Stock markets provide opportunities to you as an investor to get good returns on investment and achieve your financial goals. Online stock market investing is the best bet since it allows you to build a diverse portfolio and beat inflation over the period. You make profitable investments based on the upward and downward movement in stock prices. You can use two strategies to make investments: fundamental analysis and technical analysis.
Using fundamental analysis, you can understand the company structure, finances, projects, balance sheet, capital expenditure, performance, and other metrics. In technical analysis, price movements are plotted in graphs and charts to capture the market trends. This helps you decide on the timing of buying, selling, or holding on to a stock.
Here are four technical indicators you may use to time investments in stock
Moving Averages
You may use moving averages to understand the overall direction of the market. The moving averages are different from static averages; they are based on duration going backward from the current date. Typically, they are denoted in 50 days moving averages (DMA), 100 DMA, and 200 DMA. These indicators can be used to find support and resistance levels.
Relative Strength Index
You may use the Relative Strength Index (RSI) to determine whether the stock is in an overbought or oversold position. This oscillator is denoted on a scale of 0-100, with 100 denoting extreme overbought and 0 denoting extreme oversold positions. In reality, most stocks have an RSI between 30 and 70. Based on these ranges, you may decide to make a buy decision or sell decision.
Trading Stochastics
Stochastics is a more reliable indicator than RSI, and you may use it to find out oversold or overbought trends in stock. Compared to RSI, stochastics identify the %K line and the %D line, using a crossover to determine oversold levels. This is a clearer indicator with a better success rate than RSI.
MACD
Moving Average Convergence Divergence (MACD) is more flexible and helps you know the correct entry and exit levels. The advantage of MACD is that it can be used to buy or sell decisions irrespective of whether the market is range-bound or trending. You can identify an upward or downward bias in the stock price movement in relation to a zero line. MACD is considered the best technical indicator as it captures both moving averages and oscillators. The crossover under the blue line or red line can be used to time the sale or buy a stock.
Fundamental Vs. Technical AnalysisYou may have come across discussions on which type of strategy to use to make stock market investments. Fundamental analysis is not entirely the opposite of technical analysis. They may be considered complementary to each other. You can use the fundamental analysis to identify good stocks based on their financials, unique strengths, market share, and performance but use the technical analysis to time the investments. Technical analysis may often go wrong but still provides a yardstick to make profitable trades in the stock market.
Finding a trustworthy online trading platform is equally important to achieve stock market success. Cutting-edge demat and trading account and best in class features are crucial when it comes to investing and trading in the online stock market.