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Trading and Investment Terms

Indicators

Indicators represent a statistical approach to technical analysis. With the help of indicators, investors and traders can get the secondary measure to actual price movement. Indicators are helpful to confirm the accuracy of chart patterns by looking at trends, money flow, momentum, volatility, etc. Indicators also form their own buying and selling signals. Two primary types of indicators are � Leading Indicators Leading indicators predict the future price movement of securities. These indicators precede price movement. Leading indicators are helpful during sideways periods and non-trending price movements because they can help to identify the breakouts and breakdowns. Bond yield is considered as a good leading indicator for the stock market because bond traders anticipate and speculate trends in the economy. � Lagging Indicators Lagging indicators are the confirmation tool which follows the price movement and confirm the trend. These indicators follow an event and confirm that the pattern is occurring. These kinds of indicators are very useful during trending periods. During trending periods lagging indicators are used to confirm that the trend is still strong or is weakening. Indicators are divided into two categories based on how they are built � Oscillator Oscillators are the most common technical indicators which vary within a band over time, above and below a center line. Oscillators are used to discover short-term oversold or overbought conditions. For example, oscillators may have a low of 0, high of 100, and the center line at 50. Where 0 represents oversold conditions and 100 represents overbought conditions. � Non-bounded Indicators These are the less common indicators but can help to form buy and sell signals. These indicators also show strength or weakness in trends. Indicators are helpful in identifying momentum, trends, volatility and other aspects of a security. They generate buying and selling signals through crossovers or divergence. To get the best results investors and traders must use indicators with the combination of other technical analysis forms. Some useful indicators of technical analysis are � Accumulation/Distribution Line � Average Directional Index � Aroon � Aroon Oscillator � Moving Average Convergence/Divergence (MACD) � Relative Strength Index (RSI) � On Balance Volume � Stochastic Oscillator

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