Indicators

Indicators

In technical analysis, an indicator is a tool that collects and processes price data and then displays this information on or below a price chart to help make trading decisions. Their basic function is to "indicate" the market sentiment, or whether an asset is overbought or oversold.

Indicators ultimately provide a clearer picture of what is happening in the markets and help to discern the likely future price action.

There are a large variety of indicators and different ones have different functions. The choice as to which indicators are used is ultimately down to the trader and the systems being traded.

Read an introduction to indicators:

Lesson
Learn what the different types of indicators are and how to use them correctly in different market conditions.
You haven't attempted the quiz yet.
36

Click on the bar below to see a list of indicators:

Leading indicators

A leading indicator provides a signal before a certain event or price action occurs.

It is able to provide signals ahead of time because it measures the rate at which the price change is happening. If the momentum of the price change is measured and it can be deduced that the rate of price change is perhaps slowing, then the indication is that a change in price direction may occur.

Most leading indicators come in the form of oscillators. An oscillator indicates whether an asset is overbought (showing a likelihood that the price will reverse to the downside), or oversold (showing a likelihood that the price will reverse to the upside), when the price is ranging.

Lagging indicators

A lagging indicator is used to confirm the price action. For example, if a trader is looking at a price chart, a lagging indicator will be able to confirm the trend direction and how strong it is. Lagging indicators will also help confirm a reversal in price direction.

Lagging indicators usually come in the form of trending indicators.

Discuss indicators in our forum:

Learn more about technical analysis:

Subject
From Japanese candlesticks to the Fibonacci indicator, technical analysis is the mathematical approach to trading.

Register Now - It's free!

By clicking on the "Get instant access" button, you agree that you have read, understood, and accepted the Terms & Conditions.
Or