| Sometimes a price chart, alone, is not enough to | | | | exponential. The simple moving average takes a |
| make good trading decisions in beginners stock | | | | simple average, whereas, an exponential moving |
| trading. The addition of chart indicators can be very | | | | average weighs more recent closing prices more |
| helpful in identifying good entry and exit points. An | | | | heavily, in the calculation. The moving average can |
| indicator is simply an extra piece of information that | | | | serve as a support or resistance level. |
| gives more information about a certain aspect of the | | | | Moving Average Convergence/Divergence (MACD): |
| stock and its trading. Some indicators appear as an | | | | The MACD is a very reliable indicator in beginners |
| overlay on the main price chart, while others appear | | | | stock trading. It uses the difference between two |
| in their own mini-chart, above or beneath the price | | | | moving averages to give an indication of a |
| chart. Below are a few basic indicators that traders | | | | stock’s trend momentum. The two moving |
| use. In Part 2, we’ll explore a few more | | | | averages create a histogram that oscillates around a |
| advanced indicators for beginners stock trading. | | | | centerline, at zero. Together, they can help predict |
| Volume: | | | | trend reversals. |
| This is simply a running tally of all of the shares that | | | | Bollinger Bands: |
| are traded, during each time period. It, generally, | | | | This indicator is a measurement that compares a |
| shows how much interest there is in a stock and | | | | stock’s price levels to volatility. It appears as |
| how many traded shares it can take to move a | | | | two lines that appear to surround the stock’s |
| particular stock. Volume is indispensible in trading. | | | | price action, swaying in waves, toward and away |
| Moving Average: | | | | from the price. The more sharply the price moves |
| Probably the most commonly used in beginners stock | | | | (volatility), the further apart the bands are. As the |
| trading, this indicator takes an average of the | | | | stock moves less sharply, the bands will settle in |
| previous X days’ closing prices for the stock and | | | | closer to the price. As the bands tend to contain |
| plots a point. These points are connected along the | | | | most, if not all, of the stock’s price swings, it is |
| way, forming a line that slowly follows the | | | | used to spot potential trend reversals, as the price |
| stock’s price action. (i.e. a 20-day Moving | | | | touches or pierces one of the bands (i.e. if the price |
| Average will plot a point, for each time period, at the | | | | touches or pierces the upper band, it can be |
| average of the stock’s previous 20 closing | | | | expected that the price will fall back down inside the |
| prices). There are two types of average: simple and | | | | bands). |