Technical Indicators – Introduction
Technical indicators are based on mathematical equations that produce values that are plotted on charts. For example, a moving average calculates the historic average price of a share or CFD and plots it on your chart as a line. As your share or CFD chart moves forward, the moving average is revised accordingly. The system then plots new points. As you’ll see, this moving average irons out a lot of the temporary price fluctuations (because it is based on a larger sampling of data) and provides a smooth line that indicates the direction in which the share or CFD is moving (see Figure 1).
We have previously identified some of the key factors in technical analysis and in this lesson we will expand on your knowledge and will cover Technical Indicators and Price Patterns. Technical indicators are the interpreters of the CFD markets. They examine price information and translate it into simple, easy-to-read signals that assist you in determining when to buy and when to sell.
Figure 1 – Technical Indicator: Moving Average
Each technical indicator provides unique information but most traders will have a preference for a particular indicator. It is important to familiarize yourself with all of the technical indicators. The one weakness associated with technical indicators is that it is based on historical price data and there is therefore a lag behind the current market; however, they still provide valuable information.
Technical indicators are divided into the following categories:
- Trending Indicators
- Oscillating Indicators
- Volume Indicators