Technical analysis is the backbone of successful stock trading. Among dozens of available tools, these three fundamental indicators form the core of market analysis:
1. Candlestick Charts: The Market's Pulse
Understanding Candlestick Basics
- Bullish vs Bearish: Green (bullish) candles form when closing price > opening price, indicating buying pressure. Red (bearish) candles show selling dominance.
- Shadow Stories: Long upper shadows suggest rejection of higher prices (potential reversal), while long lower shadows indicate buying support.
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Practical Applications
Reversal Signals:
- Upper shadows at peaks = reliable sell signal
- Lower shadows at troughs = "Dragonfly Doji" buy signal
Power Patterns:
- Three Advancing Soldiers: Consecutive small green candles at lows signal upward momentum
- Bullish Engulfing: Green candle completely covers previous red candle's range
2. Moving Averages: The Trend Compass
Core Principles
| MA Period | Use Case | Significance |
|---|---|---|
| 5-day | Ultra-short term | Day trading signals |
| 20-day | Swing trading | Medium-term direction |
| 60-day | Market health | Bull/bear threshold |
| 200-day | Long-term | "Smart money" indicator |
Golden Cross vs Death Cross
- Golden Cross: 5-day MA crosses above 20-day MA → Buy signal
- Death Cross: Opposite crossover → Sell warning
3. Volume: The Market's Breath
Volume-Price Relationship
Healthy Trends:
- Rising prices + Increasing volume = Confirmed uptrend
- Falling prices + Decreasing volume = Normal correction
Warning Signs:
- Price rises + Volume falls = Weakness ahead
- Price falls + Volume spikes = "Distribution" phase
Advanced Volume Signals
- Breakout Validation: Prices must clear resistance with at least 50% above average volume
- Selling Climax: Spike volume at lows often precedes reversals
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FAQ: Technical Indicator Essentials
Q: How many indicators should I use simultaneously?
A: 2-3 complementary indicators (e.g., MACD + Bollinger Bands + Volume) provides optimal confirmation.
Q: What timeframe works best for beginners?
A: Daily charts reduce market noise while weekly charts show the bigger picture.
Q: Can indicators predict black swan events?
A: No tool forecasts extreme events—always use stop-loss orders.
Q: How reliable are historical patterns?
A: Backtest shows 60-70% accuracy—combine with fundamental analysis for better results.
Q: Should I pay for indicator software?
A: Most brokers provide adequate tools—master basic indicators before upgrading.
Master these three pillars through paper trading before risking real capital. Consistent profits come from disciplined application, not indicator overload.