Technical indicators, or trading indicators, are mathematical calculations applied to price and volume data of an asset, to help traders study charts in technical analysis, and make better trading decisions.
In this guide, I have compiled everything you would need to know (even as a complete beginner), on how to start using trading indicators, the different types of technical indicators, and various strategies and techniques.
Technical indicators are one of the three main types of technical analysis, and before we can use them effectively, we first need to learn what trading indicators are, and the different types of indicators there are to choose from.
Trend indicators, or trend-following indicators, are technical indicators which help you determine the current main market trend.
Although they are usually lagging, they also help to filter out the “noise” or whipsaws of short-term price fluctuations.
Oscillator indicators, or momentum indicators, focus more on the shorter-term trend, so it is useful in pinpointing your entries or exits.
It also tries to measure whether the short-term price movements swing too much in either direction, making it overbought or oversold.
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Channels, bands and overlays are technical indicators which are usually plotted directly onto the same chart as the price chart, so you can see how price moves within these channels or bands.
The slope and width of the channel/band will also tell you the strength of the trend and the volatility of price fluctuations respectively.
Volume trading indicators use volume data, or price and volume data, to analyse money flowing into or out of the asset.
Combined with price, it can spot early signs of accumulation (buying) or distribution (selling), and helps to confirm other technical indicators or technical analysis methods.
Despite their name, market breadth indicators actually don’t provide signals of their own, rather they provide an overall picture of health on the whole stock market/exchange, by aggregating data across many different stocks.
Such data could include the number of advancing or declining stocks, and how much volume these stocks are trading.
After learning all he different types of trading indicators, the next step is to selectively combine them to create profitable trading strategies, which includes indicator signals to enter a trade, as well as to exit a trade.
Lastly, it is also important to know the pros & cons of using indicators, and when to avoid them if they give false signals.
Conclusion
I hope you have enjoyed this guide on technical trading indicators.
Now I’ll like to hear from you: what is your key take-away from this trading guide?
Which part of trading indicators are you struggling with the most?
Which is your favourite technical indicator or indicator trading strategy?
Are there any other trading indicator tips that we have missed out?
Let me know by leaving a quick comment below right now.
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