Indicators represent a statistical approach to technical analysis as opposed to a subjective approach. By looking at trends, volatility, and momentum, they provide a secondary measure to actual price movements and help traders confirm the quality of chart patterns or form their own buy or sell signals.
There are two primary types of indicators:
Leading Indicators. Leading indicators precede price movements and try to predict the future. These indicators are most helpful during periods of sideways or non-trending price movements since they can help identify breakouts or breakdowns.
Lagging Indicators. Lagging indicators follow price movements and act as a confirmation tool. These indicators are most useful during trending periods where they can be used to confirm that a trend is still in placing or if it’s weakening.
