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Technical Indicators
Tutorial
Price is the primary tool of technical
analysis because it reflects every factor affecting the value of a
market. However, price doesn’t produce just trend lines and basic
chart patterns. Analysts have expanded their research far beyond
those basic elements to develop a number of technical indicators
that provide more insight into price action than what you see on the
surface. You may be able to see that a market is “extended”
(overbought or oversold) just by looking at a bar chart, but an
indicator can put a number to it and confirm your thinking.
First, a warning about indicators in general.
Most analysts do not rely on only one indicator but often use
several indicators together to help make a trading decision because
of the misleading information one indicator might provide. An
oscillator indicator is not a trading system but only provides
helpful insights in certain market conditions.
Oscillators tend not to work well in markets
that are in a strong trend. They can show a market at either an
overbought or oversold reading for an extended period while the
market continues to trend strongly. Another example of oscillators
not working well is when a market trades into the upper boundary of
a congestion area on the chart and then breaks out on the upside of
the congestion area. At that point, it’s likely that an oscillator
would show the market as being overbought and possibly generate a
sell signal when, in fact, the market is just beginning to show its
real upside power.
From a list of
literally hundreds of technical indicators, we have selected the
more popular ones to illustrate what is available. These technical
indicators can be put into several categories:
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Strength and
Sentiment Indicators
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Trend Indicators
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Volatility
Indicators
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Momentum
Indicators
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