Understanding Indicators
Introduction to Indicators
What Are Technical Indicators?
Technical indicators are mathematical calculations based on price and/or volume. They help traders visualize trends, momentum, volatility, and potential reversals that aren't immediately obvious from price alone.
Types of Indicators
Trend Indicators (Lagging)
- Follow the trend and confirm direction
- Examples: Moving Averages, ADX
- Best for: Identifying and trading with trends
Momentum Indicators (Leading)
- Measure the speed of price changes
- Examples: RSI, MACD, Stochastic
- Best for: Spotting overbought/oversold conditions
Volatility Indicators
- Measure how much price is fluctuating
- Examples: Bollinger Bands, ATR
- Best for: Setting stops and position sizing
Volume Indicators
- Analyze buying/selling pressure
- Examples: OBV, MFI
- Best for: Confirming price moves
- Follow the trend and confirm direction
- Examples: Moving Averages, ADX
- Best for: Identifying and trading with trends
Momentum Indicators (Leading)
- Measure the speed of price changes
- Examples: RSI, MACD, Stochastic
- Best for: Spotting overbought/oversold conditions
Volatility Indicators
- Measure how much price is fluctuating
- Examples: Bollinger Bands, ATR
- Best for: Setting stops and position sizing
Volume Indicators
- Analyze buying/selling pressure
- Examples: OBV, MFI
- Best for: Confirming price moves
Don't use too many indicators! Pick 2-3 from different categories. Using 5 trend indicators just gives you the same info 5 times.
Indicators are derived FROM price - they don't predict it. Price is king; indicators are tools to help interpret price.
Key Takeaways
- Indicators are math-based tools derived from price and volume
- Four main types: trend, momentum, volatility, volume
- Use 2-3 indicators from different categories
- Price is primary; indicators are secondary confirmation