## Indicators that I use for Tecnical Analysis ### Technical analysis is not as hard as it sounds, but not as easy as it looks either. Technical analysis enables us to predict the future price movement of a quote, or you could say, basically everything — if you knew the previous prices — by looking and “messing around” with aid of charts and some tools.

Of course, by just looking at plain price charts it is hard for us to predict the movement of the price, whether it will go up or down. So, over the years people have been inventing these things called indicators which helps us to predict price movement and makes it easier for us to decide what to do. Indicators come in various shapes and functions. There are simple indicators which anyone could read, and there are also harder indicators which require a bit of “practice” to understand. There are even some indicators that are so complex. So what is exactly an indicator? The answer can be viewed here. Below are some basic indicators that I use in technical analysis.

(1) Moving Average (MA)

As the name suggests, Moving Average shows the moving average of the price on a certain period. This indicator is the most basic one. The function of MA is usually to see the trend, whether the price is uptrend, downtrend, or moving sideways. I personally use 2 MA’s, one with the period of 15 and one with 20.

So, how to read the MA? It is so simple, really. If the lower period MA is above the higher period MA in the graph, the price is on uptrend. On the contrary, if the lower period MA is below the higher period MA, it is on downtrend. When the 15 MA (light blue) is above the 20 MA (pink), the price is uptrend. Traders usually use 2 MA indicators.

The dark blue and red lines are called envelopes and will be explained later.

(2) Envelope

Envelope is basically a modified MA. According to Investopedia.com, envelope is a type of technical indicator typically formed by two moving averages that define upper and lower price range levels. It calculates two moving averages using the high price and low price inputs. Both averages are calculated using price data from the same number of bars, as determined by the input length. The average of the high price and low price is increased and reduced by a user-specified percentage and then plotted. The envelope inputs can be customized to suit each investor’s or trader’s style and preferences. Envelope is usually used together with some other indicators, in this case MA.

The purpose of this indicator is usually to show support and resistance lines, as well as to confirm in taking position.

I usually use envelope together with moving average, RSI, and CCI.

(3) Relative Strength Index (RSI)

The relative strength index (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset (Investopedia). The RSI is calculated using this following formula:

$$RSI\quad=\quad100\quad\times\quad\left(1\quad-\quad\frac{ 1 }{ 1+RS }\right)$$

where RS = (average of n days’ upcloses)/(average of n days’ downcloses).

RSI has a value that ranges from 1 to 100. When it passes or reaches 70, the asset is “overbought”. When it reaches under 30, it is “oversold”. As seen in the chart, I combine the 14 RSI (white) with MA(2) for a smoother graph. Notice how the price goes through the lower envelope (upper graph, red) when oversold and through the upper envelope (upper graph, dark blue).

I usually color the RSI black as I only need the 2 MA on RSI indicator window.

(4) Commodity Channel Index (CCI)

The CCI is similar with the one above, except that it’s more of an oscillator. It is also used for determining overbought and oversold conditions. It is developed to quantify the relationship between price (P), moving average (MA), and normal deviations (D) (also from investopedia). It can be calculated using the formula below:

$$CCI=\frac{P-MA}{0.015\times D}$$

The CCI can also predict local potential maximum and minimum prices, thus helping traders to ensure in taking actions and providing them firm evidence that price movement or trend is going to change. As you can see, price tends to change trend as the CCI hits minimum or maximum level.

I usually combine CCI and RSI and make them as confirmations when to take a position and close one.

These are the indicators that I commonly use in trading. There are still more indicators that I use but not too often, such as Ichimoku, parabolic SAR, MACD, stochastics, and Bollinger Bands. These will be explained in another articles.