. The tools of the trade for day traders and technical analysts consist of charting tools that generate signals to buy or sell, or which indicate trends or patterns in the market.

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Broadly speaking, there are two basic types of technical indicators:. Traders often use several different technical indicators in tandem when analyzing a security. With literally thousands of different options, traders must choose the indicators that work best for them and familiarize themselves with how they work. Traders may also combine technical indicators with more subjective forms of technical analysis, such as looking at chart patterns, to come up with trade ideas.

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Technical indicators can also be incorporated into automated trading systems given their quantitative nature. First up, use the on-balance volume indicator OBV to measure the positive and negative flow of volume in a security over time. The indicator is a running total of up volume minus down volume.

Up volume is how much volume there is on a day when the price rallied.

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Down volume is the volume on a day when the price falls. Each day volume is added or subtracted from the indicator based on whether the price went higher or lower. When OBV is rising, it shows that buyers are willing to step in and push the price higher. When OBV is falling, the selling volume is outpacing buying volume, which indicates lower prices. In this way, it acts like a trend confirmation tool. If price and OBV are rising, that helps indicate a continuation of the trend. Traders who use OBV also watch for divergence.

This occurs when the indicator and price are going in different directions.

If the price is rising but OBV is falling, that could indicate that the trend is not backed by strong buyers and could soon reverse. It is similar to the on-balance volume indicator OBV , but instead of considering only the closing price of the security for the period, it also takes into account the trading range for the period and where the close is in relation to that range.

If a stock finishes near its high, the indicator gives volume more weight than if it closes near the midpoint of its range. If the indicator line is trending up, it shows buying interest, since the stock is closing above the halfway point of the range.

Trading indicators explained

This helps confirm an uptrend. This helps confirm a downtrend.

The average directional index ADX is a trend indicator used to measure the strength and momentum of a trend. When the ADX is above 40, the trend is considered to have a lot of directional strength, either up or down, depending on the direction the price is moving. When the ADX indicator is below 20, the trend is considered to be weak or non-trending. The ADX is the main line on the indicator, usually colored black. There are two additional lines that can be optionally shown. These lines are often colored red and green, respectively.

All three lines work together to show the direction of the trend as well as the momentum of the trend.

Trading indicators

The Aroon oscillator is a technical indicator used to measure whether a security is in a trend, and more specifically if the price is hitting new highs or lows over the calculation period typically The indicator can also be used to identify when a new trend is set to begin. The Aroon indicator comprises two lines: an Aroon-up line and an Aroon-down line.

When the Aroon-up crosses above the Aroon-down, that is the first sign of a possible trend change. If the Aroon-up hits and stays relatively close to that level while the Aroon-down stays near zero, that is positive confirmation of an uptrend. The reverse is also true. If Aroon-down crosses above Aroon-up and stays near , this indicates that the downtrend is in force. The moving average convergence divergence MACD indicator helps traders see the trend direction, as well as the momentum of that trend.

It also provide a number of trade signals. When the MACD is above zero, the price is in an upward phase.

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