Indicators

Technical Analysis Indicators are mathematical manipulations of
(a) Price
(b) Time, and
(c) Volume

For example, we might want to see if there are trends to prices.

Instead of relying on our subjective eyes, we like to rely on more objective mathematics.

Let’s say we choose 20 days as a timeframe that we are comfortable with. We then decide to create a 20-day moving average of the closing prices to tell us the price trend.

Observe how well the 20-day moving average cups Stock Price Movements in this Stock Chart.

Indicators fall into 2 general classes:
1. Leading Indicators
2. Lagging Indicators

Leading Indicators have the following characteristics:
(a) They indicate Overbought / Oversold positions
(b) They are designed to lead price movement
(c) They have a high propensity for false signals when used alone

Examples of Leading Indicators include:
• Slow Stochastic
• Williams %R
• Chaikin Oscillator
• Relative Strength Index

Lagging Indicators have the following characteristics:
(a) They are Trend Following Indicators
(b) They follow price movement
(c) They don’t work in sideways markets, when used alone
(d) They give delayed signals

Examples of Lagging Indicators include:
• Simple Moving Averages (for example, the 20-day moving average above)
• Moving Average Convergence Divergence (MACD)
• Bollinger Bands
• Average True Range

This is a good reference site for indicators: www.equis.com

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