TECHNICAL INDICATORS
- Details
- Created on Friday, 18 December 2009 10:01
- Written by Ivan Yurukov
Graphs show many things. However, sometimes the graphics are quite incomprehensible. In such situations, technical indicators are of great benefit to investors. They analyze the change in price and transfer it into a format that is much easier to understand.
Technical indicators are based on mathematical equations which calculate new values and place them on the chart. A typical example of it is the 'moving average'. In this case equations calculate the average price of a currency pair and book the values down on the chart in the form of a line.
When the price of the specified tool changes, the corresponding value of the indicator changes as well. As you can see as a whole this indicator smooths the movements and abrupts sharp changes because following the standard it is based on for a longer period of time. But still it follows the basic movement of the currency pair.
Each technical indicator gives different information. Each trader alone chooses which indicators best fit to their style of trading.For this purpose, however, we need to know the different indicators. The main disadvantage, which should be born in mind is that they reflect historical data and therefore there is some time delay. Nevertheless they give useful information
Technical indicators can be divided into three main categories:
Trend indicators
Oscillating indicators
Indicators for volume trading
As it is seen from the name trend indicators follow the trend (direction) in the price of the currency pair. Traders make its largest gains in the trend movements. However it is important to distinguish between the trend and consolidation in the shortest possible period. Most traders tend to invest a little after the beginning of the trend and to have the profits shortly after the end of the trend.
The following indicators are among the most popular in this group:
- Moving Average
- Bollinger bands