If you're a trader looking for short-term opportunities, technical analysis is what you must focus on. Technical analysis involves analysing the historical price and trading volume of an asset to predict its future movements. Through technical analysis, you can unearth patterns, trends and potential reversal points that are not very apparent.
However, a major limitation of this method is that it consumes a lot of time since you need to look at and analyse multiple indicators. Here's where tools like technical screeners can come in handy. They're specially designed tools that allow you to instantly filter stocks based on predetermined technical criteria. It speeds up the technical analysis process significantly and helps you make informed trading decisions that are in line with your goals and risk profile.
A technical stock screener is a tool that allows you to shortlist stocks that meet the predefined technical criteria you choose. The primary goal of the screener is to help you identify potential trading and investment opportunities based on your preferred technical indicators and patterns.
Research 360 by Motilal Oswal offers a powerful technical stock screener in India. With the tool, you can filter stocks on the basis of more than 100 technical criteria across 10 different categories of indicators. From moving averages and relative strength index to MACD and Bollinger Bands, you can instantly get information on stocks that match your chosen technical indicator.
The way technical indicator screeners work is very simple. Here's a quick step-by-step overview to help you understand them better.
Firstly, you need to select the technical criteria based on which you want the tool to filter stocks. For example, if you wish to know what stocks are in the overbought zone or oversold zone of the relative strength index (RSI), you can simply select the criteria pertaining to it. You can also choose multiple technical criteria across different segments as well.
The technical indicator screener will filter stocks based on your inputs. The more criteria you choose, the shorter and more refined the list of stocks is likely to be.
Once the stocks are displayed, you can sort through them and filter them further based on the index or sector.
Technical indicators can be categorised into different types such as trend-following indicators, momentum oscillators, volume indicators and volatility indicators, among others. Let's look at some of the most commonly used technical indicators.
Moving Averages Moving averages are lagging technical indicators that help you identify trends over a specific time frame by smoothing out an asset's price data. There are two types - Simple Moving Average (SMA) and Exponential Moving Average (EMA). An increasing moving average may indicate a bullish trend, whereas a decreasing moving average may indicate a bearish trend.
Moving Average Convergence and Divergence (MACD) The MACD is a trend-following technical indicator that helps establish a relationship between two moving averages of an asset. The MACD line is the difference between a short-term EMA and a long-term EMA. If the MACD line crosses above the signal line, it signals a potential bullish trend. If it crosses below, it indicates a potential bearish trend.
Bollinger Bands Bollinger Bands are a volatility indicator that consists of three parts - a middle band (SMA) and two outer bands (standard deviations). The bands expand during periods of volatility and contract during low volatility. If an asset's price touches or crosses the upper band, it is overbought. If it touches the lower band, it is oversold.
Relative Strength Index (RSI) The RSI is a momentum oscillator that measures the speed and quantum of price movements in an asset. It moves between a scale of 0 to 100. If the RSI is above 70, the asset is said to be overbought. Conversely, if the RSI is below 30, the asset is said to be oversold.
Stochastic Oscillator The Stochastic Oscillator measures the location of an asset's closing price relative to its price range over a specific period. It moves between 0 to 100. If the oscillator moves above 80, the asset is overbought, and if it moves below 20, the asset is oversold.
Average Directional Movement The ADX is a technical indicator used to measure the strength of a trend irrespective of its direction. It ranges from 0 to 100. A rising ADX indicates a strengthening trend, whereas a falling ADX indicates a weakening trend. It is advisable to use it in conjunction with other indicators.
Williams %R The Williams Percent Range or Williams %R is a technical indicator that identifies overbought or oversold conditions. It moves on a scale of -100 to 0, with readings below -80 being oversold and readings above -20 being overbought.
Money Flow Index The Money Flow Index or MFI measures the strength and direction of the flow of money in an asset for a specified time frame. It moves on a scale of 0 to 100 and uses both price and volume data to identify overbought and oversold conditions.
Research 360 by Motilal Oswal offers a comprehensive technical stock screener in India. Here's a quick look at some examples.
Each category of technical indicators featured above contains more in-depth screeners to help you filter stocks more effectively. For example, under the Relative Strength Index category, you can find screeners like RSI Overbought Zone and RSI Oversold Zone. Meanwhile, under MACD, you can find screeners like MACD CrossOver Signal Line and MACD Moving Above Zero.
You can select the screener depending on your preferred indicator. For example, if you wish to identify oversold stocks, you can choose screeners like RSI Oversold Zone and Price CrossOver Lower Bollinger Band. This should give you the list of stocks that have been oversold and are likely to bounce back up in the future.
