Using technical analysis to research stocks is a common strategy to profit from short-term movements in security prices. While some stock analysis tools are fundamental in nature, technical stock indicators typically seek patterns in past price and volume data to give investors and traders insights about how a stock might move in the future.
Naturally, every stock indicator has its pros and cons. Technical indicators can be used by traders to analyze supply and demand forces on stock price, to help investors to understand market psychology, or to manage risk. But while stock indicators and trading tools can help with buy and sell points, false signals can also occur.
For that reason, although technical indicators can assist with trend identification, it’s best to combine different indicators when conducting your stock analysis.
Learn more about the pros and cons of using the following 15 trading tools in your strategy.
Related: What is wealth management?
Two Types of Technical Indicators
Technical indicators generally come in two flavors: overlay indicators and oscillators.
Overlay Indicators
An overlay indicator typically overlays one trend onto another on a stock chart, often using different colors to distinguish between the lines.
Oscillator Indicators
On a technical analysis chart, an oscillator tracks the distance between two points in order to gauge momentum. The moving average is a common oscillator; it’s considered a lagging indicator as it measures specific intervals in the past.
An oscillator indicator can help traders determine support and resistance in certain price trends, so they can decide whether to sell or buy.
Oscillator indicators can be leading or lagging:
- A leading indicator tracks current market movements to anticipate where the trend is headed next.
- A lagging indicator is based on recent history and seeks patterns that will indicate potential price movements.
Top 15 Stock Indicators for Technical Analysis
It’s important to remember that these trading tools were developed based on the belief that mathematically derived patterns may be valuable as predictors of stock movements. Past performance, however, is not a guarantee of future results. So while it can be useful to employ stock technical indicators, they are best used in combination before deciding on a potential trade.
Also, many of these trading tools are lagging indicators, which can lead to an inaccurate reflection of current and future market conditions.
Here are 15 of the most common technical stock indicators, along with their advantages and disadvantages.
1. Moving Averages (MA)
A moving average (MA) is the average value of a security over a given time. The MA can be Simple Moving Average (SMA), Exponential Moving Average (EMA), and Weighted Moving Average (WMA).
A moving average smooths price volatility and is taken as an indicator of the direction a price may be headed. If the price is above the moving average, it’s considered an uptrend versus when the price moves below the MA, which can signal a downtrend. Moving averages are typically used in combination with each other, or other stock indicators, to identify trends.
Pros
- Using moving averages can filter out the noise that comes from price fluctuations and focus on the overall trend.
- Moving average crossovers are commonly used to pinpoint trend changes.
- You can customize moving average periods: common time frames include 20-day, 30-day, 50-day, 100-day, 200-day.
Cons
- A simple moving average may not help some traders as much as an exponential moving average (EMA), which puts more weight on recent price changes.
- Market turbulence can make the MA less informative.
- Moving averages can be simple, exponential, or weighted, which might be confusing to new traders.
2. Moving Average Convergence Divergence (MACD)
The Moving Average Convergence Divergence (MACD) also helps investors gauge whether a security’s movement is bullish or bearish, but it uses two different MAs to do so. Often, a 26-period exponential moving average is subtracted from a 12-period EMA to spot trading signals. Then a signal line, based on a shorter period EMA, is plotted on top of the MACD to help reveal buy and sell entry points.
Traders use the convergence or divergence of these lines to identify when bullish or bearish momentum is high.
Pros
- The MACD, used in combination with the relative strength index (below) can help identify overbought or oversold conditions.
- The MACD can be used to indicate a trend and also momentum.
- Can help spot reversals.
Cons
- May provide false reversal signals.
- Responds mainly to the speed of price movements; less accurate in gauging the direction of a trend.
3. Relative Strength Index (RSI)
RSI is a tool that identifies bullish vs. bearish price momentum. The relative strength index is an oscillator — a tool that builds a trend indicator based on the price movement between two extreme values. It ranges from 0 to 100. Generally, above 70 is considered overbought and under 30 is thought to be oversold.
Pros
- Can help investors spot buy or sell signals.
- May also help detect bull market or bear market trends.
- Can be combined with moving average indicators to spot breakout trends or reversals.
Cons
- The RSI can move without exhibiting a clear trend.
- The RSI can remain at an overbought or oversold level for a long time, making this tool less useful.
- It does not give clues as to volume trends.
4. Stochastic Oscillator
The stochastic oscillator has two moving lines, or stochastics, that oscillate between and around two horizontal lines: The primary “fast” moving line is called the %K, while the other “slow” line is a three-period moving average of the %K line.
A signal is generated when the “fast” %K line diverges above the “slow” line or vice versa. The stochastic oscillator uses a 0 to 100 value range.
The two horizontal lines are often pre-set at 30 and 70, indicating oversold and overbought levels, respectively, but can be modified.
Pros
- Since it’s plotted on a 0 to 100 scale, it’s possible to gauge overbought and oversold levels.
- Traders can adjust time frame and range of prices to reduce market fluctuation sensitivity.
- Can be used by day traders.
Cons
- A security can remain overbought or oversold for long periods as the range of oscillations is not always proportionate to a security’s price action.
- It can be useful for implementing an overall strategy, but not for gauging the overall market sentiment or trend direction.
5. Williams %R
Similar to the stochastic oscillator, above, the Williams %R (a.k.a. the Williams Percent Range) is also a momentum indicator — but in this case it moves between 0 and -100 to identify overbought and oversold levels and find entry and exit points in the market. The Williams %R compares a stock’s closing price to the high-low range over a specific period, typically 14 days.
Readings between 0 and -20, which are in the top 20% of price during the look-back period, are considered overbought. Readings between -80 and -100, which are in the lowest 20% of price during the look-back, are considered to be oversold.
Pros
- You can combine different short and long time periods to compare trends.
- Identifies overbought and oversold levels.
Cons
- False signals can happen if price strength or weakness leads to a brief movement in the Williams %R above 70% or below 30%.
- There is no volume analysis with the Williams %R.
6. Bollinger Bands
Bollinger Bands are a set of three lines that help measure the relative high or low of a security’s price in relation to previous trades. The center line is the Simple Moving Average (SMA) of the stock price. The other two trendlines are plotted two standard deviations away from the SMA (one positively, one negatively). These can be adjusted.
The upper and lower lines show the high and low boundaries of the security’s expected price movement (90% of the time). The middle line shows real-time price action moving between those bounds as it fluctuates day-to-day.
Pros
- Helps traders identify volatility.
- Can help point to trading opportunities.
Cons
- Large losses are possible when volatility surges unexpectedly.
- Does not identify cycle turns quickly enough at times.
7. On-Balance Volume (OBV)
OBV is a little different from the other indicators mentioned. It primarily uses volume flow to gauge future price action on a security or market. When there’s a new OBV peak, it generally indicates that buyers are strong, sellers are weak, and the price of the security will likely increase. Similarly, a new OBV low is taken to mean that sellers are strong and buyers are weak, and the price is trending down.
The numerical value of the OBV isn’t important — it’s the direction that matters. Declining volume tends to indicate declining momentum and price weakness, while increasing volume tends to indicate rising momentum and price strength.
Pros
- Volume-based indicator gauges market sentiment to predict a bullish or bearish outcome.
- OBV can be used to confirm price action and identify divergences.
Cons
- Hard to find definitive buy and sell price levels.
- False signals can happen when divergences and confirmations fail.
- Volume surges can distort the indicator for short-term traders.
8. Accumulation / Distribution Line (ADL)
The ADL is a momentum indicator that traders use to detect tops and bottoms and thus predict reversales. It does this by using volume versus price data to identify divergences and thereby show how strong a trend might be. For example: If the price rises but the ADL indicator is falling, then the accumulation volume may not actually support a true price increase and a decline could follow.
Pros
- Traders can use the AD Line to spot divergences in price compared with volume that can confirm price trends or signal reversals.
- The ADL can be used as an indicator of the flow of cash in the market.
Cons
- Doesn’t capture trading gaps or factor in their impact.
- Smaller changes in volume are hard to detect.
9. Average Directional Index (ADX)
The Average Directional Index (ADX) also helps investors spot asset price trends and to quantify the strength of those trends. ADX shows an average of price range values that indicate expansion or contraction of prices over time — typically 14 days, but it may be calculated for shorter or longer periods. Shorter periods may respond quicker to pricing movements but may also have more false signals. Longer periods tend to generate fewer false signals but may cause the indicator to lag the market.
The ADX uses positive and negative Directional Movement Indicators (DMI+ and DMI-). ADX is calculated as the sum of the differences between DMI+ and DMI- over time. These three indicators are often charted together.
Pros
- Can help identify when price breakouts reflect a solid trend.
- Can send signals to traders to watch the price and manage risk (e.g. thru divergences).
Cons
- Can generate false signals if used to analyze shorter periods.
- Can’t be used as a standalone indicator.
10. Price Relative / Relative Strength
Relative Strength should not be confused with the Relative Strength Index (above). Relative Strength is more of an investment strategy than a specific indicator. It involves comparing one asset to another or the broader market and helps traders find securities that are trending on a relative, not absolute, basis.
Pros
- A stock indicator that helps compare one security’s price to another to find which is outperforming.
- Can plot one stock versus a competitor or market benchmark.
Cons
- Does not provide exact buy and sell levels.
- False breakouts and breakdowns can happen.
- Mean reversion can lead to losses for momentum traders.
11. Relative Volume (RVOL)
RVOL relays to traders how near-term volume compares to historical volume. The higher RVOL is, the more other traders might be paying attention to and trading the asset. Think of it as the stock being “in play.” Stocks that have a lot of volume have more liquidity and tend to trade better than stocks with low relative volume. The RVOL is displayed as a ratio.
So if it is showing 2.5 relative volume, that means it is trading at 3.5 times its normal volume for that time period.
Pros
- Can offer clues to identify unusually powerful price moves.
- High and low volume is easily detected by use of being above or below a value of one (1).
Cons
- While volume is important, it does not give exact buy and sell price levels.
- Volume surges can be fickle — like around an earnings date.
12. Rate of Change (ROC) and Momentum
ROC is just what it sounds like — the speed at which a stock is moving compared to its trend. The indicator measures a stock’s percentage price change compared to how it moved in recent periods. Like many of the tools mentioned, it can be used to spot divergences.
Pros
- Works better in trending markets.
- When used with other trading tools can help traders spot strong momentum.
- A technical trading tool that can identify overbought and oversold levels.
- Ideal for spotting divergences.
Cons
- False signals can happen when the indicator suggests a price trend reversal will take place.
- Does not give higher weight to more recent price action.
13. Standard Deviation
An asset’s standard deviation is a fundamental statistical tool to get a sense of volatility. It uses historical volatility to arrive at a percentage that is used to reflect how much a security moves. While volatility can indicate potential risk, it can also signal the potential for opportunity.
Pros
- Mathematically captures the volatility of a stock’s movements, i.e. how far the prices moves from the mean.
- Provides technicians with an estimate for expected price movements.
- Can be used to measure expected risk and return.
Cons
- Does not provide precise buy and sell signals.
- Must be used in conjunction with other indicators.
14. Ichimoku Cloud
Ichimoku clouds are used to show support and resistance areas on a price chart in an extra-illustrative manner. An Ichimoku Cloud is comprised of five separate calculations that examine multiple averages, and uses the difference between two of the lines to create a shaded area (the cloud) that aims to predict support and resistance levels. It is also employed to identify momentum and trend. It is thought to provide more data than a simple candlestick chart.
Pros
- A leading indicator of price.
- Indicates support and resistance areas.
- Useful for gauging the direction and intensity of a price trend.
Cons
- Can give many false signals in trendless markets.
- Can be confusing to traders given its complexity.
15. Fibonacci Retracements
Fibonacci Retracements are based on the golden ratio discovered by mathematician Leonardo Pisano in the 13th century. At its core, a Fibonacci retracement is a mathematical measurement of a particular pattern. The Fibonacci sequence and ratio are used to form support and resistance lines on a price chart.
Pros
- Offers clues about where a stock might find support and resistance.
- Helps define exit and entry levels.
- Can be used to place stop-loss orders.
Cons
- The use is subjective.
- Some say Fibonacci Retracements are simply a self-fulfilling prophecy: if many traders are using these ratios, then outcomes will reflect this.
- No logical proof of why it should work.
The Takeaway
Technical analysts use past price and volume data to help traders identify price trends and make buy and sell decisions. It’s important to know that technical analysis does not use fundamentals to assess the underlying companies, their industries, or any macroeconomic trends that might drive their success or failure. Rather, technical analysis solely analyzes a stock’s performance.
Technical indicators are often rendered as a pattern that can overlay a stock’s price chart to predict the market trend, and whether the stock would be considered “overbought” or “oversold.” There are countless stock technical indicators in existence, and it can quickly become overwhelming to learn them all. It might be more useful to focus on a handful of the most popular trading tools so you can execute a strategy that works for you.
Related:
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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What happens to your debt when you die?
Do you know what will happen to your debt when you die? Some debts are forgiven while others may be passed down to heirs. Read on for the answers to some of the most frequently asked questions related to death and debt.
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In order to accurately answer this question, we need to examine the most common types of debt people accumulate. In other words: Not all debt is equal. The type of debt you have and when you accumulated the debt will determine how and if your debt is passed on to others when you die.
The Most Common Types Of Debt
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If you die with credit card debt, there are two things that may happen:
- Your debt may be forgiven and written off by the credit card company
- The debt will be passed on and the responsibility of a survivor
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If you are the sole owner of the debt when you die, (not married or a cosigner) the credit card companies will be involved in the probate process. The money left in your estate, any retirement accounts, or other items worth money will be sold and the outstanding debts will be paid.
If there is not enough money in your estate to pay off the remaining credit card balance, your children or beneficiaries will not be required to pay the remaining balance. The outstanding debt will be “forgiven” by the credit card company.
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If the credit card is a joint account with a living spouse or a cosigner, the other account holder will be responsible for the debt. If you have authorized users on the account but they are not the account owner, the users will not be responsible for the debt.
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This is one of those myths that continues to live on. Credit card debt does not go away after seven years. The confusion with the seven-year time frame comes from the credit report time requirement.
After seven years, old debts begin to fall off of your credit report. Your debt, however, is still very much alive and owed. Lenders can and will continue to pursue the amount owed until it is paid, settled, or charged off. Do not be fooled into thinking your credit card debt will go away after seven years.
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The quick answer? It depends. There are several factors that determine if a deceased spouse’s credit card debt will be passed along to the surviving spouse. If the credit card debt was incurred before marriage and the deceased spouse was the sole owner of the account, in most cases, the debt will not be the responsibility of the surviving spouse.
If the credit card debt was incurred after marriage and the deceased spouse was the sole owner of the account, the state you live in determines the surviving spouse’s responsibility. If you live in one of these community property states and the debt was incurred after marriage, the surviving spouse is responsible for the credit card debt of their spouse regardless of the account ownership:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
If you do not live in one of these states, generally the surviving spouse will not be responsible for the credit card debt if they were not a joint owner of the account. If you are a joint owner on the account, you are now solely responsible for the debt.
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Again, where you live determines what can happen to your medical bills when you die. Generally speaking, children and heirs will not be required to pay back the outstanding medical bills of their parents. With that being said, there are a couple of instances where a child could be responsible for the medical debt of their parents.
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When a child cosigns admission paperwork acknowledging financial responsibility if the adult is unable to pay their bills, this debt may be passed down to the child.
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There are 26 states that have filial responsibility laws that state a child may be responsible for a deceased parent’s medical debt in certain situations. The states that have filial responsibility laws are:
- Alaska
- Kentucky
- New Jersey
- Tennessee
- Arkansas
- Louisiana
- North Carolina
- Utah
- Indiana
- Nevada
- California
- Maryland
- North Dakota
- Vermont
- Connecticut
- Massachusetts
- Ohio
- Virginia
- Iowa
- New Hampshire
- Delaware
- Mississippi
- Oregon
- West Virginia
- Georgia
- Montana
- Pennsylvania
- South Dakota
- Rhode Island
Now, before you become overly concerned about living in one of these states, understand that the enforcement of filial responsibility laws is extremely rare. If you have significant medical debt, consult with an attorney in your state to see exactly what responsibility your adult children may be required to pay back.
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Student loan debt may or may not be passed on to survivors when the borrower dies. What happens to the loan depends on what type of loan was taken out and when it was established.
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If you have federal student loans, they will be forgiven upon death. Federal student loans do not pass on to others as long as a death certificate is presented to the lender. Federal student loans that fall into this category are:
- Direct Subsidized Loans
- Direct Consolidation Loans
- Direct Unsubsidized Loans
- Federal Perkins Loans
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On Nov. 20, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was amended. The added section releases cosigners of a private student loan from financial responsibility if the primary borrower dies. Due to this, all new private student loans with cosigners are not required to repay the loan upon the student’s death.
However, student loans with cosigners taken out before Nov. 20, 2018, may still require the cosigner to be held responsible for the debt.
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Federal Direct PLUS Loans are also forgiven upon the student’s death. In the past, the parent who signed for the PLUS loan was required to bear the burden of the tax responsibility and file the forgiveness as “income” after a child’s death.
Currently, The Tax Cuts and Jobs Act of 2017, is in effect and releases parents from this tax responsibility. This tax stipulation remains in effect until the year 2025.
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There is several different scenarios involving vehicle loan debt upon the borrower’s death. If the auto loan has a cosigner or the vehicle was purchased in a community property state after a couple was married, the cosigner or spouse is responsible to repay the auto loan.
If the loan was obtained before marriage and is only in the deceased spouse’s name, generally the surviving spouse is not held responsible for the debt. The bank will take possession of the vehicle to settle the outstanding debt or the surviving spouse can pay off the vehicle loan.
If the borrower is not married, the survivors can either pay off the vehicle loan and keep the vehicle, sell the vehicle and pay off the loan or return the vehicle to the bank. Heirs do not inherit vehicle loan debt.
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Payday loan debt is very similar to credit card debt when you die. If there was not a cosigner or someone else listed as jointly responsible for the loan, then the company writes off the debt as a loss. Payday loan debt is not transferred to heirs but may be the responsibility of a surviving spouse if the debt was incurred after marriage in a community property state.
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In probate, the home must be paid off with the funds from the estate or the mortgage company must agree to let someone else inherit the loan. If you still owe money on your home, your spouse or heirs usually have three separate options:
Option 1: Sell the home to pay off the outstanding mortgage. The executor of the will can initiate a home sale to fulfill the outstanding debt obligations. If the home is not worth what is owed, additional money from the estate will be used to pay off the mortgage. If additional money is still required, the bank can take possession of the property.
Option 2: If there is enough money in your estate, your heirs can use that money to pay off the mortgage. Or the beneficiaries can use their own money to pay off the loan in full.
Option 3: If there is not enough money in the estate to pay off the loan, an heir may elect to contact the lender in an attempt to take over the loan. The loan would need to be transferred into the new borrower’s name which would require the heir to meet the credit obligations for a loan.
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Lenders can force the sale of a property to fulfill the outstanding equity loan balance if the estate does not have enough capital to pay it off. This is another scenario where the heir may be able to apply with the lender to take over the payments.
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If you have federal tax debt when you die, the IRS gets the first chance at your estate. Legally, the executor of the state is unable to pay any other debt or obligation until the federal tax debt is settled.
If a substantial amount is owed, the IRS will quickly put a lien on any property owned by the deceased in an attempt to satisfy the debt. The federal government will get their money one way or another – but the heirs will not personally be liable for the outstanding tax debt.
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There is not an automatic notification process when a person dies. The next of kin or executor of the state is required to contact the bank and provide a copy of the descendant’s death certificate.
When the death certificate is presented, the financial institution will freeze all of the associated accounts until the probate process is completed. If money is not owed to other lenders, the beneficiaries will be given access to any monies left in the deceased person’s accounts.
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Even though most debts will not be passed on to your heirs when you die, you may not want them to deal with the hassle of paying off all your debt with your estate – only to be left with nothing.
If you have struggled with debt your entire life, a cheap term life insurance policy may be an option to leave a small inheritance to your heirs. Most life insurance policies are dispersed tax-free and are not accessible to creditors.
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Leaving debt behind is a fear many seniors face. On the bright side, your heirs will usually not be personally responsible for paying off your outstanding debts. However, the sooner you can clean up your own financial mess, the better.
Do your best to start paying off your debt so your executor is not faced with a long probate process. If you need help getting started, check out this related post The Debt Payoff Playbook.
This article originally appeared on Arrest Your Debt and was syndicated by MediaFeed.org.
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