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Technical Indicators

A note about technical indicators, their role in A-shares, and why they should be used as tools instead of final answers.

2026-05-25Trading
tradingA-sharestechnical indicators

Technical indicators have always been essential analysis tools. No matter what financial product you are looking at, indicators can help you understand the market quickly. However, indicators are not omnipotent. I will break this down in several parts.

1. Indicator categories

1. Naked candlestick analysis - Chan theory: suitable for any investment market with fluctuating trends. This theory fully classifies the current trend structure. - Dow theory: stock movement can be divided into three trends: primary trends, intermediate trends, and short-term trends. - Elliott wave theory: a wave structure summarized from market psychology. 2. Trend indicators - Moving averages - MACD 3. Oscillator indicators - RSI and KDJ: used to identify overbought or oversold conditions. These signals respond quickly, but in a strong trend they may create many false signals. 4. Chip distribution indicators - Chip peaks - Large-order net inflow 5. Main-chart indicators - Bollinger Bands: used to estimate price support levels.

2. The role of technical indicators in A-shares

1. Confirming the trend: judging whether the current market is in an uptrend, downtrend, or sideways phase. 2. Finding intraday buy and sell points: on a time-sharing chart, RSI's fastest line below 25 or KDJ's J value below -5 can be used as buy signals. These two indicators are more useful for finding an intraday low point, so I do not chase a vertical move and can control my cost. For low-buy targets, take Xinxing as an example: buying at -2% today and buying at +1% today can create two totally different situations tomorrow. If the entry is lower, there is still a chance to exit near the red zone the next day. 3. Reducing emotional interference in decisions: technical indicators make it easier to stay calm and execute a strategy.

3. What makes a technical indicator useful

1. Longer cycles: the more candlesticks an indicator observes, the more noise it removes. More candles within one cycle usually make the signal relatively more accurate. For example, the Vegas channel uses the 144 and 169 moving averages, plus the 288 and 338 moving averages. 2. Simpler indicators are better, because the more complicated an indicator is, the stronger its lag tends to be. RSI and KDJ are examples of simple indicators.

4. Misunderstandings about some technical indicators

1. Chip peaks: this often comes from imagining that main funds have a stronger mindset. Chip peaks are calculated based on how long price stayed around a level, assuming volume is evenly distributed, and then stacking each day's distribution into historical data. This makes it a very inaccurate indicator.

2. Large-order net inflow: many people think large accounts dominate the market, but that is not actually true. No single person can fully control the market. The psychology behind this is often: "so many large orders must be more forward-looking than I am." The reality is that you cannot tell whether someone else's strategy is long-term, short-term, or just an agreed block trade. 3. Marketed analysis indicators: most of them are just layers of different indicators stacked together. They are mainly used to sell products. They look flashy and professional, but in practice they are not useful.

5. Summary Technical indicators are methods, not answers. Besides looking at indicators, you also need to understand the market structure. Not being impulsive is what matters. Technical indicators should play an auxiliary role, especially when emotions are high. They should not be relied on too much.