Technical Indicators
Learn how we bring you the best technical analysis indicators: below, summaries of the benefits to integrating sentiment analysis for stocks with each technical indicator.
Sentiment Bollinger Bands
Sentiment MACD
Sentiment RSI
Sentiment Stochastic RSI
Learn about a new data driven method creating leading indicators in technical analysis.
Bollinger Bands
Created by: John Bollinger (1983)
Overview: Bollinger Bands are a type of volatility stock technical indicator that combines a simple moving average with two standard deviations plotted above and below it. This trading indicator helps investors identify overbought or oversold conditions, as well as shifts in market volatility. By understanding these leading indicators in technical analysis, traders can make more informed decisions.
Source: Bollinger, J. (2001). Bollinger on Bollinger Bands.
Overview:
The concept and math behind Bollinger Bands are straightforward. The center of the bands represents the moving average of price, while the upper and lower bands are the 20-period moving average of price plus and minus 2 standard deviations, respectively. These technical indicators provide valuable insight into price behavior, making them some of the best technical analysis indicators for data-driven investing.
In his book, Bollinger on Bollinger Bands, John Bollinger observes that price closes outside the bands roughly 5% of the time, and consecutive periods outside the bands occur increasingly infrequently. This market analysis reveals that when prices close outside the bands, there's a higher-than-normal likelihood of predicting future price movements, as prices are expected to revert within the bands.
Sentiment-Enhanced Bollinger Bands Indicator:
Our sentiment analysis finance tools elevate traditional Bollinger Bands by integrating stock sentiment analysis into this classic technical indicator. By incorporating both price-based and sentiment-based Bollinger Bands, traders unlock enhanced predictive insights.
The combined price and sentiment Bollinger Bands—dubbed the “Expected Range”—offer a significant advantage over the traditional trading indicator. By leveraging sentiment analysis for stocks, this technical indicator provides an unparalleled edge in data-driven investing. One of the best technical indicators, Bollinger Bands, has become even more powerful with the addition of sentiment, making this enhancement a must-have for anyone serious about maximizing their trading strategy.
MACD (Moving Average Convergence Divergence)
Created by: Gerald Appel (1979)
Overview: The MACD (Moving Average Convergence Divergence) is one of the most popular and best indicators in technical analysis, combining trend-following and momentum analysis. It shows the relationship between two moving averages of an asset's price, such as the 12- and 26-period moving averages (MAs). Traders often rely on the MACD to identify changes in the strength, direction, momentum, and duration of a trend, making it an indispensable trading indicator.
Source: Appel, G. (1979). The Moving Average Convergence-Divergence Trading Method.
The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-period EMA of the MACD, known as the "signal line," is then plotted, providing further clarity on buy or sell signals. Traditionally, when the MACD crosses above the signal line, it suggests bullish momentum, while a crossover below indicates bearish momentum.
Overview:
MACD Line: 12-period EMA – 26-period EMA
Signal Line: 9-period EMA of MACD Line
MACD Histogram: MACD Line – Signal Line
The MACD is a cornerstone of data-driven investing, offering insights into both trend direction and momentum. If the MACD line and signal line are above zero, it signals bullish sentiment; below zero, it indicates bearish momentum. The histogram helps visualize momentum shifts, enhancing its utility as a stock technical indicator.
Sentiment-Enhanced MACD Indicator:
We’ve enhanced the MACD by integrating sentiment analysis for stocks, creating a powerful hybrid indicator. The sentiment MACD introduces sentiment scores to generate parallel moving averages, complementing the price-based MACD. This combination allows traders to unlock new insights by aligning traditional price momentum with emotional momentum, via sentiment analysis.
When sentiment and price MACD signals align, they provide increased confidence in trend continuation. Conversely, when sentiment diverges from price momentum, it may highlight potential trend reversals or false signals. This sentiment analysis finance tool integrates market psychology and technical data, offering a richer understanding of market dynamics.
For example, our analysis shows that the crossover of sentiment and price MACD signal lines is generates highly predictive price action. This sentiment enhanced MACD technical indicator makes it one of the best technical analysis indicators for traders seeking a comprehensive view of the market.
Stochastic Relative Strength Index (Stoch RSI)
Created by: Tushar Chande and Stanley Kroll (1994)
Overview: The Stochastic RSI is a unique stock technical indicator that applies the stochastic oscillator formula to the RSI (Relative Strength Index), measuring the RSI's position within its high-low range. This added sensitivity makes it one of the best technical analysis indicators for identifying short-term trends and capturing momentum in data-driven investing.
Source: Chande, T., & Kroll, S. (1994). The New Technical Trader: Boost Your Profit by Plugging into the Latest Indicators.
The Stochastic RSI calculates the RSI score against its highest and lowest points over a specific period, typically 14 days, offering more granularity in market analysis.
Overview:
StochRSI = RSI – LowestRSI / (HighestRSI – LowestRSI)
This indicator moves more rapidly through high and low ranges than the RSI itself, effectively measuring the momentum of RSI. Traders often use it to analyze short-term fluctuations within broader RSI trends. Overbought and oversold thresholds are commonly set at 80% and 20%, respectively, but this heightened sensitivity can make the Stochastic RSI prone to false signals. Despite this, it remains a favored trading indicator for those seeking precision in short-term momentum trading.
Sentiment-Enhanced Stochastic RSI Indicator:
We’ve elevated the Stochastic RSI by integrating sentiment analysis for stocks, transforming it into a hybrid tool for market sentiment analysis. This AI financial tool mitigates false signals by incorporating sentiment analysis finance insights that complement traditional price-based signals.
The sentiment-enhanced Stochastic RSI provides confirmatory signals or highlights areas requiring caution. For instance, when price and sentiment stochastic RSI align, they strengthen entry or exit timing decisions. Conversely, divergences between sentiment and price stochastic RSI can warn of false breakouts or market misalignments.
This leading indicator in technical analysis also shines in trend reversal scenarios. When both sentiment and price stochastic RSI indicate overbought or oversold conditions simultaneously, it suggests a higher likelihood of reversal. By combining stock sentiment analysis with traditional indicators, investors gain a nuanced perspective of market behavior, empowering better decision-making and risk management.
RSI (Relative Strength Index)
Created by: J. Welles Wilder Jr. (1978)
Overview: The RSI (Relative Strength Index) is one of the best technical indicators for measuring the speed and magnitude of price changes, helping traders identify overbought or oversold conditions. Introduced in Wilder’s book New Concepts in Technical Trading Systems, RSI provides data-driven investing insights by gauging market strength and momentum.
Source: Wilder, J.W. (1978). New Concepts in Technical Trading Systems. Trend Research.
The RSI evaluates price movement strength over a specific period, typically 14 days, by comparing average gains to average losses.
Overview:
Average Gain = Sum of gains over 14 periods / 14
Average Loss = Sum of losses over 14 periods / 14
RS (Relative Strength) = Average Gain / Average Loss
RSI = 100 − (100 / (1 + RS))
An RSI score above 70 is interpreted as overbought, signaling a potential downward correction. Conversely, an RSI below 30 indicates oversold conditions, suggesting a potential upward reversal. These thresholds make RSI a key trading indicator for evaluating trends.
When the RSI is calculated to be a score over 70, traders often interpret this as a strong upward price move and the expectation is that the RSI cannot remain elevated indefinitely and must eventually give way to the downside. Investors in this scenario would aim to ride the strong trend as long as they can while being prepared for the trend to reverse. Conversely a calculated RSI score below 30 yields the inverse interpretation.
Sentiment-Enhanced RSI Indicator:
We’ve elevated RSI with sentiment analysis for stocks, combining traditional price momentum with market sentiment analysis. This approach uses sentiment RSI as a filter to validate or caution against standard RSI signals, reducing false positives and adding nuance.
For example, when price RSI signals a trend but sentiment RSI does not align, it may indicate a potential false breakout. Conversely, alignment between price and sentiment RSI boosts confidence in trade entries and exits. Specifically, we observe that when sentiment and price RSI both exit either oversold or overbought territory at the same time, that reversal move is more likely to be sustained.
By integrating stock sentiment analysis with RSI, traders gain a deeper understanding of both price momentum and the emotional state of the market. This AI financial tool enhances predictive power and supports better decision-making, making it a valuable sentiment analysis finance tool.