Stock Technical Analysis Tutorial: Four Essential Indicators and Complete Tool Breakdown

Building a Strong Foundation: Core Concepts of Technical Analysis

When investing in stocks, investors typically consider both fundamental factors( such as earnings per share, P/E ratio, and other operational data), as well as technical aspects. Technical analysis comprises two main parts: visual observation of candlestick charts and price trends, and the presentation of market data through mathematical formulas as technical indicators. The latter displays data in line or bar chart formats, helping traders assess trend strength and optimal entry and exit points.

This article will delve into the core tools of stock technical analysis, covering the most practical indicator principles and application methods in the market, to help you establish a comprehensive technical analysis framework.

In-Depth Analysis of the Four Most Common Market Indicators

Moving Average Line: The Basic Tool for Judging Market Strength

The moving average(, abbreviated as MA), is one of the most widely used stock technical analysis tools. Its calculation logic involves summing the closing prices of the past N days and dividing by N, thereby assessing market momentum and future trends. Common application periods include daily K-line and weekly K-line, with daily K-line being the most frequently used.

Calculation formula: N-day Moving Average = Sum of closing prices over N days ÷ N

For example, the 5-day MA represents the average closing price over the past 5 days; the 60-day MA reflects the average over the past 60 days. The length of the observation period directly influences the shape of the line—shorter periods lead to more volatile lines, while longer periods produce smoother trends.

Practical Application: When the stock price consistently stays above the moving average line, the market exhibits a bullish trend; conversely, if the price remains below, it indicates a bearish trend. Short-term traders often use 5-day or 10-day MAs in conjunction with minute charts; medium- and long-term investors prefer 20-day or 60-day MAs combined with daily or weekly charts to precisely time entries and exits.

Relative Strength Index(RSI): A Simple Tool to Measure Market Heat

RSI measures the buying and selling strength by calculating the change in price over a specific period. Its result is displayed as a single blue line, with values ranging from 0 to 100, providing a straightforward and intuitive way for beginners to learn.

Calculation formula: RSI = (Average of recent N-day gains) ÷ (Average of recent N-day gains + Average of recent N-day losses) × 100

Key Points:

• When RSI > 70, the market is overbought, indicating potential overheating and risk of decline.
• When RSI < 30, the market is oversold, and bullish momentum may be weakening, suggesting a rebound opportunity.

Advanced Usage: Observe crossovers between two RSI lines of different periods. When the short-term RSI(green line) crosses above the long-term RSI(red line), it is called a golden cross, indicating a potential strong upward move and a buy signal; the opposite, where the short-term RSI crosses below the long-term RSI, is called a death cross, signaling possible continued decline and a sell signal.

( MACD (Moving Average Convergence Divergence): A Professional Tool for Trend Momentum

MACD is derived from the difference between two exponential moving averages (EMA) of different periods), called DIF###, and then an exponential moving average of the DIF(, called DEA). Compared to simple moving averages, EMA assigns higher weight to recent prices, thus better highlighting trend characteristics.

Calculation formulas:

• EMA(N days) = [Previous EMA(N days) × (N-1) + Today’s closing price × 2] ÷ (N+1)
• EMA(M days) = [Previous EMA(M days) × (M-1) + Today’s closing price × 2] ÷ (M+1)
• DIF (fast line) = EMA(N days) - EMA(M days)
• MACD (slow line) = EMA(DIF)
• Histogram = DIF - MACD

Signal Interpretation: When the DIF(fast line) crosses the MACD(slow line), the market approaches a turning point. If the histogram shifts from positive to negative and the fast line crosses below the slow line (death cross), it indicates weakening bullish momentum and the start of a bearish phase—an early warning for decline. Conversely, if the histogram shifts from negative to positive and the fast line crosses above the slow line (golden cross), it signals waning bearishness and strengthening bullishness—an early buy signal.

( Stochastic Indicator)KD(: A Practical Tool for Predicting High and Low Points

The KD indicator consists of the K value) fast average line( and the D value) slow average line(, used to predict potential high and low points in the market. The K value reacts quickly to price changes, while the D value is smoother and slower.

Calculation methods:

• RSV = (Today’s closing price - Lowest price over N days) ÷ (Highest price over N days - Lowest price over N days) × 100%
• K = (RSV + previous K × (N-1)) ÷ N
• D = (K + previous D × (N-1)) ÷ N

Parameter N is usually set to 9 or 14 days but can be flexibly adjusted based on trading cycles.

Standard Application: KD values also range from 0 to 100. When both K and D are above 80, it signals overbought conditions, indicating market strength and a likelihood of continued rise; when both are below 20, it indicates oversold conditions, suggesting market weakness and a potential downtrend.

Crossover Signals: In oversold zones)KD < 20(, a golden cross occurs when K)blue line( crosses above D)red line(, signaling a buying opportunity; in overbought zones)KD > 80(, a death cross occurs when K crosses below D, indicating a good time to consider short positions.

Complete Toolkit for Stock Technical Analysis

) Trend Indicators

Besides moving averages, Bollinger Bands are also important for trend judgment. Composed of three green solid lines moving with the candlesticks, traders can estimate market trends by observing the fluctuation range and amplitude of these lines.

( Oscillator Indicators

In addition to the four major indicators above, other oscillators worth noting include:

Williams Percent Range)Williams %R(: Similar in principle to KD but used less frequently. Values fluctuate between 0-100, and by observing the high and low price ranges over a period, traders can judge whether the current price is overbought or oversold.

Commodity Channel Index)CCI###: No fixed range; it rises with price increases and falls with decreases. Its unique application involves observing divergence with the stock price—if the price continues to rise but CCI fails to follow, it indicates waning buying interest and a possible end to the uptrend; the opposite applies.

Average True Range(ATR): Commonly used for setting stop-loss points. ATR does not move in sync with trends; its main function is to measure market volatility. An increasing ATR indicates rising volatility, while a decreasing ATR suggests calming markets. It is recommended to use ATR in conjunction with other indicators to avoid relying solely on it.

( Volume Indicators

Volumes Indicator: Displays current trading volume to assess market activity. Rising volume indicates increased participation and interest; declining volume suggests a quieter market.

Stock Technical Analysis Teaching: Indicator Comparison and Selection

The following table summarizes the characteristics and application scenarios of various indicators to help you quickly select suitable tools:

Recommendations and Risk Tips for Stock Technical Analysis

Advantages: Technical indicators are easy to learn, visually intuitive, and help traders quickly grasp market trends and timing for entries and exits.

Limitations: Since indicators are based on historical price data, they inherently have lag, which may cause traders to miss optimal entry or exit points. During highly volatile markets, the relevance of indicator parameters can diminish.

Summary

The core of stock technical analysis teaching lies in flexible application of multiple tools rather than blindly relying on a single indicator. Moving averages, RSI, MACD, and KD form most traders’ foundational toolkit, but optimal investment decisions should be based on multi-faceted analysis—combining technical, fundamental, and market sentiment factors—to improve accuracy and reduce risks caused by indicator failures.

Through continuous learning and practical testing, you will gradually develop your own stock technical analysis framework.