So, how can you join them in harnessing this power? Excel is the tool and professionals with the help of Excel Courses, can help you make effective data-driven decisions. The right technical indicators will help you discover trends, forecast possible future market movements, and guide your trading decisions based on prior data.
Are you wondering What is Excel, and how technical indicators are your portal for transforming unprocessed stock data into insightful market analysis? Let’s discuss it in this blog.
Why Technical Indicators Should Be Part of Your Trading Toolkit
Technical indicators, formulas, or computations based on past data help project future price variations. They provide insightful analysis of possible market trends even if they cannot ensure outcomes. Adding technical indicators to your approach will help you, regardless of expertise level, control risks, timing your trades, and pattern recognition.
Essential Columns for Stock Data Analysis
Excel provides a simple means of entering past stock data and running technical indicator calculations. Direct stock data downloads from financial sources such as Yahoo Finance can be copied into Excel. Your most crucial columns will be:
- Date
- Open Price
- High Price
- Low Price
- Close Price
- Volume
After you have your data, you are ready to use technical indicators. Let’s consider a few popular ones:
Moving Averages
Among the simplest and most useful technical indicators available is a moving average (MA). It clarifies the pattern by helping to smoothen out price data. Commonly used forms of moving averages are:
1. Simple Moving Average
SMA or Simple Moving Average compiles the price of a stock over a predetermined period of days. A 50 day SMA, for instance, divides the closing prices for the past 50 days by 50.
How to calculate SMA in Excel:
- Input your stock data.
- Use the formula =AVERAGE (range) to calculate the average closing price for a set period (e.g., =AVERAGE (B2:B51) for the first 50 days).
2. Exponential Moving Average
EMA or Exponential Moving Average responds better to new information than the SMA because it values recent prices more highly.
How to calculate EMA in Excel:
- First, calculate the multiplier:
Multiplier = 2 / (Period + 1). For a 10-day EMA, the multiplier is 2 / (10 +1) = 0.1818.
- Then use the formula: EMA = (Price_today – EMA_yesterday) * Multiplier + EMA_yesterday.
Moving averages are great for identifying entry and exit opportunities. They let you determine whether a stock is going upward or down.
Here is an example of line chart displaying over a designated time span the SMA and EMA. You should be able to view the smoothed trend lines by having the chart display stock values together with the calculated moving averages.
Relative Strength Index
A momentum indicator, the Relative Strength Index or RSI, gauges the speed and distance a stock price has travelled. It runs from 0 to 100 and helps determine whether conditions are overbought or oversold. When the RSI is above 70, a stock is overbought; when it is below 30, it is said to be undersold.
How to calculate RSI in Excel:
- Calculate the gain or loss for each day (Close price today – Close price yesterday).
- Calculate the average gain and average loss over the past 14 days.
- Calculate the relative strength, RS = Average Gain / Average Loss.
- Calculate RSI: RSI = 100 – (100 / (1 + RS)).
This indication will guide your decisions about when to purchase or sell stock. For example, if the RSI is less than 30, the stock can be oversold, and a buying possibility can be offered.
Bollinger Bands
A volatility indicator, Bollinger bands, tells you how much a stock price deviates from its moving average. These comprise three lines:
- The Middle Line is where the stock SMA is over a period (e.g., 20 days).
- The Upper Band is where SMA + (2 * standard deviation).
- The Lower Band is where SMA – (2 * standard deviation).
How to calculate Bollinger Bands in Excel:
- Calculate the 20-day SMA using =AVERAGE(range).
- Calculate the standard deviation using =STDEV(range).
- Use the formulas Upper Band = SMA + 2*Stdev and Lower Band = SMA – 2*Stdev.
When prices approach the upper band, the stock may be overbought. Their hitting the lower band could indicate oversold.
Moving Average Convergence Divergence
MACD or Moving Average Convergence Divergence is a trend following momentum indicator. It displays the interaction between two moving averages of stock pricing. It comprises a histogram, the MACD line, and the signal line.
How to calculate MACD in Excel:
- Get the EMA for 12 days and 26 days.
- To get the MACD line, subtract the 26-day EMA from the 12-day EMA.
- Get the MACD line’s nine-day EMA, which forms the signal line.
- To build the histogram, subtract the signal line from the MACD line.
The MACD alerts traders to possibly buy or sell signals based on crosses between the MACD and signal lines.
Conclusion
Technical indicators using Excel is a sensible approach to improving your stock market plan. The tools can give you essential insights even when you cannot forecast the market. The secret is constancy; keep an eye on your stocks often and modify your plan depending on what you discover.
Are you ready to create your own Excel stock analysis? Consider The Knowledge Academy free resources to help you with stock analysis.