Best Technical Indicators for Long-term Investment Strategy

Investing with a long-term perspective can give you better returns, and there are fewer chances of any risk, except unexpected situations. For long-term investment, you can use fundamental analysis to analyse the various factors that can affect the stock price in the long term.

However, for long-term buying, you need to take a little help from technical analysis and use the technical indicators. This will help you grab the stocks at lower levels, increasing your rate of return on such long-term investments. In technical analysis, multiple indicators can be used, but for the long term, only a few of them are useful. Let’s talk about which one is better for a long-term investment strategy.

Top 5 Best Indicators for Long-term Investment:

1. Relative Strength Index (RSI) for Long-term investment

The momentum oscillator will help you to know if the stock is trading in an overbought or oversold zone. It measures the speed and change of price movements to represent trading conditions in the range of 0 to 100. Buying a stock at lower levels for long-term investment will improve your chances of profitability. You can use the overbought and oversold stock condition to take action on your investment strategy.

To use the RSI, you need to keep watching the levels. When the RSI value goes below 20 or, for the long term, below 30, then it means the stock is trading in the oversold trading zone. And this could be the best opportunity to accumulate the stock in your portfolio at these levels.

On the other hand, the RSI levels showing above 80 or 70 from long-term investing perspectives show the stock is moving into the overbought trading zone. Here you need to avoid buying the stocks, even if you already have the position and are running into a profit, you can sell the shares. For long-term investment, you can adjust the RSI parameters with long days to get better results.

2. Moving Averages for Long-term Investment

Moving averages are also one of the best technical indicators you can use to pick stocks from a long-term investment point of view. It will help you to know the trend of the stock price movement with indications when you can buy this stock whenever there is a positive crossover between the short-term moving averages with long-term moving averages.

There are two types of moving averages, simple moving average (SMA) and exponential moving average (EMA). SMA is calculated on the basis of the average price of the stock for a specific period, while EMA shows the average price trading period, but more weightage is given to the recent price data, which helps to get a more accurate price trend as per the recent market conditions and economic conditions.

If you are looking to use moving averages for long-term investment decisions, you can consider the 50-day, 100-day, or 200-day moving averages, either its SMA or the EMA. Crossover of the shorter days’ moving average crossing above the longer days moving average shows the bullish trend, while the shorter days’ moving averages crossing from above to below indicates the bearish trend in the stock.

3. Bollinger Bands for Long-term Investment

Apart from short-term trading, this indicator can also be used for a long-term investment viewpoint. The three bands used in this indicator, moving away from each other or expanding, show the volatility in the market or stock trading with high swings in the price during that period.

On the other hand, when the Bollinger Bands move closer to each other or contract signifies the low volatility in the price. The level of volatility in stock price movement is measured through the standard deviation, which moves when volatility rises or falls.

To use this indicator for long-term investment, you need to keep monitoring when the price moves towards the upper band, which shows the price is trading in the overbought condition. Conversely, the price moving closer to the lower band means the price is trading in oversold conditions. Here you can identify the phase of high or low volatility and potential breakout points to pick the stock at such points.