Top 3 Technical Analysis Indicators (Ultimate Guide)
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Top 3 Technical Analysis Indicators (Ultimate Guide)


Hey everyone, this is Kirk, here again from
optionalpha.com. And in this video tutorial, what I want to do is help you guys figure
out where a stock may or may not go in the future. And I think as we start to talk a
little bit more about technical analysis, it’s important to realize that it’s not the
end-all(?) tool. And even in my own progression of trading, I used to use technical analysis
a lot more than I do now. But it still serves a really good purpose because you can get
some insight into where a stock again, may or may not go in the future, and I think if
you have technical analysis set up the right way on your charts, it’s very easy to again,
just use it as a little bit of an edge. Now, one quick comment on setting up too many
technical indicators: I often find that when I coach people that they have 45 different
technical indicators they’re looking at, and you get into this mode of analysis paralysis
where you’re just looking at this indicator and that indicator and whatever. So, I’m definitely
a fan of setting about three to five technical indicators that you like to use, that you
found to be successful, and sticking with those long-term, and getting to know how they
work and how they move, and what kind of signals they give. So, that’s my suggestion on the
types of trades that you should be making and how you should be using technical analysis. Now, what we’re going to do today is we’re
actually going to show you how to set up three of the different technical indicators that
I use, including MACD, CCI, and RSI. And I’ll show you how to set them up in [Unintelligible].
And obviously, you’re a broker if you’re using some way different, might have a different
set up. But it’s all basically about the same. So, the first thing that we’re going to do
is we’re going to start with this base chart. And today, we’re just looking at IWM. So,
we’re just looking at one of the major market index ETF’s. And you can see we’ve got pretty
much nothing on this chart. That gives us an idea of where the stock may or may not
go, we can draw lines and all that stuff, but no real technical indicators. So, what I want to do first is I want to go
up to here where to studies. And I want to edit studies. And so, you can see, there’s
no studies on here right now, but I’m going to add a study. So, on the left, I’m just
going to search for the first one which is MACD. So, I want to use MACDTwoLines. And
there’s a bunch of different ones you can use � Histogram, Crossover, TwoLines, just
regular MACD. But I like to use TwoLines. And then, inside MACD, you can see that there’s
a couple of different settings. So, the first setting that I want to do is I want to change
the fast length which is this one right here. Fast length which is currently at 12. I want
to change that to 15. So, that’s the first change I’m going to make, and then I’ll explain
what these different lengths mean. And then, the slow length is currently at 26. I’m just
going to even that out just a little bit more to about 30. So, here’s what they mean. With MACD, basically,
what you’re looking at is two different moving averages, and you’re using a faster moving
average which in this case is about 15 days, and a slower moving average which is 30 days.
And what we want to see with these two moving averages is this convergence and divergence
in them, meaning is the momentum and the security. Does shorter term momentum relative to the
longer or slower term momentum? Is that increasing or expanding against itself? All right, so
is it momentum coming into the security or is momentum coming out of the security? And so, once we actually put those on our
charts, you’ll see all I do is hit apply. And go here and hit apply. And you can see
that now MACD is on the bottom side of our screen. Now, once we have these on these charts,
you can see that the green line which moves a little bit faster and is kind of a little
more edgy, it moves quicker with the market because it’s a faster moving average, it’s
only 15 days. This one is going to move much quicker with the market as opposed to this
purple line which is our slower moving average at about 30 days. And you can see, they generally
both move in the same cycle, but there’s periods in which we see a cross of the slower term
moving average which is green that crosses above or below the purple line. Now, in our case, we are looking for specifically
that cross in the moving average. So in this case, the one that I’m pointing to right now
on the screen, this is the moving average that has now crossed under the purple line,
and that gives us a very clear sell signal. So, when we see that shorter term moving average,
that green line, cross under or below the purple line which is our longer term moving
average, that means that short term momentum is getting sucked out of the security relative
to long term momentum, and therefore, we should be out of the security or at least be weary
of a selloff. Now, in this case, that ended up being a pretty
good signal, right? And we look back historically with IWM, and that signal really carried us
until the next buy signal that we had down here in August. So, you can see now we got
a new signal where that shorter term moving average, the green one, crosses above the
purple line which is our longer term moving average. And that right there gives us a very
clear cut buy signal. And you can see that again, that was a very good signal because
that buy signal here carried us through to the next sell signal, and so on and so on. So, MACD is one of my favorite ones to use
because it is just a little bit more reliable in just judging where a stock may or may not
go in the future. Now, as I say that, I’ll point out, and even on this chart right now
with where stocks are trading right now, we had a point in time where the signals weren’t
that clear. So, there’s obviously flaws to technical analysis, and this really kind of
drive some of the point here that these signals weren’t 100% clear at this time. You can see
we had a couple of different crosses as MACD was continuing to move lower. But as that
happen, the stocks just basically stayed sideways. There’s a lot of volatility in there, but
the stock really stayed sideways, heading towards the future. And so, it’s important here to just as always,
take this with a grain of salt. What’s really important with technical analysis is just
where a stock may or may not go, and how relatively overbought or oversold it is. So, if you start
to see MACD really, really starting to extend like this and just run for a month in a half,
it might be best to start again, pairing down your positions or at least getting a little
bit bearish in some of your trades. So, that’s the way that I use it. And again, it’s pretty
reliable on those stocks, but you’ll have to go back through and back test a lot of
those. So, as we go through here, let’s add a different
study. So, we’re going to keep this one up here, and we’re just going to add another
study to it which is my second favorite, and that is CCI. So, CCI is a little bit different.
We’re going to change this one as well. The length of CCI’s is similar to MACD, and then
it judges timeframes in the past. It’s currently set at 14, and we’re going to widen this out
to 31. And what that does by widening it out to 31 is just takes in more data, and gives
us a smoother transition. So, if you have a 14 day setting on your CCI, you’re going
to get a lot of signals because it’s based on data going back and forth about 14 days.
And sorry if you’re heating a bunch of those alerts. That’s just trades that are going
off as I’m doing this video. So again, with a shorter term indicator of
14 days, you’re going to get a lot of signals back and forth. Moving out to 31 days and
changing that timeline just gives you a lot more smooth data and a lot less signals, but
more defined signals. So, the way that I use CCI is for basically, trend analysis, judging
to see where the market is relative to an overall trend. So, what I’m going to do here
is I’m just going to take the oversold and the overbought. I want CCI to be in blue.
So, I just want it to be a little bit more defined here. Okay, so here we are with CCI. What’s important
to notice about CCI is that the most important line on this chart is actually the zero line.
Now, on here, I do have the 100 and the -100 because that’s what defaults in the indicators.
On my particular charts, I like to take those off if I can because I’m not looking at that
line. I really want to be focused on kind of this zero line, and that’s where we get
our buy signal or sell signal. So with CCI’s, basically an indication of continuing momentum
in the security, and so, what we want to see is we want to see a cross of the indicator
above or below that zero line. And that gives us an idea of where a stock might go in the
future. So, you can see, we got a cross back here
in – This is in October, if you can’t see the date here. And you can see that that cross
in CCI did lead to some nice rallying in the stock as we kind of headed towards the end
of the year. And it’s not all about being overbought or oversold. So, just because CCI
gets to extremes does not mean that that creates an opportunity necessarily to buy our sells.
So, that’s one difference with CCI’s opposed to some other indicators, it’s that it’s not
about being overbought or oversold, it’s about crossing that zero barrier. And here on the
charts, you can see that we had a CCI kind of cross or go to an extreme here back in
December, and it dropped low to an extreme. And although it was a slight little buying
opportunity, it wasn’t some huge bottom because the stocks obviously haven’t bottomed out
and have reversed since. So, don’t use it as the extreme. You want to use it kind of
right along this zero barrier. Now, what’s really cool about CCI is that
if you go back in time, and especially with SPX – So, let’s look over at S&P 500. What’s
really cool again, about CCI is that it’s a trend indicator. So, on the left hand screen,
you see here we have CCI that’s over here. That cross above that zero barrier gave us
a buy signal. It never gave us a sell signal until we got to the point of August when stocks
actually did decline. So, even though it had all of this overbought, oversold that was
moving all over the place, it still remained the entire time above that zero barrier which
just means that we’re in a bullish or upper trending market. And it wasn’t until we got
into August that we got that sell signal which was pretty defined, not only on the charts,
but also in the indicators that told us to get out of stocks temporarily. So, a really
good indicator. I love using CCI as well. There are my top two. All right, let’s add one more to the charts
here, so let’s go here and go to the studies. And we’re going to go to edit studies and
we’re going to add RSI. And we’re going to add RSI right to the chart. So, we can just
leave RSI exactly as it is. And now, we have RSI down below. So, I’m just going to try
to minimize these two here, so you can see RSI down below. Now, RSI is a little bit different.
RSI is a judge of relative strength in the index or the stock that you’re looking at,
and you are with RSI looking for these overbought and oversold ranges. So, you can see here
that the overbought range is about 70 reading on RSI and the oversold range is about 30.
Everything in between is relatively useless because you are really looking for those extreme
points at which stocks become overbought or oversold. Now, when we look back in time again, with
CCI and MACD � And let me just kind of try that, swoosh this down just a little bit.
Here’s the look at the S&P 500. You can see that we did get a reading all the way down
here on RSI below 30 which ended up being almost a perfect buy on the market because
stocks really bottomed out from that point and continued to move higher. Likewise, as
the market was moving higher, we got an oversold reading towards the end of November, beginning
of December, and that ended up being a pretty good signal to get all the stocks because
they did experience a nice little decline afterwards. So again, with RSI, you’re looking at the
extremes and only trying to trade the extremes in this security and ETM indicator. Now as
always, every indicator has its flaws. Here are a couple of times in June and July where
it signaled a bunch of market extremes, and we didn’t see that at all. In fact, we saw
stocks over that time period start to increase a little bit more. And eventually, they did
fall off, but it wasn’t quite as pronounced as some of the other indicators that we’ve
seen here before with the market bottom here and the market top here. So as always, these
indicators have flaws. It’s important to kind of use them in conjunction with one another. So, as we go back to IWM, I wanted to show
you just how I would use indicators and how I do use indicators and technical’s with my
trading. And it’s this idea that they all have to be in some sort of agreement, okay?
And so, I think that’s the key here. It’s that if you look at all three of these indicators,
they all are moving in about the same ebb and flow. And it’s just incredible how these
markets move in the same kind of flow and cyclicality. And you can see, all three of
these indicators are moving in about the same ebb and flow. So, it’s just important when you look at something
that you kind of draw a line in the center and say, �Okay, relatively speaking, where
are all of these things pointing? Are they all relatively high? Are they all relatively
low? What does that mean for my trade? Do I go bullish? Do I go bearish? Whatever the
case is�� But again, don’t get caught up in analysis paralysis. Just look at the
general picture, dissect each individual, one of these by themselves. But then, kind
of gleam some inside into the fact that they are all pointing in one direction or another
direction or whatever the case is. As we look at the markets today to kind of
wrap up this video, you can see that we’ve definitely reached high and we’re kind of
coming off of that high on the market. MACD is continuing to point down because we don’t
have a buy signal. CCI has just crossed back under that zero barrier, so we definitely
have a bearish market that we might be heading into. And RSI is definitely not oversold and
it’s not overbought either, and it’s definitely pointing towards the downside. So, at least
at this point, without knowing exactly where the market is going, we’re going to air on
the side of caution that stocks may continue to fall here until we see something that tells
us that they might turn around. So, I hope you guys really enjoyed this video.
This was a lot of information. It took a long time to get through, but this is really all
what technical analysis is about. It’s about adding a couple of different indicators to
your charts, making sure that they’re customized to fit your trading timeline. In our case,
we like to have a longer timeframe in most of the indicators just so that it smoothes
out a lot of the data that we see. But then, also using a couple of these to make sure
that they’re kind of in agreement or congruence with each other as we look to find out where
a stock may or may not go in the future. So, if you have any questions or comments,
please add them right below this video lesson. And I’ll make sure I get back to all of those
in a timely manner to get your questions answered. Until next time. Happy trading!

About Ralph Robinson

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100 thoughts on “Top 3 Technical Analysis Indicators (Ultimate Guide)

  1. This may sound like a dumb questions but I just started and i'm paper trading right now. When i look at the 180 day 4 hour chart, CCI for a stock is showing that it is at -205 but moving up to the "buy signal" (0). When i look at the same stock on the 5 day 15 minute chart, its already crossed that 0 threshold an is at +13. I want to swing trade but i'm not sure which chart timeframe i should do analysis on since they all change drastically. Is there a common one used by most swing traders? Im on TD Ameritrade thinkorswim by the way. The stock i was looking at was $RXII. Thanks for the help, your video was great for new traders. I was just throwing darts blindfolded until i saw this video.

  2. Thank you for this video. Really helpful and the best one I have seen explained these indicators. Where can I learn more about finding trade ideas and more videos?

  3. Hey Kirk, thanks for this video. Well can we use these 3 indicators for intraday trade? If not, what other combination of indicators can be used for intraday for maximum accuracy?

  4. A big thumbs up to the way you have explained. I have a small doubt.
    Can I use the same indicators for intraday trading substituting minutes for days. My broker does provide the indicators for intraday charts. I am just unsure of ideal parameters I can use for each indicator in intraday trading

  5. Brilliantly explained. So easy to understand. I was digging for some easier way to understand these things and you did it. Thanks a bunch man. Keep up the good work!

  6. Excellent Video. However on my CFD Platform when using the CCI Ihave the length at 31 and then the next parameter is Average Length which is defaulted to 2. What does this indicate? The remaining overbought and oversold parameters are set at 100 and -100 respectively

  7. This is a well explained and illustrated technical analysis video which even beginners could understand. Well worth a look.

  8. RSI has a caveat you should add. RSI can maintain an overbought or oversold position for long periods of time in which the price can continue to rise or fall. It doesn't allways indicate how soon a reversal will happen.

  9. I'm really stunts u amazing lool keep doing and thannkkkk aaaa lot lot lot lot……………..u did great work sir!!!

  10. Really inspiring and informative stuff man! I hope I continue find such treasures from you folks, thank you!!!

  11. Thanks for the very informative video! Are these indicators also useful and efficient for different time charts too? eg. 1H, 5M etc.

  12. Thank you for all the information very useful, I am glad that I found this video that helps me and enhance my knowledge in trading. Especially when talking about indicators. Just want to ask what app you use to write on the screen the one that you show. Thanks a lot and Happy Trading. God bless..

  13. great video. very informative as someone just getting started and not even having one trade under my belt, definitely cleared some stuff up.

  14. Thanks for the video, you explained very well and to the point, how has been your experience with using them all together when all give a buy signal or sell vice versa?

  15. Good video Kirk.  Do you still rely on these 3 since completing your tech analysis research project; or do you like others now?

  16. Thanks.. You just gave me the crash course on the indicators I wanted to use but didnt know how to set them up or how to read them awesome job

  17. Thank you! Very good work and easy to understand. I use MACD and RSI. It is always good to review and you presented this well. Happy Trading to you!

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