Why Use Technical Indicators?

by Shaun Rosenberg
 

Why use technical indicators? Can they help you find out when to get into a stock? The answer is yes. Many technical indicators can help you find exact entry and exit point when you are trading in the stock market. They can be an extremely big help.
 
I bet you are wondering what exactly technical indicators are. Let me explain it to you. Technical indicators are mathematical formulas. They are based on price movements and are said to be very accurate.
 
In fact there are traders out there who will rely heavily on 1 or 2 indicators when making their decision. There are literally thousands of different indicators out there, which run on thousands of different formulas for you to choose from. A few of the most popular are the Fibonacci retracements, the MACD, and the moving average.
 
The great thing about these technical indicators is that most of them have been proven to give you buy and sell signals that actually make you money. All an investor has to do is load them onto a chart and do what they tell you to.
 
Let us go into why they work. We will look at the MACD indicator. When it rises up it goes to overbought territory. When it goes down it goes to oversold territory. When it first enters the overbought territory it is time for you to buy. When it enters the oversold territory it is time for you to sell.
 
So you have a MACD indicator on your chart. When it rises to overbought territory it gives you a buy signal. But it also gives hundreds of thousands of other traders a buy signal. You all buy the stock expecting it to go up.
 
Everyone buying the stock pushes it up so supply will meet demand. When the MACD gives you a sell signal everybody who uses a MACD sees it too. They all sell causing the price of the stock to come down so demand will meet supply.
 
Trading signals are not perfect. Any trader who trades with technical indicators can expect to see both wins and losses. But all and all they should make you money.
 
Most investors will use technical indicators in combination with other indicators. This helps weed out false buy signals and often produces greater gains then just using the indicators by themselves.
 

About the Author

For more information on how to make money in the stock market visit http://www.stocks-simplified.com
 

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