Technical Analysis Indicators Cheat Sheet

In the world of trading and investing, technical analysis indicators are crucial tools used to evaluate and predict future price movements based on historical data. This cheat sheet provides a comprehensive guide to the most commonly used technical indicators, offering insights into their applications, strengths, and weaknesses. Whether you are a novice trader or an experienced analyst, understanding these indicators will help you make more informed trading decisions.

1. Moving Averages (MA)
Simple Moving Average (SMA): This indicator calculates the average price over a specific period, such as 50 or 200 days. It smooths out price data to identify trends and reversals. Exponential Moving Average (EMA) gives more weight to recent prices, making it more responsive to price changes.
Application: Use moving averages to identify the direction of the trend. A crossover of the short-term moving average over a long-term moving average can signal a potential buy, while the opposite crossover might indicate a sell.
Strengths: Easy to understand and use. Helps in identifying trends.
Weaknesses: Lagging indicator; may provide false signals in choppy markets.

2. Relative Strength Index (RSI)
Overview: RSI measures the speed and change of price movements on a scale of 0 to 100. Typically, an RSI above 70 indicates an overbought condition, while an RSI below 30 indicates an oversold condition.
Application: Use RSI to gauge the strength of a price trend and identify potential reversal points.
Strengths: Useful for identifying overbought and oversold conditions.
Weaknesses: Can produce false signals in strong trending markets.

3. Moving Average Convergence Divergence (MACD)
Overview: MACD consists of two moving averages (usually the 12-day and 26-day EMAs) and a signal line (9-day EMA of the MACD). The MACD line crossing above the signal line is a bullish signal, while crossing below is bearish.
Application: Use MACD to identify changes in the strength, direction, momentum, and duration of a trend.
Strengths: Helps in detecting trend changes and momentum shifts.
Weaknesses: Lagging indicator; may not work well in sideways markets.

4. Bollinger Bands
Overview: Bollinger Bands consist of a middle band (SMA) and two outer bands (standard deviations away from the SMA). Prices often move within these bands, and a breakout may indicate a significant move.
Application: Use Bollinger Bands to assess volatility and identify potential overbought or oversold conditions.
Strengths: Effective in capturing volatility and price levels.
Weaknesses: May produce false signals during low volatility periods.

5. Fibonacci Retracement
Overview: This tool uses horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before the price continues in the original direction. Common levels include 23.6%, 38.2%, 50%, 61.8%, and 76.4%.
Application: Use Fibonacci retracement levels to identify potential reversal points and areas of support and resistance.
Strengths: Widely used and accepted by traders; good for identifying key levels.
Weaknesses: Subjective; may not always align with actual market movements.

6. Stochastic Oscillator
Overview: This indicator compares a security’s closing price to its price range over a specific period. Values range from 0 to 100, with readings above 80 indicating overbought conditions and below 20 indicating oversold conditions.
Application: Use the stochastic oscillator to identify potential reversal points and gauge the momentum.
Strengths: Helps in identifying overbought and oversold conditions.
Weaknesses: Can produce false signals in strong trending markets.

7. Average True Range (ATR)
Overview: ATR measures market volatility by calculating the average range between the high and low prices over a set period. Higher ATR values indicate higher volatility.
Application: Use ATR to gauge the volatility of a security and set appropriate stop-loss levels.
Strengths: Provides insight into market volatility.
Weaknesses: Does not indicate direction of price movement.

8. Ichimoku Cloud
Overview: The Ichimoku Cloud is a comprehensive indicator that provides information about support and resistance, trend direction, and momentum. It consists of five lines: Tenkan-sen, Kijun-sen, Senkou Span A, Senkou Span B, and Chikou Span.
Application: Use Ichimoku Cloud to get a complete view of the market and identify potential trading signals.
Strengths: Provides a holistic view of the market.
Weaknesses: Can be complex to interpret for beginners.

9. Parabolic SAR (Stop and Reverse)
Overview: The Parabolic SAR provides potential entry and exit points by placing dots above or below the price chart. A dot below the price indicates an uptrend, while a dot above indicates a downtrend.
Application: Use Parabolic SAR to identify potential stop-loss levels and trend reversals.
Strengths: Simple to use and understand.
Weaknesses: Can generate false signals in sideways markets.

10. Volume
Overview: Volume measures the number of shares or contracts traded in a security or market. It is often used in conjunction with other indicators to confirm trends.
Application: Use volume to confirm the strength of a price move; increasing volume suggests strong trends, while decreasing volume suggests weak trends.
Strengths: Provides insight into the strength of price movements.
Weaknesses: Volume alone does not provide direction; must be used with other indicators.

11. Average Directional Index (ADX)
Overview: ADX measures the strength of a trend, with values above 20 indicating a strong trend and values below 20 indicating a weak trend.
Application: Use ADX to assess the strength of a trend and decide whether to trade or not.
Strengths: Helps in determining trend strength.
Weaknesses: Does not indicate the direction of the trend.

12. Chaikin Money Flow (CMF)
Overview: CMF combines price and volume to measure the accumulation or distribution of a security over a specific period. Positive values indicate accumulation, while negative values indicate distribution.
Application: Use CMF to assess buying or selling pressure.
Strengths: Integrates price and volume information.
Weaknesses: Can be less effective in low-volume markets.

Conclusion
Understanding and using technical analysis indicators effectively requires practice and experience. Each indicator has its strengths and weaknesses, and no single indicator should be used in isolation. Combining multiple indicators can provide a more comprehensive view of the market and improve your trading decisions.