What is Technical Indicator? Technical indicators, also referred to as technical or chartist analysis, are mathematical calculations based on the price, volume, or open interest of a security or contract used by traders who follow technical analysis. Technical analysts look for signs or “signals” in historical asset price data to help decide entry and exit points for trades. Technical indicators can be automatically generated by trading software or charting platforms, such as the popular MetaTrader 4 or 5 platforms, or be manually plotted by the trader.

Types of Technical Indicators There are a number of technical indicators that can be used in technical analysis. Generally, indicators can be broken down into two broad categories: overlays and oscillators. Overlays are technical indicators that are plotted on an asset’s price chart and can provide the trader with a reference for detecting trends and market cycles. Examples of overlay indicators include moving averages and Bollinger bands.

Oscillators are technical indicators that move above and below a central line, such as the midpoint of the indicator’s range. Oscillators are used to identify potential price reversals, overbought and oversold conditions, and momentum. Examples of oscillators include the Relative Strength Index (RSI) and Stochastics.

How Do Technical Indicators Help Traders? Technical indicators can be used to identify entry and exit points for trades, predict turning points in the markets, and provide traders with an edge over the markets. For example, traders may use a moving average crossover system, in which the asset’s price crosses above and below a certain level of a moving average, to identify turning points in the market and place orders accordingly. Some traders may choose to use a combination of technical indicators to form a trading system, such as the trend-following “triple screen” system developed by Dr Alexander Elder.

Conclusion In summary, technical indicators are mathematical calculations based on the price, volume, or open interest of a security or contract. These technical indicators are used by traders to identify entry and exit points for trades, predict turning points in the markets, and provide an edge over traditional methods of analysis. Technical indicators can be manually plotted by the trader, or automatically generated by trading software or charting platforms. Ultimately, the use of technical indicators will depend on the trader’s individual trading style and risk tolerance.