Technical analysis indicators
Many traders who have been working on the stock exchange market for many a year are acquainted with the technical analysis’ indicators well. In combination with graphical figures it is the reliable western foundation of classical technical analysis. The main base for its creating is the trading stock’s volume and its price. As for measurements, then thus are trends, momentum, volatility and supply. Active traders use actively technical analysis indicators. With its help it is possible to determine the price changes in the value of shares in the short or medium term.
- What are the features of the technical analysis indicators
- The main types of indicators
- How to apply indicators
- What conclusions can be drawn
What are the features of the technical analysis indicators
Relying on Dow’s theory then the market and the cost take in account all the factors. And indeed it is. The trader in the course of trading on the stock exchange market should be guided by this postulate. What does it mean? Whichever tool is used for trading, there is no one to tell about the stock more than its dynamics and price. Therefore, it is quite logical that the today “written” indicators are guided in their work on the stock’s price. They conduct analysis of the current direction movement and strength, giving the trader a number of conclusions:
- show in which direction the price moves – down, up or the price is closed by market participants (traders and buyers). In general, here the trader estimates, whether the stock is consolidated or is in a trend already,
- what is the volatility of the stock,
- what is the stock’s momentum and strength. If there is an increasing, then the security is currently trading. Proposed, its location is at the very beginning of the new trend. In case, if the process of extinction can be changed on the chart at any time (consequently, traders lost interest in this action).
The main types of indicators
There are many types of indicators today, but all of them can be divided into two categories: backward and forward. What are their characteristics?
Backward indicators are often called trend indicators, as they follow a trend. Here they have extremely low prognostic properties. The most striking representative of such indicators is Bollinger bands. But if they are behind, what is the use of them? Experienced traders often use backward indicators in the trend market. As for the side market, here they are useless.
Leading indicators are most often represented as oscillators. It is foolish to think that they can outrun the price and “think ahead” (although this is what most beginners think). The oscillators simply have a small shift forward programmatically, which allows predict the actions of a particular action in the future. But it does not mean that the signal always turns out to be true – the leading indicators are mistaken very often. To their peculiarities can be attributed literate work in the side market. On the trend market, it is better not to use them. The brightest representative of such indicators is RSI.
How to apply indicators
A completely logical question often arises: who are the indicators for and who do they need? It should be mentioned at once that for longtime investors they are really useless, because they do not give any data on the profitability of profitability for business. As we have mentioned already, technical indicators are most suitable for active traders who control the price movement on the charts and work in the short term.
Firstly, it is possible to trade based on the indicators’ “team”. For example, if the leading indicator (oscillator) showed oversold, then a long position opens, and if overbought – a short one. By the way, signals from each of the indicators can have a huge amount. Accordingly, they are based on this or that trader’s strategy. On the other hand, why need the indicators, if the Dow theory and the market say about everything? But it, of course, is more of a rhetorical question.
Secondly, indicators are often used to identify securities that meet trading criteria. In this case, the decision to open or close a position can be taken based on price dynamics.
What conclusions can be drawn
Technical analysis indicators are very important tools for active trader. For example, it is hard to imagine creating of program for automatic trading (robot) without using these tools. But it is not worth to believe. The main thing in successful trading is to focus on the price. It’s enough to look at a clean schedule for a while to understand the trends of its movement. At the same time, indicators will be needed only if it is necessary to filter the necessary stocks quickly and without delay.
Good luck in trading!