What is a Technical Indicator?
Simply put, a technical indicator is a graphical representation of market activity over a given period of time. The use of technical indicators is called Technical Analysis. Technical indicators are generally derived from price charts, which also represent market activity over a given time period. They are generally used to predict future price levels, or assist traders in identifying momentum, trends, volatility and various other aspects of a particular trading instrument. Technical Analysis Indicators can also be used to generate audio, visual, email, and SMS alerts when certain market conditions occur.
Types of Technical Analysis Indicators
Technical indicators are generally classified as either Leading or Lagging.
- Leading Indicators - Leading indicators are designed precede price movements, which makes them predictive.
- Lagging Indicators - Lagging indicators are generally used as confirmation tools, because they tend to follow price movement.
While technical indicators is considered either leading indicator or lagging indicator, there are several types of indicators that fit within these categories. A technical indicator can be classified as more than one of types mentioned below.
- Oscillator Indicators - An Oscillator indicator is one that flucuates above and below a centerline (often the zero line or 50% line).
- Volatility Indicators - Volatility indicators display the magnitude of price fluctuations over a specified time period.
- Momentum Indicators - Momentum Indicators display the speed at which price moves over a designated time period.
- Trend Indicators - Trend Indicators provide a measure of the direction of the trend in a given market.
- Volume Indicators - Volume Indicators analyze the buying or selling pressure for a market trend.
- Support and Resistance Indicators - Support and Resistance indicators display key prices in a particular trading market. Support is a price level in which demand is thought to be high enough to prevent the price from declining further, while Resistance is a price level in which supply is thought to be high enough to prevent price from increasing further.
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