Understand Indicators Using Equity Technical Analysis Course

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Table of Content

What are the indicators?

Indicators are a set of tools that may be used to a trading chart to assist clarify the market.

For example, confirm if the market is trending or is in range.

Indicators may also tell you when an item is overbought or oversold in a range and ripe for a reversal.

Understanding Indicators

Indicators can be broadly categorized into economic indicators and technical indicators.

Economic indicators are statistical metrics used to measure the growth or contraction of the economy as a whole or sectors within the economy. In fundamental analysis, economic indicators that quantify current economic and industry conditions are used to provide insight into the future profitability potential of public companies.

Technical indicators are used extensively in technical analysis to predict changes in stock trends or price patterns in any traded asset.

Types of indicators

Indicators generate trading signals, and each indicator does it in a unique way, based on how it analyses the price action to generate the signal. They are divided into two groups:
  • Indicators that function well in markets that are trending
  • Indicators that oscillate or range, which function well in ranging markets

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Indicators that are on the rise

The strength of a trend on a chart is not always visible, and a trending indicator can help to clarify this. The essence of trending indicators is that they are trailing.

Trending indicators are trailing indicators that are used to determine the strength of a trend and aid in the discovery of market entry and exits.

As a result, trending indicators may help a trader:

  • Determine if the market is in a trend
  • Determine the direction and intensity of that trend
  • Help discover market entry and exits

Oscillating indicators

Trending indicators are trailing indicators that are used to determine the strength of a trend and aid in the discovery of market entry and exits.

As a result, trending indicators may help a trader:

  • Determine if the market is in a trend
  • Determine the direction and intensity of that trend
  • Help discover market entry and exits

Oscillating indicators are employed in a range to assess whether an asset is overbought or oversold. They are often leading indicators.

A trader is more inclined to search for short positions if an oscillating indicator indicates that an instrument is overbought. Similarly, if an oscillating indicator indicates that an instrument is oversold, a trader is more inclined to seek long positions.

Examples of Indicators

What Is an RSI Indicator and How Does It Work?

The relative strength index (RSI) is a technical analysis indicator that measures the extent of recent gains in comparison to recent losses. The RSI is used to identify whether an asset's price is moving up or down.

Moving Average (MA)

Is a technical indicator that is used to determine the overall direction, or trend, of a stock. Its goal is to smooth past price data by establishing an average price that is regularly updated.

It's a bullish (bearish) indicator for the stock if the MA is moving in a positive (negative) direction.

Amazon stock recently broke through its 50-day moving average, indicating that it's a good technical buy right now.

What Is the Stochastic RSI?

The Stochastic RSI (StochRSI) is a technical analysis indicator that goes from 0 to 1 (or 0 to 100 on certain charting systems), and is calculated by applying the Stochastic oscillator formula to a collection of relative strength index (RSI) values rather than normal price data.