Understanding Technical Analysis Indicators

More than 100 indicators

When it comes to technical analysis tools, the trading industry has a lot to offer. Most metrics can be used to analyze the performance of all assets and across all time frames. Traders often turn to them to make more informed and professional decisions on whether to open a deal during their trading session.

There are so many indicators in the market that they have to be divided according to their primary functions, otherwise, it is quite easy to get lost. All technical analysis indicators fall into one of the following categories: momentum, trend, volatility, moving averages, volume, and others. Thanks to the clean and intuitive interface, they are also easy to set up and use, even for novice traders.

There are many myths surrounding technical analysis, so it is comprehensible that not everyone understands it correctly. Some people believe that anything technical is actually a scam, others tend to believe it is the ultimate answer to every question a trader might have. In the end, technical analysis, together with trading charts and trading strategies, are simply one more tool that every trader can benefit from. Using it correctly means getting a competitive advantage against the market.

Momentum
This kind of indicators are commonly used to measure market dynamics

These indicators will show you relevant information about whether the market is overbought or oversold. But how can you use this information? Markets work in cycles. After a prolonged buying spree, you can expect depreciation, and vice versa. In trading, both trend direction and trend strength are important.

The timing can tell at what pace the price is appreciating/depreciating, therefore predicting the future behavior of a particular asset. Sometimes it's essential to understand how strong a future trend is, and this is where current indicators stand out.

Volatility
A measure of how quickly the price changes

Volatility indicators often help you determine the amount of buying or selling pressure currently present in the market. Volatility indicators can be very effectively combined with the momentum indicators, which we have mentioned early, in order to help you develop a trading strategy that identifies periods of aggressive price changes, and acts upon price reversals to profit.

If you want to know more about trading on price swings, check this article on trading strategies.

Volume
The volume indicators help you identify trends in a unique way

While other indicators mostly use information that is already seen on your trade room screen, volume information turns into a different set of data, trading volume. Experienced traders know that trading volume rises and falls as the trend unfolds. Therefore, it is advisable to keep an eye on them. After all, if there is an opportunity to have additional information on trend reversals, why not do it?

Trend
Trend-based indicators are exactly what the name suggests

They are here to help you identify the prevailing trend in any given asset. While you might think these indicators are not very useful because the trend is always visible in the chart, this might not always be the case.

Sometimes, it is more effective to have a clear understanding of where the prevailing trend is headed, so you can tell the difference between a reversal and a simple deviation. This is not, however, the only application of trend-following indicators. They can also be used to identify entry and exit points when combined with indicators of different types.

Moving averages
Allows you to compare the average price of an asset over a given period

Moving averages are totally customizable, so you can freely choose a time frame that is more appropriate for your trading strategy. The shorter the time span used to create the average, the more sensitive it will be to price changes. The longer the time span, the less sensitive the average will be.

You can choose different time periods of varying lengths to calculate moving averages based on your trading objectives. Shorter moving averages are typically used for short-term trading, while longer-term moving averages are more suited for long-term trading strategies.

The best way to figure out which one works best for you is to experiment with a number of different timeframes until you find one that fits your strategy.

Other
All indicators that do not fit into the mentioned groups can be found here

Although these indicators can vary a lot in their designations and purposes, you should always keep an eye out and try a few of them. Maybe you will stumble upon a useful indication that will help you improve your trading strategy.

You should also keep in mind that trading without indicators can also give you good results, and there is nothing wrong with doing it. The Heikin-Ashi trading chart, for example, is often used without any trading indicators. This is especially when working longer timeframes and relying heavily on fundamental analysis.

It's no surprise that value investors like Warren Buffet, who keep their money in the same companies for years, assess the management team, the industry's growth potential, etc., not the technical factors.