3 Best Technical indicators on Earth

by The Wall Street Daily Research Team

THE 3 BEST

TECHNICAL INDICATORS ON EARTH

“Those who cannot remember the past

are condemned to repeat it.”

This oft-quoted warning also forms the basis for technical

analysis. Only I’d tweak it to say, “Those who do remember

the past are likely to profit from it.”

THAT’S TECHNICAL ANALYSIS IN A NUTSHELL.

After all, technical analysis is based on the idea that all

the information is represented in price and volume. So by

comparing what’s happening in the market today to what’s

happened in the past, you can tell what will (most likely)

occur in the future.

The Three Best Technical Indicators on Earth

How to Start Killing the Market and Never Look Back

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In other words, while fundamental analysis involves screening

businesses’ balance sheets, earnings reports and economic conditions to

try to predict stock returns, technical analysis relies on the participants

in the market to distill all that information into meaningful data.

And by watching price and volume, you can interpret the emotions

driving the market. Some believe that technical analysis is simply about

drawing lines on a chart – and that it’s essentially the equivalent of

financial astrology.

Hogwash!

Granted, some methods have failed to produce real returns. And I agree

that not all technical indicators are worthy of your attention.

That’s why it’s important to focus only on the key indicators that have

proven successful – time after time.

Lucky for you, we’ve found the top three, best of breed, technical

indicators that you can use to maximize your profits. Here’s a brief

rundown of each…

INDICATOR #1:

MOVING AVERAGE CONVERGENCE/

DIVERGENCE (OR MACD)

The MACD indicator is a great introduction to technical analysis

because it’s based on one of the easiest, most powerful concepts:

the moving average.

Calculating and drawing a moving average line is simple. It’s just the

average price of a stock over a number of days, usually 50 or 200.

A stock trading above this line is a strong bullish indicator by itself.



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But you can take a moving average to the next level by tracking when

moving averages of different lengths of time cross paths.

Take a look at the chart for Under Armour (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, fine tunes them and combines

them 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 and

26 days. It also focuses specifically on the “exponential moving

average,” which means more weight (and importance) is given to the

most recent stock prices.

2) The next step is creating the “MACD line,” which is simply the

difference between the 12- and 26-day exponential moving averages

from step one.



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3) Once that’s done, the “signal line” is created. That’s the nine-day

exponential moving average of the new MACD line.

If this sounds complicated, keep in mind that you don’t really need to

know how the lines are created. The important part is how they interact.

Check out the following chart of Bank of America (BAC) to see

what I mean.

There are two main things you need to watch for…

1) When the MACD line jumps above zero, it shows that the current

momentum is positive. And when it drops below zero, momentum

is negative.

2) Most important, you can identify when these shifts in trajectory are

likely to occur. It’s all about watching when the lines cross over each

other.



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When the MACD line crosses above the signal line, momentum is

about to turn positive. And when the signal line jumps higher than

MACD, it’s a sign that the share price is about to dip.

The chart indicates the bullish points with green arrows and the

bearish patterns in red. Sure enough, the stock movements (mostly)

correspond with the “Buy” and “Sell” signals.

When the MACD

line crosses

above the

signal line,

momentum is

about to turn

positive. And

when the signal

line jumps

higher than

MACD, it’s a sign

that the share

price is about

to dip.

The trick is to spot the crossovers as close to the zero line as

possible. That’s where the strongest signals occur.

INDICATOR #2:

PARABOLIC SAR

Don’t let the imposing name fool you. Parabolic SAR is dead simple

to interpret.

SAR stands for “stop and reverse,” meaning that it’s designed to find

turning points in stock trends.



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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, like

the dots are pushing the stock up. When the dots are above the price,

momentum is negative.

In simplest terms, when the dots switch from above the stock price to

below, that’s a clear “Buy” signal. On the flip side, when they switch from

below the price to above, it’s a “Sell.”

You’ll also notice that the dots tend to converge with the stock price right

before 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 how

much time you have to invest accordingly.

Simple, right?

There’s one trick to using Parabolic SAR, however. You need to be

selective about your “Buy” signals.

You see, if a stock is trading within a narrow range, the dots will give off

multiple “Buy and “Sell” signals in rapid succession. That’s not a formula

for making money.

The Symantec (SYMC) chart on the next page shows what I mean.

When the stock traded in a tight range between June and August, there

was a flurry of signals that wouldn’t have been profitable. But between

January and March, the signal worked well.

To reconcile this, verify that the overall stock market is trending in a

similar direction, too, and not staying stagnant. Of course, you could pair

the MACD line with Parabolic SAR to double check your findings.



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With a stronger

grasp of investor

sentiment about a

particular stock, you

could pick your “Buy”

and “Sell” levels

with more confidence.

INDICATOR #3:

CHAIKIN MONEY FLOW

We already know there are two sides to every stock trade

– the buyer and seller.

But wouldn’t it be nice to know what’s going on behind

the scenes? That is, whether the buyers or the sellers are

more eager to act?

With a stronger grasp of investor sentiment about a

particular stock, you could pick your “Buy” and “Sell”

levels with more confidence.

That’s what the Chaikin Money Flow tries to capture. It

indicates “buying pressure” and “selling pressure.”



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The Chaikin Money Flow takes positive and negative periods for a stock,

then multiplies them by the volume of trading over that time. This

assigns greater weight to days when there was heavy volume.

Then it compares the ratio of positive pressure to negative pressure and

converts that to a value between -100 and 100 (or between -1 and 1 on

some software).

At that point, you chart it as an additional line under the stock.

When Money Flow is high, it means the stock has more buying pressure

than selling pressure – and vice versa.

Now, you may be tempted to use this as a trend indicator. So you’d buy

when there’s a lot of buying pressure.

But Money Flow actually identifies when a stock is overbought or

oversold. As a result, it shows the end of the trend (or a reversal point).

In other words, it’s more of a contrarian indicator. When the rating is

high, it means there may be too much buying pressure and the stock is

set to collapse.



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On such merits, when the Money Flow passes a critical level (25 or

-25 is a good rule of thumb) and stays there for a while, it’s a sign

that a reversal is imminent.

(An indicator called the Money Flow Index is very similar to Chaikin

Money Flow, with only a slight change in the calculations. You can

interpret the signals the same way.)

Bottom line: Combining these three simple indicators can create a

powerful system for identifying when stocks are likely to rise or fall.

You don’t need a math degree. Heck, you don’t even need to

understand the formulas to use these indicators to boost your

investment profits.

You just need to look at a few charts until you can see the patterns

repeating themselves. After all, that’s the basis of technical analysis.

The chart says it all.

Good investing,

The Wall Street Daily Research Team

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06252015

3 Best Technical indicators on Earth

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