Technical Indicator

Technical Indicator

Technical Indicators: Definition
Technical indicators are mathematical representations of market patterns and behavior.
The indicators are formed by plugging information such as price and volume into a mathematical formula.
Why indicators
Overbought: A technical condition that occurs when there has been a lot of buying and the price of the stock is considered too high and susceptible to a decline.
Oversold: A technical condition that occurs when there has been a lot of selling and the price of the stock is considered too low and a rally in prices is anticipated.
Importance
Essentially traders use technical indicators for two things:
• To generate buy and sell signals
• To confirm price movement

Types of Indicators
There are two main types of indicators:
• Leading
• lagging
Leading Indicators
• A leading indicator precedes price movement, and is often used to generate buy and sell signals.
• Leading indicators are affected more heavily by recent price changes and tend to generate more signals and allow more opportunities to trade than lagging indicators.
• Since the indicators produce more buy and sell signals, they also produce more false signals.
• When leading indicators are right, they allow you to get into a trade early and make more money, but when they're wrong you tend to lose money because you're in and out of trades more frequently.
Leading Indicators
Some of the more common leading indicators are:
• Relative Strength Index (RSI)
• Parabolic SAR
• Stochastic
• Williams %R
Lagging Indicators
• A lagging indicator is a confirmation tool because it follows
price movement.
• It happens "after the fact".
• Change of trend
Lagging Indicators
Two of the more common lagging indicators are:
• MACD
• Moving Averages
...
It's helpful to note that there are a few well-known ways to use the MACD:
Foremost is the watching for divergences or a crossover of the center line of the histogram; the MACD illustrates buy opportunities...

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