Last Updated on 17 November, 2020 by Samuelsson
Most traders are familiar with the most common trading indicators, like RSI, MACD, and ADX. And while these are great trading indicators, there are many more that you may use with great success in your trading.
In this article, we’re going to cover over 20 different trading indicators that you most likely haven’t heard of or know very little about. We’ll touch on trading indicators ranging from market breadth indicators to momentum indicators and oscillators.
20. Fractal Adaptive Moving Average (FAMA)
The Fractal Adaptive Moving Average was invented by John Ehlers, and works by averaging the difference of lowest lows and highest lows over different data points of the indicator length. This value is then processed further through a number of mathematical calculations before we have the final FAMA indicator value.
How to use the Fractal Adaptive Moving Average
The fractal adaptive moving average can be used as most other moving averages. That includes defining the long term trend, price crossovers, and support and resistance.
The Trin Indicator, which is also known as the ARMS index, is a trading indicator that’s used primarily to identify oversold and overbought conditions in the markets. It’s a so-called breadth indicator or market sentiment indicator, that gets its value from comparing the advancing stocks versus declining stocks, together with the volume of advancing stocks versus the volume of declining stocks.
Considering that TRIN takes into account not only price but also volume, it indicates both the momentum or velocity of the price moves in the market and the strength of the market in terms of advancing or declining volume.
How is TRIN Interpreted?
The traditional approach is to regard readings above 3 as overbought, and readings below 0.5 as oversold. A TRIN reading of 1 normally indicates a stock market that’s neither oversold nor overbought.
Here you may read more about the TRIN indicator!
The McClellan Oscillator is another market breadth indicator that gets its value from comparing the number of advancing stocks to declining stocks on a particular stock exchange. One of the most common applications of the indicator is to point out strong shifts in market sentiment, but it may also be used to spot divergences or to confirm a buy signal in a particular stock.
How is McClellan Interpreted?
McClellan gets its reading by using an average of the advancing versus declining stocks. This means that we’re playing with a smoothened value.
Indicator readings above 0 show that more stocks are advancing than falling. Conversely, indicator readings below 0 show that more stocks are falling than rising. Due to this, a positive trend in a market index will often be coupled with a positive McClellan reading and the other way around! However, if there is a divergence in a strong market trend, it may be a sign that the current market trend is fading in strength.
Crossovers above or below the zero-line may suggest that the current trend is changing. If McClellan makes a large move of 100 points or more, that’s typically called “breadth thrust”. In essence, this shows that a lot of stocks have experienced a sudden change in direction.
Our article on the McClellan Oscillator covers this topic in greater depth.
Williams %R is a momentum indicator that oscillates between 0 and -100, showing overbought and oversold market conditions. Developed by Larry Williams, it’s quite similar to the stochastic oscillator, in that it compares the current price of a stock to the price range over a certain period. Typically, you use a lookback period of 14 periods.
How Do You Interpret Williams %R?
As stated the most common approach is to look for overbought and oversold market conditions. Usually, readings below -80 suggest an oversold market, while readings above -20 indicate an overbought market that may turn down soon.
Our guide to Williams %R shows you how this indicator can be used in trading!
This is a contrarian-type trading indicator that attempts to show when there is a greater chance of an impending market reversal. It uses a measure of the number of odd lots in the market to figure out when there are many retail traders and investors entering the market. The assumption goes that individual traders and investors tend to be wrong about the market, which means that an increase in buying pressure from those groups could foreshadow a reversion of the market trend.
For those who don’t know, odd lots are trade orders that encompass less than 100 shares. Professional investors and traders tend to trade stocks in multiples of 100, which is why a big amount of odd lot orders shows that individual investors and traders are investing heavily in the market at the moment.
Does the odd lots statistics still work?
The odd lots theory has been disproven, and with more and more brokers offering zero commission deals, odd lots trading has increased a lot. This may indicate that the indicator no longer remains relevant.
However, here at The Robust Trader we always believe that you should test everything yourself before rejecting an idea! This is best done through backtesting!
15.Short Interest Ratio
This trading indicator using a somewhat unconventional measure to find out how positive market players are about a specific stock or security.
In short, it works by dividing the number of outstanding short positions in a stock or security by the daily trading volume. This way we get a quick measure of whether the security if heavily shorted or not.
How do you interpret the short interest ratio?
The short-interest ratio is not only used to determine the absolute share of shorted stocks. Many traders also use it to get a sense of changes in market sentiment. Thus, a rise in the indicator may suggest that the market is becoming more bearish on the security, while the opposite applies for declining indicator values.
Difference between short interest ratio and short interest
It may be useful to know the difference between the two terms short interest ratio and short interest, not to confuse the two.
In short, the short interest ratio, as outlined above, is the ratio of shorted stocks to absolute trading volume. On the other hand, short interest is an absolute value of the number of shorted stocks in the market.
While both measures can be used to analyze the markets, the latter, that is the short interest, must be used together with a measure of trading volume to have any real value, if you’re not comparing the short interest of today to one of another day.
14.Connors RSI (CRSI)
One of the most widely used trading indicators indeed is the RSI indicator. Used to both define oversold and overbought conditions, as well as momentum in the market, it has gained a lot of popularity.
Inevitably, this has resulted in a large number of variations that all try to modify the formula to improve on the indicator’s performance. One such trading indicator is the Connors RSI, which was developed by the famous trader Larry Connors.
In short, the CRSI adds a measure of the rate of change together with an RSI-reading of the up/down streak amount for the selected period, to the original RSI calculation. This makes the indicator produce more reliable trading signals, according to many traders.
How to Interpret the CRSI
Since Connors RSI is a development of the original RSI indicator, you may use the same setups as for the normal RSI. In other words, readings above 70 are regarded as overbought, while readings below 30 are seen as oversold.
Our guide to Connors RSI deals with the indicator in greater depth!
This is another indicator that uses a measure of the market participant’s activity in an attempt to provide useful information about the market.
It does so by comparing the number of purchased put options relative to call options, to get a sense of what market participants expect from a particular market or stock, which can be traded through options.
The formula for the indicator simply is the same as the indicator name. That is, you divide the number of put options purchased one day by the number of call options.
How to interpret the Put/Call Ratio
The lower the reading, the more bullish the market. Conversely, the higher the reading, the more bearish the market.
Generally, readings above 0.6 reflect a bullish sentiment, while readings slightly above 1 show that market sentiment is bearish.
It’s important to note that the put/call ratio is considered a contrarian indicator by many. That is, you should consider going long on high readings, and short on low readings.
This is quite a clever indicator that compares the trading volume of the NYSE American Exchange to the trading volume of the New York Stock Exchange. It simply divides the former by the latter.
Now, the reason why this is an interesting comparison to make, is that stocks that trade on the NYSE American Exchange are smaller companies that often are of somewhat speculative nature, while those trading on the NYSE usually are larger, more stable companies.
Thus, when more there is more trading volume in the NYSE American, it shows us that market participants are becoming more speculative.
How to Interpret the Speculation Index
A common interpretation of the index is that a high ratio shows that investors are getting more bullish and have adopted a more positive market outlook. And since market participants tend to be the most positive when the market turns around, a high reading is often interpreted as a sign that the market is nearing a peak.
This is another indicator that’s concerned with the number of advancing stocks to provide a measure of market sentiment.
The advance/decline line simply is an accumulated value of the number of declining and advancing stocks during each day. That is, each day you subtract the number of declining stocks from the number of advancing stocks. The result is then added cumulatively for each day and becomes the indicator value.
How to Interpret the Advance/Decline Line
Most traders use the Advance/Decline Line to confirm a current trend, by gauging whether a majority of the stocks are going in the same direction as the market index. For instance, if you see the Advance/Decline line fall as the index makes new highs, it’s a sign that the market may soon turn around.
Conversely, if a market index is in a bearish trend and continues to go lower and the Advance/Decline Line turns around, it could be the right time to look into being long in the market.
10.Adaptive Moving Average
This might not be the most uncommon trading indicator out there, but it still is worth mentioning.
Just like the RSI indicator, the moving average is an indicator that has been tweaked into countless versions. One version that we have found very useful ourselves, is the adaptive moving average.
In contrast to a regular moving average, which in essence is a plain average of the prices for the selected period, the adaptive moving average puts more weight on recent prices. This creates an average that trails the price more closely.
How to Interpret the Adaptive Moving Average
Moving averages of all kinds can be used in a variety of ways. For example, you could look for price crossovers, where the market closes above or below the moving average. Another common use is to look for the slope of a long term moving average to determine the current trend direction.
We recommend that you read our extensive guide to moving averages if you want to find out more about the adaptive moving average, and other average types!
The tick index is quite similar to some of the other market breadth indicators that we’ve mentioned in this guide. However, the main difference lies in that the tick index works well on an intraday basis, and therefore is a popular indicator among daytraders.
The tick index looks at the stocks on the NYSE, and measures the number of stocks that make an uptick, and subtracts the number of stocks that make a downtick. So if 1000 stocks out of 2800 make an uptick while the remaining 1800 make a downtick, we would have a tick value of 1000-1800 = -800.
The tick index is often used with lower timeframes, like 5-minute bars.
How to interpret the Tick Index
A common interpretation is that readings above +1000 and below -1000 are extremes, and indicate a possible reversal of the short term trend.
It’s important to remember that the signals you get from the tick index at lower timeframes usually are quite short-lived, and might only suit short term daytraders.
8.Advance/Decline Volume Line
The advance/decline volume line is very similar to the advance/decline line. However, instead of accumulating the number of rising stocks minus falling stocks, it accumulates the volume of rising stocks minus the volume of falling stocks.
So, for each day that passes, you take the volume of all ascending stocks on the exchange subtracted by the volume of all declining stocks and add the value to all previously accumulated readings.
How to Interpret the Advance/Decline Volume Line
The Advance/Decline Volume Line is often used to confirm the strength of a trend. For example, you’d like to see a rising line when the market is ascending, and the other way around.
It’s also commonly used to spot divergences that may warn us about an imminent change in the market trend!
7.New 52-Week Highs and Lows
This is a market breadth indicator that looks at the bigger trends in the market in an attempt to decide whether it’s bullish or bearish. It does so by comparing the number of stocks that perform a new 52-week high, to stocks that perform a new 52-week low.
How to interpret the 52-Week Highs and Lows reading
You get the indicator value by just dividing the former by the latter. If you get a high ratio, it means that the underlying market strength is fairly strong, and should be able to support a bullish trend, and the other way around.
Just like with most other similar trading indicators, you may also look for divergences to tell if the current market trend is losing or gaining in strength.
6.Guppy Multiple Moving Average – GMMA
The Guppy Multiple Moving average, or GMMA, takes a quite innovative approach to moving averages. It tries to identify things like breakouts, trend changes, and other trading opportunities by using two clusters of moving averages.
- The first cluster consists of six short term moving averages. These are usually set at 3, 5, 8, 10, 12, and 15 periods.
- The second cluster consists of six long term moving averages, which usually are set at 30, 35, 40, 45, 50, and 60 periods.
How to use the GMMA
As we stated, this indicator can be used in a variety of ways. Here are the three most common approaches:
- When the short-term cluster moves above the long term cluster, it signals that we may witness the start of a new uptrend. The opposite applies to a downtrend.
- When the two clusters are far from each other, it indicates that the current trend is strong, and might be worth following.
- Some traders choose to trade in the direction of the longer-term moving average but use the shorter cluster for entry signals.
5.Variable Index Dynamic Average(VIDYA)
The variable index dynamic average is another moving average type that attempts to reduce the number of false signals.
The formula is quite complex, but in short, it works by adjusting the smoothing factor to the current market volatility. This helps make the indicator line more relevant to the current market action.
4.Moving Average Envelope
The two bands are then placed a predetermined percentage distance above and below the moving average, For instance, you could set the two bands at a 2,5% distance above and below the moving average
How Do You Use Moving Average Envelopes?
Since moving average envelopes very much resemble a typical price channel, they may be used in a similar fashion. This means that you either could look for breakouts past the upper or lower line, or look for price reversal around those levels.
Our guide to price channels goes into more depth on how you may use price channels of different kinds in your trading!
3.Hull Moving Average
Here comes another moving average, which differs from typical moving averages in that it is much more responsive, even compared to the exponential or weighted moving averages.
It achieves its responsiveness by using three weighted moving averages with different settings to performs smoothing in several steps. However, this doesn’t mean that it’s more lagging than other moving average indicators. On the contrary, the hull moving average is extremely responsive and indeed is one of the fastest moving averages available!
How to Use the Hull Moving Average
You may use the hull moving average in the same way as most other moving averages. That includes finding the main direction of the long term trend, as well as spotting price crossovers. If you’re interested in learning more about this, we once again would like to mention our extensive guide to moving averages.
At first glance, the Hindenburg omen may indeed seem like a very serious indicator, since its main goal is to signal when there is an increased likelihood of a market crash.
In short, it looks at the percentage of new 52-week lows and highs, where certain threshold values are said to indicate an increased likelihood of a market crash.
The indicator was noted after the famous German Airship “Hindenburg” which was involved in a fatal crash in 1937.
How to Interpret the Hindenburg Omen
The criteria for an indicator signal showing that there is an increasing probability of a market crash are that:
- The ratio between stocks that make new 52-week highs and those that make new 52-week lows is higher than 2.2
- The number of 52-week highs should not be more than twice the number of 52-week lows.
- The market must be in a bullish trend. This is often defined as that the market is above a longer moving average.
- Then, the last requirement is that the McClellan Oscillator is showing negative values.
According to the original rules, a Hindenburg omen signal is active during the 30 days following the first signal.
Here you may read more about the Hindenburg Omen.
The McGinley Dynamic indicator is a moving average that attempts to track the market in a more accurate manner than the common moving averages. It does so by accounting for shifts in the momentum and the speed of the market, with the help of a smoothing factor that automatically adjusts to the current market conditions.
The uses are similar to other types of moving averages, which is why we once again will refer to our guide to moving averages if you’d like to know more!
In this article, we have presented more than 20 trading indicators that tend to go unnoticed by the large masses. We certainly believe that you’ll be able to find some new helpful tools for your own trading by looking through this list.
We especially recommend that you look closer at market breadth indicators since the rely on other types of market data than the typical price indicators. That way you’re much more likely to find new and fresh patterns you haven’t noticed before!