How Important Are Stock Market Technical Indicators Really?

I'll start with a little background information of stock market technical indicators.

Charles H. Dow, one of the fathers of technical analysis originally published his articles in the Wall Street Journal between 1900 and 1920.

So, the technician I just discussed is more of a modern-day contributor. However the basic principles have been around for hundreds of years.

And now, all you have to do is turn on your computer, do a couple of scans, look at a couple of indicators and there you go...

the perfect stock.

I'm sure you know this is not the case. However, compared to even a few decades ago, it is much easier.

But, even with all the new technology, you still can loose lots of money in the stock market. One of the best tools that you could have along that road are stock market technical indicators, which I will go over now.

Determining The Type Of Indicator

An overlay is an indicator that goes behind the stock price.

One of my favorite overlays is Bollinger Bands. Even though I don't use those to find stocks, they have come to be extremely useful in my trading as a valid second opinion.

So, the first of the stock market technical indicators is overlays. Overlays are just one group of indicators.

There seem to be many more of the second group of indicator. The second group of indicator is usually either above or below the chart, in a chart of it's own. However, you can always customize it to be behind the stock price (I don't recommend this, since it makes it harder to read).

The second of stock market technical indicators, are simply referred to as indicators. I can understand how that can be a little bit confusing.

A few of my favorite of the second type (indicators in they're own chart) are RSI, MACD and ADX.

Sorry, I cant get you more detail on ADX. I haven't written a page for this one yet. However, it is one of my favorites. So, instead of having a link to click on, Ill skim over it now.

Average Directional Index

ADX is short for Average Directional Index.

It is used to signal the start of a new trend.

It is my main indicator when searching for stocks.

A lot of times, the stock is not a good buy opportunity when this signal takes place. But, I have become comfortable with this trading strategy and have learned to spot the good ones. With practice you will too.

It is a fast-paced buying strategy. And it turns up more than enough stocks to keep you busy.

Here are the basics of how it works:

When the RSI indicator moves above the 20 line, it is signaling a new trend. This can be either an up trend or a down trend. You can tell the direction of the trend by either scanning for up trends or down trends or using a moving average.

And of course with any trading strategy, the stock will not necessarily go in the direction of the indicated trend.

Ready For The Next Step?

I have written about a few technical indicators. From this page, I hope you get a general idea of how important they are and a little bit of history about them. If you're ready to dive deeper in, click on some of the links above.

Good luck and remember, this is the main tool if you want to be a technical investor. So, study it, use it, and you will eventually become a master.