2 Technical Indicators Every Share Investor Should Be Familiar With

by James Woolley - Date: 2009-02-09 - Word Count: 476 Share This!

A lot of stock market investors use fundamental analysis to find potential companies to invest in and then use technical analysis to help them with their entry and exit points. However to maximize your potential returns, there are two key technical indicators that I think every investor should be aware of.

The first of these is the EMA (200), or in other words the 200 period Exponential Moving Average. If you plot this indicator on your daily chart, then this will provide you with some invaluable information on whether you should be in the market or out of the market, and whether you should be looking to buy new shares or sell your existing ones.

This much-loved indicator is extremely useful. To demonstrate this point just take a look at the price chart for any given share. You will see that when the price is above this key indicator, then the price will generally be trending upwards, particularly if the EMA (200) is rising, and vice versa.

So basically when the price is above the EMA (200) you should be looking for opportunities to buy new shares, and if it dips below, and particularly when it moves strongly below this indicator, you should be looking to sell your shares. Plus if you like to trade shares as well as invest in them, you may even consider opening a short position if the share is looking particularly weak or if you think the company is performing badly.

So that's one indicator you should use. The other one that I recommend you use is the Supertrend indicator. I use this when investing in shares and when I'm trading the forex markets and find it to be very useful. This indicator basically tells you the overall trend so it will keep you out of trouble and help you maximize your profits if you always trade in the same direction as this indicator.

For additional confirmation and to identify good trading opportunities you can apply this indicator to multiple time frames. For instance if the Supertrend is green (indicating a bullish trend) on the weekly and monthly charts, then this tells you that the very long-term trend for this particular share is up so a good investment opportunity would arise when you get a temporarily oversold position on the daily chart, for instance.

Similarly if the weekly and monthly Supertrend is red, ie bearish, then the long-term trend is still downwards and you shouldn't really be thinking about buying any shares because you're essentially trying to catch a falling knife. The share price could easily fall a lot further.

So whenever you buy or sell shares it's always worth consulting these two indicators as they will not only help you time your entry and exit points, but they will also help to increase your overall profits because they will prevent you from trading against the trend.

Related Tags: stocks, shares, trading, investing, technical indicators, ema, exponential moving average, supertrend

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