Best stock trading indicators every trader should know

Best stock trading indicators every trader should know

Trading platforms come equipped with several technical indicators that help traders in their analysis, judgment, and decision-making. If you are trading in stocks, there are indicators that assist you in keeping track of your trade and making sure you take decisions in a timely manner. 

Every trader, regardless of their experience, has their own tools that they apply while trading. These include indicators that estimate the projected stock price, while other indicators measure volatility levels and many more options that are accessible. 

As a trader, you are looking for the best indicators to use in trading stocks, in order to optimize your analysis accuracy and open profitable market positions. The technical indicators that we are going to discuss in this guide include:


Things to Know About Trading Indicators

  • Indicators help traders to determine the best time to enter and exit the market
  • There are many different indicators, each taking into account different information in order to provide market insight
  • Technical indicators can be found in the trading platform, additional indicators can be installed from the marketplace to give the trader advanced analytical tools
  • One technical indicator can also contain more indicators within itself

Why Are Technical Indicators Important?

Technical indicators can be found in the trading platform, and they help traders with an advanced view of the charts, price trends, analysis, and many more things. There are different indicators that serve different purposes, some of them are used to identify projected price movement, while other types of indicators highlight momentum in the market.

“I always laugh at people who say, ‘I’ve never met a rich technician.’ I love that! It’s such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician.” - Martin Schwartz

Trading stocks requires a wide span of knowledge, experience, and judgment to make the right decision. Stock prices are highly tied to global events, corporate reports, and national economic situations.

Therefore, investors who trade stocks with technical indicators can see the estimated price movement based on historical price movement, which helps traders enter the market at the right time. 

Similarly, a trader may apply an indicator that calculates market volatility, so that the trader understands how much the market price is likely to change, and in what range prices will be fluctuating.

How to find indicators in trading platforms

The trading platforms, whether you’re using MT4, MT5, or any other platform, come with built-in indicators that work pretty fine. They all serve different purposes and offer great assistance to the trader.

In addition, a trader can install more indicators for stock trading from the open-source marketplaces, such as MetaQuotes' marketplace for MT4 and MT5.

Using the MT4 or MT5 trading platform, you can apply any indicator to the trading view from the navigation panel on the left side of the interface. Expand the indicators folder, then drag the indicator you need to the price chart. Before the indicator is added, you will be asked to set the parameters of the indicator before it reflects on the chart.

The Best Indicators to Use in Stock Trading

Different indicators have different functions - traders can use different indicators depending on what they are trying to achieve. The indicators are based on automated mathematical equations that instantly respond to market inputs. In the following, we will discuss the 7 best indicators a stock trader can use.

Moving averages

The MA indicator is a commonly used indicator, it is easy to use and simple to understand. It uses the historical price movement to draw an estimation of future stock prices.

Many investors in stock trading use strategies based on the MA indicator because it shows the estimated maximum and minimum limit of the price change. In this sense, it is similar to resistance and support levels for a specified period of time. Traders can set the time frame to 30-days, 50-days, 90-days, or 120-days.


Using the moving average indicator, if the average line is rising, it means the market is experiencing an upward trend. If the moving average line declines, it means that the market is on a downward trend.

By discovering the market price direction, a trader can determine the best time to enter or leave the market, and what orders to execute. 

Some traders mix different time frames of the moving average indicator in stock trading, which helps them to understand if breakouts or momentum can be expected. 

When the short timeframe moving average rises crossing the long timeframe moving average, it indicates a bullish outbreak. On the other hand, when the short time frame crosses the longer time frame while moving downwards, it is more likely due to a bearish outbreak.

Exponential moving averages

The exponential moving average indicator, or EMA for short, works similarly to the simple moving averages indicator. However, the only difference is that the EMA gives more importance to recent price data, while the simple moving average treats each day's price movement as equal in importance.

Traders who use this technical indicator in stock trading believe that recent price changes are more significant than older data. The claim is that recent price changes are more likely to remain ongoing, and are more meaningful than old price information.

The buy and sell signals in this indicator work similarly to the simple moving average. The average price line movement determines whether the market trend has an upward or downward tendency.

Moving Average Convergence Divergence

The MACD indicator is widely used by stock traders, it indicates the price momentum and trends, and it is also used to signal good opportunities for buy or sell orders in the market.

It is calculated by subtracting the 26-period from the 12-period in the previously explained EMA. The resulting “signal line” moves along the chart, with the MACD line, to determine the price trend and the suggested market order that would be best to open at that point in time.


When the MACD line is above the signal line, it triggers a buy signal, while if the MACD line drops below the signal line then the trader receives a sell signal.

Some traders consider it one of the best indicators to use in stock trading. It highlights breakouts when the stock is overbought or oversold. The distance between the MACD and the signal line determines the price momentum. When these two lines move far from each other, it shows how long the momentum is going to last, and in which direction.

This indicator can also be depicted as a histogram, which shows in colors whether the market is bearish or bullish, and how long it is going to be trading in that direction.

Bollinger bands

Bollinger Bands consist of three lines - an upper band, a lower band, and a middle line. Together they form a tube that moves along the price chart.

The Bollinger Bands are used to express the volatility level in the market based on the movement of these upper and lower bands. The bands contract and expand as the market volatility changes, while the middle line works similarly to a simple moving average.


Investors who are trading in stocks use indicators like Bollinger Bands to identify entry and exit points in the market because the upper and lower bands work in a similar way to support and resistance levels.

When the market price moves towards the upper band, it is more likely going to rebound once it touches the upper limit, and in this case, a trader may want to close their current position. Additionally, they open a counter-market position or execute a sell order.

On the other hand, if the market price moves below the middle average line, and towards the lower band, it is more likely to change its direction once it reaches the lower limit, which signals market exit or execution of a buy order.

Stochastic Oscillator

The stochastic oscillator is a momentum indicator that shows the closing price of an asset and compares it against its other prices over a certain period of time. It is used to understand the overselling and the overbuying points in the chart, indicating entry or exit points in the market.

It is a popular indicator in stock trading, and it visually expresses what the trader needs to see. The values of this indicator range from 0 to 100, with 100 being the maximum overbuying point, and 0 being the maximum overselling point.


According to the number this oscillator shows, the trader makes their trading decision. If the number is shown over 80, the asset is being overbought, and at some point, it will turn around to the downside.

However, if a stock trader using this type of indicator sees a number less than 20, then the stock is being oversold. At a certain point, the market will balance, and the stock price will shift upwards.

Additionally, a trader can change the sensitivity level of this indicator, according to what view they want to see. 

If a trader wants to look at the bigger picture, they may reduce the sensitivity of the indicator. While traders who want to look at more details - for example, day traders or scalpers may increase the sensitivity by reducing the range that compares the different closing prices.

Relative Strength Index

Another popular indicator for stocks is the RSI, or the relative strength index, which is a momentum price indicator. This indicator observes the price changes of an asset and displays in numerical value how strong these changes are.

The RSI uses different values than the stochastic oscillator in conveying signals. If the RSI indicator is above 70 it means that the stock is overvalued and it might reverse its direction and go down at any moment. The higher the number is, the higher the chances are for the stock to turn down, and the more intense this change is going to be.


On the other hand, if the number is shown below 30, the stock is undervalued and is expected to pick up an upward trend, which signals that a trader needs to consider a buy option. The lower the number is from 30, the higher the chances of a rebound being intense.

The RSI indicator is used by successful stock traders, as it enables them to identify the market sentiment, whether it is going bullish or bearish.

If the market price rises and crosses the RSI 30 line from below, it indicates a bullish sentiment. Similarly, if the market price drops and crosses the RSI 70 line from above, it indicates a bearish sentiment.

Fibonacci Retracement Levels

Fibonacci retracement levels are one of the most important indicators that most stock traders use. They highlight the future support and resistance price for the stock. The indicator is plotted by a set of four lines or four levels which are 23.6%, 38.2%, 61.8%, and 78.6%.

These Fibonacci levels indicate how much value was lost by the stock due to recent price changes, and it is used in different spheres such as in nature and in other complex mathematical computations.

Let’s say the stock price drops just below the 61.8% level, then the 61.8 % level becomes the new resistance level, and the next line 38.2% becomes the new support level.


On the contrary, when a stock price rises by crossing a specific line, that line becomes the new support level, and the next line becomes the new resistance level. This way, traders can estimate future price changes. 

Stock traders use the Fibonacci indicator to set stop-loss options, which can be placed at the retracement level that’s just below the current market price. Additionally, the levels help the trader determine the best time to enter the market, and what the expected price movement will be.

What Did We Learn From the Best Indicators for Stock Trading

  • Technical indicators help stock traders identify the projected price movements based on historical price data
  • Some indicators are used by stock traders to determine market volatility, which helps them understand how strong the stock price fluctuations might be
  • Stock traders use indicators to have better control over their trade and to increase the chances of a successful trading session
  • The moving average indicator is commonly used by stock traders. The MA indicator is also popular for its advanced indicators, the EMA and the MACD indicators

FAQs on the Best Indicators to Use for Stock Trading

How are technical indicators used in trading?

Technical indicators are used to identify historical price fluctuations, and to estimate the future price trend. Indicators can also calculate market price volatility or price change strength. Their function is to provide signals to the traders about market entry/exit points, and what the best market order is that a trader can make at that point in time. 

What are the best technical indicators for day trading?

The moving average indicator is commonly used for day trading stocks. It gives the traders an idea about the estimated price movement and the projected trend, based on which, the trader can enter or leave the market.

Similarly, Bollinger Bands are quite useful for day trading stocks. They give the trader an idea about the current and future projections of market volatility, which assists the trader to understand how intense the market fluctuations might be.

What indicators do professional traders use?

The moving average indicator and the relative strength index indicators are used widely by stock investors. They can be used in conjunction with each other - this way a trader can estimate future price movement, and point out any overbought or oversold security.