Most Effective Top 5 Bullish Indicators! | Trade Brains (2024)

Top 5 Bullish Indicators: Lately, the economy and markets are on the path of recovery from the consequences of Covid 19. Since then, we have seen one of the most bullish trends in the market where the indices touched record levels.

This recovery from the trough level has pushed the market to new heights. This has attracted numerous new investors who are seeking the right time to enter the market.

Bullish trends provide the investor a platform where they can take a “risk” and there are very favorable odds of getting money’s worth due to the overall rise in the index. Regardless of the fundamental or valuation of the stock, it necessarily follows the trend.

Therefore, the investors need to understand and predict these bullish cycles to the best of their advantage and the technical indicators equip them with the quintessential tools to approach and conquer the adventitious world of the stock market.

Bullish Indicator

We are living in the world of sophisticated technology. Where numerous calculations and probabilities are considered and the most accurate output is generated. Technical indicators do the same thing for the investor to predict the trend and future stock prices.

It is widely recognized that trends tend to repeat themselves. And with the help of indicators, one can be particularly sure about the major questions like time to BUY and time to SELL..

Let’s look at the top 5 best bullish indicators:

Top 5 Bullish Indicators #1 – Bollinger Bands

It is one of the most effective bullish indicators for spotting a breakout in the trend especially in the case of sideways trends where most of the popular indicators are inefficient. Bollinger band is essentially a mixture of moving averages which consists of 20 period moving averages with upper and lower bands.

The upper band is the 2-standard deviation of the above moving average. While the lower band is the 2-standard deviation of the below-moving average. Bollinger bands help in predicting the expected movement of prices and also provide a clear entry point.

Source of Signals

• The upper and lower bands work as resistance and support respectively. Whenever the price is near the upper band or lower a movement in opposite direction is expected
• Break out is expected when price volatility falls and both the bands contract or tightens

Let’s look at a case for a better understanding using this indicator.

Case: TATA CHEMICALS

From the above candlestick chart, we are looking at the stock prices of Tata chemicals.

In this case, we are using Bollinger bands with the standard settings of 20,2 with a 1-day candle. We can see the stock prices were trading sideways with lower volatility which provided a signal of a breakout. We can take our position once the direction of break out is confirmed.

In the above chart, the break-out is confirmed when the stock prices start to break the upper threshold. This indicator provided us the entry point to initiate the trade and clear out the unnecessary trade signals.

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Top 5 Bullish Indicators #2 – Ichimoku Cloud

Most of the indicators are effective in signaling the emergence of bullish or bearish trends but only a few provide insight into when to trade? And when not to? It plays a crucial role in avoiding the urge to overtrade in market gyrations.

The Ichimoku Cloud is one of those bullish Indicators. Ichimoku cloud is a trend following indicator which predicts price movements. This Indicator is based upon the visualization and is the conjunction of multiple indicators, we will focus on the viability of the indicator and not on its technicalities of it. First, let us understand the components of this indicator.

• Tenkan Sen or Conversion Line (blue): It is a fast-moving average price-sensitive line. This is measuring short-term price movement.
• KijunSen or Baseline (Red): It is a slow-moving average line. This measures a long or medium-term price movement.
• Senkou span A & Senkou span B: The lines work as support and resistance and provide the confirmation of the signal. And these two lines make up the Kumo cloud
• Kumo Cloud: Kumo cloud filters out the noises and provides trading entry points. The cloud is made up of two lines span A and span B. They show the dynamic support and resistance levels. The longer the prices stay below or above the cloud stronger the trend is expected.
• Chikou Span: It provides a second confirmation for the trend direction. If the current price is higher than the past then the trend is expected to be bullish in upcoming sessions.

To enhance the clarity of the indicator let’s look at the interpretation of each component

Kumo Cloud

• When the prices are trending inside the cloud, prices are said to be in a sideways trend and one should avoid taking a position.
• When the prices are trending above the cloud prices are said to be in a bullish trend and Senkou span A crosses above the Senkou span B cloud turn into Green.
• When the prices are trending below the cloud prices are said to be in a bearish trend and Senkou span B crosses below the Senkou span A cloud turn into Red.
• Size of the cloud: the greater distance between the Senkou span A and B (cloud). Stronger will be the trend.

Conversion line and baseline crossover

• Bullish signal: When the Conversion line (blue) crosses the Base (red) line from below. A bullish signal is generated if the prices are above the Kumo cloud.
• Bearish signal: When the Conversion line (blue) crosses the Base (red) line from above. A bearish signal is generated if the prices are below the Kumo cloud.

Chikou Span (lagging span)

• Bullish signal: when the Chikou Span is higher than the prices and heading towards the upward direction it signals a bullish trend. As the current prices are higher than previous prices indicating positive movement in prices.
• Bearish signal: when the Chikou Span is lower than the prices and heading towards the downward direction signals a bearish trend. As the current prices are higher than previous prices indicating negative movement in prices.

Let’s look at a case for a better understanding using this indicator.

Case: HCL TECHNOLOGIES

From the above candlestick chart, we are looking at the stock prices of HCL Technologies on the daily candle. In this chart, prices were descending but when the conversion line crossed the baseline triggered the primary bullish signal but still, prices were below the Kumo cloud. When the prices went above the Kumo cloud and Chikou span showing an upward movement provided the secondary confirmation of the bullish signal. And we can assess the prices shown the bullish reversal and went further higher.

Top 5 Bullish Indicators #3 – EMA Cross

The exponential moving average cross is one of the most commonly used indicators. That generates bullish and bearish signals very effectively and promptly as it gives more weight to recent prices than the older prices.

EMA cross is always more effective than a single EMA line as the EMA cross will keep you in the trade for long, as it filters out unnecessary trade signals and provides clarity in detecting the appropriate entry points.

EMA cross consists of 2 lines namely the short-term moving average and long-term moving average line. Parameters for these lines are usually 26,9 but can be customized.

EMA is calculated as EMA (current)= ((Price (current) – EMA (Previous)) * K (Multiplier) + EMA (Previous)

Source of Signals

• Bullish signal: When the short-term exponential moving average crosses, the long-term exponential moving average from below signals a bullish EMA cross
• Bearish signal: When the defined short-term exponential moving average crosses, the long-term exponential moving average from above signals a bearish EMA cross

Let’s look at a case for a better understanding using this indicator

Case: ZENSAR TECHNOLOGIES

From the above candlestick chart, we are looking at the stock prices of Zensar technologies on the daily candle. In this chart, we have considered the standard parameter of 26,9 for long-term and short-term EMA respectively. Initially, the price was descending towards a bearish trend but as the buying pressure increased.

We can see the bullish reversal and this is confirmed when the short-term exponential moving average (Green) crosses the long-term exponential moving average (Red). Being a price-sensitive indicator EMA cross is most effective in the trending markets.

Top 5 Bullish Indicators #4 – MACD Crossovers

In times of a bearish market, we all need an indicator that can provide the most reliable and accurate signal enabling us with the opportunity to capitalized gains from the “buy at low and sell at high” approach. MACD here provides the answer for most of the questions.

Moving average convergence divergence or MACD provides both the trend following and momentum signals as it is a combination of moving averages spiraling around the center or zero line making it suitable for both long-term and short-term trades. It consists of 3 lines:

• MACD or Fast line: It is calculated by subtracting the 26 periods EMA (Exponential moving average) from 12 periods EMA.
• Signal or slow line: it is calculated taking 9 days EMA of the MACD or Fast line.
• Centerline or zero line: it’s a straight line, MACD and the signal line moves around these zero lines.

Sources of Signals

Moving Average Crossovers

Also known as MACD crossover, it occurs when the MACD (Fast) line crosses the signal (Slow) line;

• A bullish signal is generated when the MACD line crosses the signal line from below.
• A bearish signal is generated when the MACD line crosses the signal line from above

Usually, MACD crossovers are very common hence we must use some other indicator or trend for confirmation or can wait for centerline crossover.

Centerline Crossovers

• The centerline crossover occurs when the MACD (Fast) line crosses the zero (centerline).
• A bullish signal is generated when the MACD line crosses the zero (centerline) from below.
• A bearish signal is generated when the MACD line crosses the zero (centerline) from above.

The centerline crossover generates the most accurate signal, especially in the long term.

Divergences

Divergences are not frequently seen but when they do, they are a great insight into the future price movements. As when the prices are making higher highs but the buying pressure is falling resulting in lower highs in MACD is a Negative divergence.

Conversely, when the prices are making lower lows but the buying pressure is rising reflected by MACD’s positive movement is a Positive divergence.

Let’s look at a case for a better understanding using this indicator

Case: WIPRO LTD

From the above candlestick chart, we are looking at the stock prices of Wipro LTD.

In the above case, we can witness all forms of signals as the prices were initially trending sideways then corrected until the MACD or Fast (Amber) line crossed the signal (Blue) line from below. This accomplishes the MACD crossover. This signal is confirmed when the MACD or Fast (Amber) line crossed the center or the zero line.

This centerline crossover triggered a bullish reversal which led to a positive movement in the trend. We see a negative divergence in MACD signaling a plunge in prices, which we ultimately see at the latter part of the chart.

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Top 5 Bullish Indicators #5 – Directional Movement Indicator

Direction movement indicator or DMI is very useful to identify trends usually combined with various indicators. DMI provides an insight into the strength and the direction of the trend. It consists of below directional indicators:

• Positive directional indicator DI+ (Greenline): it reflects the difference in the highest price of the current day and the highest price of the day before.
• Negative directional indicator DI (Redline)- it reflects the difference lowest price of the current day and the highest price of the day before
• Average directional indicator ADX (Blackline)- it reflects the strength of the trend and is the average of DI+ and DI-

Source of Signals

• Bullish signal: when the DI+ line is the D- line and the ADX line is reaching towards value >25 then a bullish signal is triggered
• Bearish signal: when the DI+ line is trending below the D- line and the ADX line is reaching towards value <25 then a bearish signal is triggered

Let’s look at a case for a better understanding using this indicator

Case: INFO EDGE INDIA

As we can see from the chart the stock prices were trending in a bearish sideways hence the DI- (Red) line was trending above the D+ (Green) line and the ADX (Black) line went below the 20 mark (signifying range-bound market) but as buying pressure rosed the DI+ (Green) line crossed the DI- (Red) line and then ADX (Black)line and generated a bullish signal which led to an explosive bullish breakout and a start of an uptrend.

One should look for confirmation before placing on the trade as sometimes these indicators can give multiple signals leading to multiple trades.

In Closing

These were the best technical indicators that can be used for determining bullish trends and reversals. Having said that, indicators are mathematical calculations based upon historic prices which may sometimes provide false signals. Therefore, it is the duty of the investors to back-test these indicators before entering into any trade. Happy investing!

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