Complete Guide to Stock Technical Indicators: 9 Indicators Help You Capture Market Turning Points

Why Investors Must Learn Technical Indicators

When investing in stocks, fundamental analysis tells you whether a company is good or not, but technical analysis can tell you whether now is a good time to enter the market. Technical analysis includes two main tools: candlestick charts and technical indicators. The former helps judge trends through visualized price movements, while the latter uses mathematical formulas to generate objective buy and sell signals. Compared to the long-term focus of fundamental analysis, technical indicators are more suitable for capturing medium- and short-term market turning points and trading opportunities.

The Three Major Classifications of Technical Indicators

Common technical indicators in the market can be divided into three categories, each with different application scenarios:

Trend Indicators: The Compass for Predicting Future Movements

These indicators help traders determine whether the market is in an upward or downward phase.

Bollinger Bands consist of three lines: upper, middle, and lower, which move in real-time with candlesticks. When prices approach the upper band, it indicates market strength; near the lower band suggests weakness. Traders can assess current market sentiment based on the position of prices within the Bollinger Bands.

Moving Average(MA) is one of the most widely used technical indicators. It calculates the average closing price over the past N days to form a trend line. When prices stay above the MA line, it indicates a bullish(uptrend); conversely, if prices remain below the MA line for a long time, it indicates a bearish(downtrend). Short-term traders often use 5-day or 10-day moving averages, while long-term investors refer to 20-day or 60-day averages.

Oscillators: Identifying Overbought and Oversold Reversal Points

The core logic of these indicators is: after excessive rise or fall, the market often undergoes a reverse correction.

RSI( Relative Strength Index) calculates the ratio of upward to downward price changes over a period to assess market momentum. RSI fluctuates between 0-100; when RSI>70, it indicates overbought conditions, and a correction may be imminent; when RSI<30, it indicates oversold conditions, and prices may rebound. Another use of RSI is observing the golden cross( buy signal) and death cross( sell signal) between the fast and slow lines.

MACD( Moving Average Convergence Divergence) consists of the fast line(DIF), slow line(MACD), and histogram bars. When the fast line crosses above the slow line and the histogram shifts from negative to positive, it forms a golden cross, indicating increasing bullish momentum; the opposite indicates bearish dominance. This indicator is especially suitable for capturing medium-term trend reversals.

KD Indicator( Stochastic Oscillator) comprises the K (fast line) and D (slow line). When both lines form a golden cross in the oversold zone(KD<20), it’s a good buy signal; when a death cross occurs in the overbought zone(KD>80), consider selling. This indicator is highly sensitive to short-term price fluctuations.

Williams %R, CCI, and ATR Indicators are also common oscillators. Williams %R( 0-100) is similar to KD, used to identify overbought and oversold conditions; CCI detects trend weakening through divergence with price; ATR measures market volatility and is often used to set stop-loss levels.

( Volume Indicators: Assessing Market Participation

Volumes indicator shows the trading volume for each period. When volume bars increase significantly, it indicates rising market participation and higher trend reliability; decreasing volume suggests waning market interest.

Practical Application of Four Core Indicators

) Moving Average Trading Logic

The calculation is straightforward: N-day MA = Sum of closing prices over N days ÷ N

For example, a 5-day moving average is the average of the last 5 days’ closing prices. Shorter periods(like 5 days) produce more volatile lines, suitable for short-term trading; longer periods###like 60 days### produce smoother lines, better reflecting long-term trends.

In practice, short-term traders typically combine candlestick charts with 5-day/10-day moving averages to observe price movements; medium- and long-term investors use daily candlesticks with 20-day/60-day moving averages to determine overall direction. When prices touch the MA line, it often acts as support or resistance, serving as an important trading reference.

( Two Uses of RSI Indicator

RSI formula: RSI = Average of recent gains ÷ (Average of gains + Average of losses) × 100

Besides directly interpreting RSI values for overbought or oversold conditions, a more practical approach is observing crossings of the fast and slow lines. When the short-term RSI)green line( crosses above the long-term RSI)red line###, it signals market strengthening and a potential entry point; when the short-term line crosses below, it indicates risk.

( MACD for Trend Reversal Detection

MACD is derived from the difference between two exponential moving averages)EMA( of different periods. Unlike simple MA, EMA assigns higher weight to recent prices, making it more responsive.

When the DIF) fast line( crosses above the MACD) slow line### and the histogram shifts from negative to positive, it signals bullish momentum; the opposite indicates bearish momentum. Many short-term traders rely on these golden and death crosses for entry and exit.

( KD Strategy in High and Low Zones

KD calculation is more complex but intuitive. When KD>80, it’s overbought; when KD<20, it’s oversold.

In practice, when K in the oversold zone crosses above D) golden cross###, it often indicates a rebound opportunity; when K in the overbought zone crosses below D( death cross), it warns of short-term correction risk. Combining with candlestick patterns and volume confirmation increases the success rate of this indicator.

Important Notes on Using Technical Indicators

Advantages: Technical indicators are easy to understand and have low thresholds, helping new investors quickly judge market trends and identify entry and exit points.

Limitations: Since they are based on historical price data, they have a lagging nature, which may cause missed optimal trading opportunities. During volatile markets, the reference value of indicator parameters diminishes.

Golden Rule: Never rely solely on a single indicator. The best practice is to use multiple indicators(such as MA+RSI+MACD), combined with volume confirmation and fundamental analysis for final decision-making. This approach effectively reduces the risk of indicator failure.

Quick Reference Table of Technical Indicators

Final Advice

Technical indicators are powerful tools for understanding the market, but they are not foolproof. Successful traders are those who can flexibly use multiple indicators, pay close attention to volume, and incorporate fundamental analysis into their decisions. Remember: good technical analysis requires knowledge accumulation, but more importantly, continuous adjustment and validation through practice.