Technical Indicators In Technical Analysis

Technical indicators are calculations based on the price and the volume of the investment, measuring such things as money flow, trends, volatility and momentum. Using them as a secondary measure to the actual price movements and providing additional information to the analysis of securities, these indicators in technical analysis are used in two main ways: for confirming price movement and developing the buy and sell signals.

You will come across two main types of online technical analysis indicators: leading and lagging. A leading indicator precedes the price movements, whereas the lagging indicator follows the price movement. Take a look at the following list of indicators in technical analysis online:

Relative Strength Index (RSI):

As one of the popular technical analysis indicators, the RSI evaluates the ratio of up-moves to down-moves. It normalizes the calculation so that the index is expressed in a range of 0-100. Hence, if the RSI is 70 or more, then the instrument is seen as overbought, while an RSI of 30 or lower is taken as a signal that the instrument may be oversold.

Stochastic Oscillator:

Indicating overbought/oversold conditions on a scale 0-100%, this technical analysis indicator is based on the observation that closing prices for periods have a tendency to concentrate in the higher part of the period’s range during a strong up trend. And vice versa, closing prices tend to be near to the extreme low of the period range. A strong trading signal is generated due to the divergence between the stochastic lines and the price action of the underlying instrument.

Moving Average Convergence Divergence (MACD):

Plotting two momentum lines, as one of the online technical analysis indicators, the MACD line is the difference between two exponential moving averages and the signal or trigger line. Whenever the MACD and trigger lines cross, then this is signal for a change in trend.

Number theory

a)Fibonacci numbers: The sequence (1,1,2,3,5,8,13,21,34…..)in Fibonacci number is constructed by adding the first two numbers to arrive at the third.

b) Gann numbers:

With no easy explanation for Gann’s methods, but using angles in charts to determine support and resistance areas, the times of future trend changes can be predicted. The support and resistance areas are also predicted using lines in charts.

Waves:

Elliott wave theory

Based on wave patterns and the Fibonacci number sequence which are repetitive, the Elliott wave theory is an approach showing a five wave advance followed by a three wave decline.

Gaps:

The spaces left on the bar chart showing that no trading has taken place are known as gaps. They are formed when the lowest price on a trading day is higher than the highest high of the previous day. There is a down gap , up gap, breakaway gap, runaway gap and exhaustion gap, representing the weakness and the strength of the market.

Trends:

Reflecting the direction of prices, a trend is comprised of rising peaks and troughs showing an uptrend, while falling peaks and troughs constitute a downtrend. Any break in a trend line usually signals a trend reversal.

Moving averages:

For confirming trends and support and resistance levels, and to smooth price information, Moving averages are used. They also help to decide on a trading strategy particularly in futures trading or a market with a strong up or down trend.