A bullish trend provides the investors with a platform where they can take a risk and are favourable odds of getting money’s worth due to the overall rise in the index. This follows the trends necessarily regardless of the fundamental or valuation of the stock.
To predict the bullish cycle in the stock market it is needed to take advantage of the bullish technical indicators and equip them with the quintessential tools to approach the gains. Using these bullish indicators one can plan out time to BUY and time to SELL.
This article covers the top 5 bluish indicators through which you can easily predict the bullish market and plan the investment accordingly.
List of Top 5 Bullish Indicators
Here is the list and complete insight into the top 5 bullish indicators.
1. RSI Weakness
The Relative Strength Index (RSI) is the technical indicator that gives out the idea of undervalued, overvalued security. This is a momentum indicator that defines the significance of the recent price changes.
The higher the RSI is more likely it predicts the stock is overvalued and the lower the RSI it is predicted that the stock is undervalued. The RSI is shown by the simple line graph that goes up and down between two extremes. This is also known as the oscillator. When the line dips below a certain level it helps in indicating the potential undervaluation. This is when it rises above a certain level and indicates overvaluation.
The value of the RSI ranges from 0 to 100, this rarely falls below 20 or goes higher than 80. It is usually shaded between 30-60 which is also known as the “paint” area. The RSI between the range can still provide insight, but this is completely not reliable as an indicator.
An RSI of 50 is considered neutral and 30 and less than 30 is considered undervalued (bullish) and above 70 is considered overvalued (bearish). In short, the lower the RSI, the more the bullish indicator it predicts.
2. Moving Average Golden Cross
Moving averages is one of the common indicators the moving average is the mean of the daily price of the stock closing price for certain trading days. The moving average indicator smooths out the trend of the stock price and can highlight any move which is above or below the trend.
The moving average is usually denoted by the line that overlays on the price chart. These moving averages do not contain a lot of information in and of themselves. The key average can intersect each other and can indicate a major sell signal. The prices often fluctuate after the “golden cross” happens.
Usually, the 50-day MA and the 200-day MA are important as they cross paths. Usually, the 200-day MA will be higher than the 50-day MA. If the 50-day crosses above the 200-day, the move can be seen as a bullish indicator. This in short signifies the trend toward the upward price movement.
The indicator is also popularly known as the “golden cross,” this is regarded as a rare and reliable indicator. Prices often move up from the golden cross. Moreover, the golden cross can occur with the moving average of time frames shorter than 50 or 200 days as well, but longer time frames carry more weight.
3. Directional Movement Indicator
The directional movement indicator or DMI is another useful indicator to identify the trends usually combined with various indicators. The DMI gives information on the strength and the direction of the trend. The indicator consists of the directional indicators such as;
- Positive directional indicator DI+ (Greenline): this helps in reflecting the difference between the highest price of the current day and the highest price of the day before.
- Negative directional indicator DI (Redline)- this reflects the difference between the lowest price of the current day and the highest price of the day before
- Average directional indicator ADX (Blackline)- this reflects the strength of the trend and hs the average of DI+ and DI-
Source of Signals
- Bullish signal: when the DI+ line is the DI- line and the ADX line reaches a value >25 (more than 25) then a bullish signal is triggered
- Bearish signal: on the other hand when the D+ signal and the DI- line and the ADX line reaches the value <25 (less than 25) then a bearish signal is triggered.
4. MACD Crossovers
This is one of the most reliable and accurate indicators used in predicting the bearish market. This enables the opportunity to capitalise on gains from the “buy at low and sell at high” approach. The moving average convergence divergence or MACD helps in providing both the trend following and momentum signals as it is a combination of moving averages. This then spirals around the centre or zero line, making it suitable for long term trade and short term trade. This consists of the 3 lines which are:
- MACD or Fast line: this is calculated by subtracting the 26 periods EMA (Exponential moving average) from 12 periods EMA.
- Signal or slow line: this is calculated through the 9 days EMA of the MACD or Fast line.
- Centerline or zero line: this is just a straight line the MACD and signal line move across these lines of zero.
Sources of Signal
Here is the source of the signals
Moving Average Crossovers
- A bullish signal is predicted when the MACD line crosses the signal line from below.
- A bearish signal is predicted if the MACD line crosses the signal line from above
- When the MACD line crosses the zero (centerline) from below the signal is generated.
- On the other hand, the bearish signal is generated when the MACD line crosses the zero (centerline) from above.
These are not frequently seen but when they do appear it gives a great insight into future price movements. When the prices are showing higher highs then the buying pressure falls resulting in lower highs in MACD is a Negative divergence.
On the other hand, if the prices make lower lows but the buying pressure is rising, the MACD’s positive movement is a Positive divergence.
5. EMA Cross
The exponential moving average cross is one of the commonly used bullish indicators. This generates both the bullish and the bearish signals very effectively and gives more importance to the recent prices than the older prices.
Usually, the EMA cross is much more effective than the single EMA line. The EMA cross will help in filtering out the unnecessary trade signals and provides clarity in detecting the appropriate entry points.
The cross consists of two lines which are the short-term moving average and long-term moving average line.
Source of Signals
- Bullish signal: if the short term exponential moving average crosses the long term moving average from below signals it will be a bullish EMA cross
- Bearish signal: on the other hand when the defined short-term exponential moving average crosses, the long-term exponential moving average from the above signals will indicate the bearish EMA cross
In conclusion, understanding the bullish trend through the analysis of the bullish indicator is important if you focus on the short-term gains. A bullish indicator is mathematical calculations based upon historic prices which may sometimes provide false signals. It is important to use two or three indicators together to maintain the data and come to a conclusion.
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