Technical Indicator:
Technical indicators are mathematical calculations based on the price, volume, or open interest of a security or contract. By analyzing historical data, technical analysts use indicators to predict future price movements.
Technical indicators, also known as “technicals”, are focused on historical trading data, such as price, volume, and open interest, rather than the fundamentals of a business, like earnings, revenue, or profit margins. Technical indicators are commonly used by active traders, since they’re designed to analyze short-term price movements, but long-term investors may also use technical indicators to identify entry and exit points.
There are two basic types of technical indicators:
Overlays – Technical indicators that use the same scale as prices are plotted over the top of the prices on a stock chart. Examples include moving averages and Bollinger Bands.
Oscillators – Technical indicators that oscillate between a local minimum and maximum are plotted above or below a price chart. Examples include the MACD or RSI.
Traders often use many different technical indicators when analyzing a security. With thousands of different options, traders must choose the indicators that work best for them and familiarize themselves with how they work. Traders may also combine technical indicators with more subjective forms of technical analysis, such as looking at chart patterns, to come up with trade ideas. Technical indicators can also be incorporated into automated trading systems given their quantitative nature.
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