Learning to uncover useful trading indicators is a big part of the success puzzle when becoming a serious investor.
The right indicators can help you spot trends and opportunities before the rest of the market becomes aware, jumping in on the ground floor of red-hot investments with the most potential to take off while minimizing your risk at the same time.
But if you’re only ever following the most popular indicators, you’re going to be getting the same intelligence and the same news about specific opportunities that everyone else is. That minimizes your upside and handicaps your ability to pile on the profits.
No, suppose you want to take your portfolio to the next level. In that case, you’re going to want to master less popular (but still profitable) indicators that the rest of the investment world isn’t finely tuned into.
Let’s jump right in.
Relative Strength Index (RSI) indicators aren’t quite as popular as some of the other hands out there but provide you with a complete picture of a stock or asset price at that particular point in time.
RSI can clue you into buying or sell signals, verify price movement in the market, and also helps you know whether or not a stock is being overbought or oversold.
Lagging Relative Price Performance
Another indicator to pay attention to is whether or not a specific stock’s price is lower than the industry peers, which may, in fact, reveal a bit of an underperformance situation – one that could prove to be wildly profitable for you if there is a course correction.
Be on the hunt for undervalued stocks that have the potential to “pop” with this indicator.
Moving Average Convergence Divergence Indicators
The MACD indicators are sometimes described as “oscillating” indicators, fluctuating around zero but helping you to understand better specific trend patterns and the movement and momentum of stocks in any particular direction.
If you see MACD lines that are consistently hovering above zero, for example, the odds are pretty good that a stock is trending downwards.
If, on the other hand, you see the MACD line cross from negative to positive, the odds are pretty good, you’re going to want to jump on board – this is very much a buy signal. When that movement is reversed, though, it’s time to unload!
High Dividend Yield
Higher dividend yield payments that exceed industry peers may indicate that a share value has dipped slightly to a more “undervalued” status (at least in overall relation to the dividend payment itself).
Suppose the company that has this happened remains financially stable looks like they will meet all of their key metrics and should have no problem with future dividend payments. In that case, the opportunity can be fantastic.
On Balance Volume Indicators
This less popular indicator essentially condenses down all of the different “volume information” about a particular stock or asset into a single line indicator that can be easily measured against other investment opportunities.
Track the correlation between the On Balance Volume (OBV) and the stock price to determine whether or not it’s a good idea to buy or sell.
If OBV has begun to increase, but the stock price hasn’t moved all that much, a buying opportunity is about to bubble up. If the reverse happens, it’s time to consider selling that asset.
Lower Market-to-Book Ratios
Another great way to spot undervalued assets with less popular indicators is to spot companies that have low market value to book value.
This isn’t always the easiest thing to uncover (to be fair), as it involves quite a bit of extra research and due diligence into figuring out what the actual value of tangible assets and intangible assets of a company is – but it can help find intelligent investments that are going to jump in the future but haven’t yet or one reason or another.