What are Technical Indicators?

Technical Indicators are charting tools that appear as lines on charts, or as other kinds of graphical information, which serve as guidelines for buying and selling opportunities. They are based on mathematical formulas, and may be called oscillators, trading bands, and signal lines, among other things.

Technical analysts use information about price, volume, standard deviation, and other metrics to construct systems for trading using mathematical formulas which can be translated into useful charting tools. The systems can bring discipline to a trader’s strategy by providing clearly defined circumstances in which a trader has reason to buy, sell, hold, and so on.

A line, a crossover of two lines, or an entirely new bi-axial graph or table could fall under the definition of an indicator. The indicator is meant to make visible what may not be as easily perceived from other data.

There are leading indicators which attempt to predict and signal when a new reversal or trend will start, and there are lagging indicators which attempt to confirm that a trend or reversal has begun. These can give investors more confidence and ability to participate in market momentum.

Bear in mind that technical indicators cannot predict the future, and are only constructed using past performance information.

Is There Any Merit to Technical Analysis of the Markets?
What is a Leading Indicator?
Who are Chartists?
What is a Day Trader?