Technical Indicators


Technical Indicators

Besides studying chart patterns, there are other varied and more sophisticated technical tools and mathematical indicators available. The most commonly used are technical indicators, measuring support and resistance, and using trendlines; although all three can be considered as technical indicators as they all rely on looking at the chart and reviewing recent history trying to spot whether a price is following a pattern or moving in a range.

technical indicator is a graphical representation resulting from calculations based on the price action and is usually displayed along the bottom of the chart. A wide range of technical indicators are widely used by many traders. They can be categorized according to what they describe and what they indicate.

  • Trend indicators: trend is a term used to describe the persistence of price movement in one direction over time. Trends move in three directions: up, down and sideways. Trend indicators smooth variable price data to create a composite of market direction. (Example: Moving Averages, Trendlines).

  • Strength indicators: Market strength describes the intensity of market opinion with reference to a price by examining the market positions taken by various market participants. Volume and open interest are the basic ingredients of this indicator. Their signals are coincident or leading the market. (Example: Volume).

  • Volatility indicators: Volatility is a general term used to describe the magnitude, or size, of day-to-day price fluctuations independent of their direction. Generally, changes in volatility tend to lead changes in prices. (Example: Bollinger Bands).

  • Cycle indicators: A cycle is a term to indicate repeating patterns of market movement, specific to recurrent events, such as seasons, elections, etc... Many markets have a tendency to move in cyclical patterns. Cycle indicators determine the timing of a particular market patterns. (Example: Elliott Wave).

  • Support & Resistance indicators: Support and resistance describes the price levels where markets repeatedly rise or fall and then reverse. This phenomenon is attributed to basic supply and demand. (Example: Trendlines).

  • Momentum indicators: Momentum is a general term used to describe the speed at which prices move over a given time period. Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest at the beginning of a trend and lowest at trend turning points. Any divergence of directions in price and momentum is a warning of weakness; if price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction. (Example: Stochastic, MACD, RSI).

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