Selecting the best technical indicator use for stock trading is an important step in your stock analysis. Let’s explore how we can best make that selection.
Most technical indicators work well for long-term as well as short-term stock trading. This is one of the many beauties of using technical analysis for stock market timing.
The best Stock indicator, of course, will quite naturally vary from trader to trader. The type of analysis that you use has much to do with your overall stock trading plan. If you’re a long-term investor then how you analyze the market will definitely be different than that of a day trader or scalper. We have many more Stock Market Investing Help Articles Now Available.
Long-term investors often times use the standard 200 day moving average (MA) as a measure of whether they want to be long or short a particular stock. The basic analysis is actually quite simple. The investor buys when the price of the stock crosses from below the 200 day MA to above the 200 day MA. The move above the moving average is interpreted as upward momentum. When stock has upward momentum, quite naturally, we want to be long that particular stock. When the stock price moves from above the 200 day moving average to below the 200 and moving average the long-term investor will then exit the long position.
In our example above of using a 200 day moving average, notice that 200 days is a long period of time. Using a moving average of this type gives a stock’s price a lot of room to move. This is great for keeping a long-term investor in a trade. Using longer-term moving average such as this also allows for large fluctuations in stock trading account equity. While such fluctuations in equity are common in long-term investing, shorter-term stock traders would have issue with such huge equity swings.
We can see that there are a number of factors that go into choosing the best Stock indicator. What we should really be saying is that the best Stock indicator is the best Stock indicator for you. What that simply means is that you may find a long-term moving average suitable for you if you’re a long-term investor. If you’re a short-term trader then you look for indicators which will allow you to grab smaller and more frequent profits.
Technical indicators such as the MACD (moving average convergence divergence), moving average, stochastic, etc. can all be used by the long and short-term trader. As you will find it is sometimes not so much the indicator that is used, but the parameters and interpretation of that indicator that will lead you to the greatest level of stock market success. We have many more Stock Market Investing Help Articles Now Available.