There are hundreds of technical indicators and books on how to use them available today. We feel combining some fundamental information with a combination of technical indicators gives us the confidence to make a decision to buy or sell an equity.

The following list of indicators is the basic tools we use to screen any stock we are interested in.

Volume

Volume refers to the number of shares traded in a security or an entire market during a given period of time. It is simply the amount of shares that change hands from sellers to buyers or sellers to buyers. If a buyer of a particular stock purchases 100 shares from a seller, then the volume for that period increases by 100 shares based on that transaction. Volume is an important indicator in technical analysis as it is used to measure the worth, in dollars, of a market move. If the markets have made a strong price move either up or down the perceived strength of that move depends on the volume for that period. The higher the volume during that price move the more significant the move.

On Balance Volume – OBV

OBV is a method used in technical analysis to detect momentum. This indicator is a ratio which compares volume to price change. OBV provides a running total of volume and shows whether this volume is flowing in or out of a given security. This indicator was developed by Joe Granville. The intent of OBV is to detect when a financial instrument (stock, bond, etc.) is being accumulated by a large number of buyers or sold by a sizeable number of sellers. Traders will use an upward sloping OBV to confirm an uptrend, while a downward sloping OBV is used to confirm a downtrend. Finding a downward sloping OBV while the price of an asset is trending upward can be used to suggest that the "smart" traders are starting to exit their positions and that a shift in trend may be on the horizon.

Money Flow

Money flow is calculated by averaging the high, low and, closing prices, of an equity, then multiplying that outcome by the daily volume. Comparing that result with the number for the previous day indicates whether money flow was positive or negative for the current day. When a stock is purchased at a higher price, or an up tick, this is considered positive money flow. When the next trade is at a lower price or a down tick, then money flow is negative. If more shares were bought throughout the day on the up tick than the down tick, net money flow is positive. If money flow is negative when a stock's price is rising, this could be signaling a reversal.

Accumulation/Distribution

Accumulation and distribution are momentum indicators which try to gauge supply and demand by discovering if investors are generally accumulating (buying) or distributing (Selling) a certain stock by identifying divergences between stock price and volume flow. For example, many up days, occurring with high volume in a down trend could signal that the demand for the underlying is starting to increase. In practice this indicator is used to find situations where the indicator is heading in the opposite directions than the price. Once this divergence has been identified the trader will wait to confirm the reversal and make their transaction decisions using other technical indicators.

Simple Moving Average – SMA

A simple or arithmetic moving average is calculated by adding the closing price of a security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying stock, while long term averages are slow to react. In other words, this is the average stock price over a certain period of time. Keep in mind that equal weighting is given to each daily price. Generally, when you hear the term "moving average," it is in reference to a simple moving average. This can be important, especially when comparing to an exponential moving average (EMA) which is defined below.

Exponential Moving Average – EMA

A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. Also known as an "exponentially weighted moving average." This type of moving average reacts faster to recent price changes than a simple moving average. The 12- and 26-day EMAs are the most popular short-term averages; they are used to create indicators like the moving average convergence divergence (MACD) and the percentage price oscillator (PPO). In general, the 50 and 200 day EMAs are used as signals of long-term trends.

Relative Strength Index – RSI

RSI is a technical indicator of momentum which compares the magnitude of recent gains to that of recent losses, with a goal of determining overbought and oversold conditions of an asset. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued. A trader using RSI should be aware that large surges and drops in the price of an asset will affect the RSI by creating false buy or sell signals. The RSI is best used as a valuable complement to other stock-picking tools.

Commodity Channel Index – CCI

The Commodity Channel Index is used in conjunction with the RSI indicator. It is an oscillating indicator used in technical analysis to aid in determining when an investment vehicle has been overbought and oversold. The Commodity Channel Index, first developed by Donald Lambert, quantifies the relationship between the asset's price, a moving average (MA) of the asset's price, and normal deviations (D) from that average. The CCI has seen considerable growth in popularity amongst technical investors. Today's traders often use the indicator to determine cyclical trends in not only commodities, but also equities and currencies. The CCI, when used in conjunction with other oscillators, can be a valuable tool to identify potential peaks and valleys in the asset's price, and thus provide investors with reasonable evidence to estimate changes in the direction of price movement of an asset.

Stochastic Oscillator

Stochastic Oscillator is a technical momentum indicator that compares a security's closing price to its price range over a given time period. The oscillator's sensitivity to market movements can be lessened by modifying the time period or by taking a moving average of the result. The theory behind this indicator is that in an upward-trending market, prices tend to close near their high, and during a downward-trending market, prices tend to close near their low.