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3 Simple Technical Indicators for Long-term Investing
Make understanding price action easy for yourself
Once you have conducted your fundamental analysis on a company, it is time for you to conduct some technical analysis to help determine at what price you want to buy shares of the company. The great thing about doing technical analysis for a long-term investment is that your entry does not have to be 100% precise. Since you are planning to hold onto a security for 5,10, 15, etc. years, buying at what is considered a slightly high price in the short-term will not be the end of the world for you.
When it comes to technical analysis for long-term investing, there are 3 simple technical indicators that help simplify it. Technical indicators are visual calculations used to reflect historical price action on a chart. It is important to note that technical indicators are only indicators. They are not mystical tools that predict the future. Without further ado, the 3 simple technical indicators to use for long-term investing are:
1. Bollinger Bands
2. 200-Day Simple Moving Average
3. Relative Strength Index
1. Bollinger Bands
Bollinger Bands are defined by a set of trendlines plotted two standard deviations above and below a simple moving average of a security. The simple moving average typically used for Bollinger Bands is a 20-day simple moving average.
When it comes to understanding how to use Bollinger Bands, when a security’s price reaches the bottom trendline, it is considered oversold. On the other side, when a security’s price reaches the top trendline, it is considered overbought. In the eyes of a long-term investor, the 20-day simple moving average can be used as a tool to decide when to consider buying (when a security’s price crosses below it) and when to consider selling (when a security’s price crosses above it). I think of the relationship of a security’s price and its 20-day simple moving average as a visual representation of buy low, sell high. With that being said, the more oversold a strong company is, the more you should consider buying. The more overbought a strong company is, the more you should consider selling or just patiently wait for the next major selloff…
