Updated on March 18, 2023
The term indicators in technical analysis refer to the calculations and analysis of price and volume movements of different securities to understand their optimum entry and exit points. Traders use different types of indicators to identify trends or patterns related to various securities.
Popular indicators used by traders
Some of the most commonly used indicators include –
This indicator is used to calculate a simple average of past prices. This indicator is used to identify trends and potential buy/sell signals for different securities.
Bollinger bands are popular volatility indicators. Traders use this indicator to plot two lines over the simple moving average line and use these lines to understand if the security is overbought or oversold.
Relative Strength Index (RSI)
This is a momentum oscillator that is calculated using the difference between the average gains and the average losses of a security over a default period of 14 days. The oscillator shows an indicator between 0 to 100 where an indicator over 70 is considered overbought and an indicator below 30 is considered to be oversold.
This is a momentum indicator that is used to identify potential trend reversals and an overbought or oversold position of the security. This indicator is used to compare a security’s closing price to its price range over a set time period.
MACD (Moving Average Convergence Divergence)
This is a trend-following momentum indicator and is used to represent the relationship between two moving averages of a security’s price. The signals are then used to generate buy and sell signals for security.
Uses of Indicators in Technical analysis
Indicators in technical analysis are used for trend identification, measuring the momentum of the security, identifying the buy and sell signals, or confirmation of trends and signals in conjunction with other indicators.