the 3 best technical indicators on earth

8/11/2019 The 3 Best Technical Indicators on Earth

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THE 3 BESTTECHNICAL INDICATORS OTis of-quoted warning also orms the basis or technicalanalysis. Only Id tweak it to say, Tose who do rememberthe past are likely to prot rom it.

THATS TECHNICAL ANALYSIS IN A NAfer all, technical analysis is based on the idea that allthe in ormation is represented in price and volume. So bycomparing whats happening in the market today to whatshappened in the past, you can tell what will (most likely)occur in the uture.

Tose who cannot remember the past

are condemned to repeat it.

2The Three Best Technical Indicators on EarthHow to Start Killing the Market and Never Look Back


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A stock trading above this line is a strong bullish indicator by itself. Butyou can take a moving average to the next level by tracking when movingaverages of different lengths of time cross paths.

Take a look at the chart for Under Armour (NYSE: UA) to see what I mean.

When the 50-day moving average crosses above the 200-day moving

average, it means the stock is likely going to see a big move higher.

Basically, MACD takes moving averages, ine tunes them and combinesthem into a single indicator. It just takes a few more steps

1) First, instead of a 50- or 200-day moving average, MACD uses 12 and26 days. It also focuses speci ically on the exponential movingaverage, which means more weight (and importance) is given to themost recent stock prices.


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2) The next step is creating the MACD line, which is simply thedifference between the 12- and 26-day exponential moving averagesfrom step one.

3) Once thats done, the signal line is created. Thats the nine-dayexponential moving average of the new MACD line.

If this sounds complicated, keep in mind that you dont really need toknow how the lines are created. The important part is how they interact.

Check out the following chart of Bank of America (NYSE: BAC ) to seewhat I mean.

There are two main things you need to watch for

1) When the MACD line jumps above zero, it shows that the currentmomentum is positive. And when it drops below zero, momentumis negative.


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2) Most important, you can identify when these shifts in trajectoryare likely to occur. Its all about watching when the lines crossover each other.

When the MACD line crosses above the signal line, momentum isabout to turn positive. And when the signal line jumps higher thanMACD, its a sign that the share price is about to dip.

The chart indicates the bullish points with green arrows and thebearish patterns in red. Sure enough, the stock movements (mostly)correspond with the Buy and Sell signals.

The trick is to spot the crossovers as close to the zero line aspossible. Thats where the strongest signals occur.

INDICATOR #2:PARABOLIC SARDont let the imposing name fool you. Parabolic SAR is dead simpleto interpret.

SAR stands for stop and reverse, meaning that its designed to indturning points in stock trends.

In short, Parabolic SAR captures momentum.The indicator is typically drawn as dots that follow a stock chart.

When the dots are below the price, the momentum is positive, likethe dots are pushing the stock up. When the dots are above theprice, momentum is negative.

In simplest terms, when the dots switch from above the stock priceto below, thats a clear Buy signal. On the lip side, when theyswitch from below the price to above, its a Sell.

When the MACDline crossesabove thesignal line,momentum isabout to turnpositive . Andwhen the signalline jumpshigher thanMACD, its a signthat the shareprice is aboutto dip.


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Youll also notice that the dots tend to converge with the stock price rightbefore they switch sides. So the closer the dots get to the share price line,the sooner the current share price direction is likely to reverse.

So not only does Parabolic SAR identify the turning point, it shows howmuch time you have to invest accordingly.

Simple, right?

Theres one trick to using Parabolic SAR, however. You need to beselective about your Buy signals.

You see, if a stock is trading within a narrow range, the dots will give offmultiple Buy and Sell signals in rapid succession. Thats not a formulafor making money.

The Symantec (Nasdaq: SYMC) chart below shows what I mean.


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pressure than selling pressure and vice versa.

Now, you may be tempted to use this as a trend indicator. So youd buywhen theres a lot of buying pressure.

But Money Flow actually identi ies when a stock is overbought oroversold. As a result, it shows the end of the trend (or a reversal point).

In other words, its more of a contrarian indicator. When the rating ishigh, it means there may be too much buying pressure and the stock isset to collapse.

On such merits, when the Money Flow passes a critical level (25 or -25is a good rule of thumb) and stays there for a while, its a sign that areversal is imminent.

(An indicator called the Money Flow Index is very similar to ChaikinMoney Flow, with only a slight change in the calculations. You can

www.wallstreetdaily.com

Money Flow Pinpoints When Stocks Are Due for a Reversal

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Source: RightWayCharts.com

Morgan Stanley (NYSE: MS)

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the 3 best technical indicators on earth

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