Technical traders or investors use mathematical system derived from analytical research and historical data to anticipate future prices and decide trading patterns. This concept is called technical indicator. The rates, capacity and open interest data from the historical growth chart of the company. A graphical representation of the trends of trade market is interpreted by analysing the structure of past returns, psychology of investors. The future price structure of the market is conquered by means of technical indicators.
The volume patterns, Elliot waves, oscillators, sentiment indicators, momentum and cycle volumes are analyzed to make the interpretations for future price movements.
Some indicators generate mutual analysis by supplementing each other and some generate signals as stand alone. Most of the indicators are non specific and target wide scopes of market. While some are very specific and are used to analyse financial markets.
Depending upon the orientation and specification, these indicators can be classified into following types.
-Oscillators: These indicators traverse between regional minimum and maximum and emphasize on momentum of the market. The research about overbought and oversold price deflections is well done by means of these indicators. The variable flexibility of market research enables the traders and investors to get the perfect anticipation of trade units. Multiple oscillators are used on a single graph to provide collective readings. These indicators help to get the relative strength of market.
-Overlays: Bollinger bands and moving average are the commonly used overlays which provide deep insight into the supply and demand of a stock. Bollinger band is a tool for technical analysis of security’s price in comparison of previous trades and was developed by John Bollinger in 1980.
-The accumulation/distribution line indicators analyse the direction of security’s money flow in the market. An upgrading indicator line shows a buying interest while a falling indicator line shows a downtrend.
-On balance volume(OBV) measures the trading volume flow. When selling volume is higher than buying volume, there is a fall in OBV, while in reverse case when buying volume is higher than selling volume than there is a rise in OBV.
-Moving Average Convergence Divergence(MACD) is used to analyse the direction and momentum of the market trend to anticipate trade signals. An upward trend in price is designated by MACD above zero. A downward trend in price is designated by MACD below zero.
-Average Direction Indicator: It is used to measure market strength and direction. A weak trend in market is designated by an indicator below 20. A strong trend in market is designated by an indicator above 40.