Indicators represent statistical approach rather than a subjective approach in technical analysis by looking at trends, momentum, money flow and volatility. Indicators provide a secondary measure to actual movements of the price. It helps traders and investors to confirm the quality of chart patterns. It renders buy or sell signals, which helps in taking a decisions.
There are two primary types of indicators in technical analysis, leading indicators and lagging indicators.
Leading indicators antecede price movements and it tries to predict the future movements. These leading indicators are very supportive during the period of sideways or non-trending price movements. It also helps in identifying breakouts or breakdowns.
Lagging indicators act as a confirmation tool, which follows the price movements. Lagging indicators prove to be very useful during the trending periods. They can be used to confirm that a trend is still in placing or it is weakening.
Indicators are further divided into two categories, oscillators and nonbonded.
Oscillators: Theese technical indicators, which are very common essentially bound within a range. For example, an oscillator may have ranged from low to high, where 0 represents oversold conditions and hundred represents overbought conditions.
Non-bounded indicators are not very common. These still help in forming buy and sell signals. They also help in showing strength or weakness in trends.
Indicators generate the buy and sell signals through the divergence or crossovers. “Crossovers” is the most important and popular technique where the price moves through a moving average or with two moving averages crossover. On the other hand, divergence occurs when the direction of price trend and the direction of the indicator will move in opposite directions which shows the price trends is weakening.
Indicators prove to be extremely helpful in identifying the momentum, volatility, Trends, and other aspects of a security. The indicators work best when they are combined with other forms of Technical Analysis, so as to maximize the odds of success.
With the help of the above description one can understand the importance of technical analysis in the field of the stock market. For a beginner, these terms are not easy to understand and sometimes these things are hard to understand even for the existing traders and investors. To understand the concept of Technical Analysis, one can take help from any research advisory like TradeNexa. They are having a team of the technical analysts, who are well experienced in their field and they guide the traders. They will give you Stock Option Tips which will help you in taking decisions of trading. Without having knowledge of Technical Analysis one will face obstacles in gaining more profit in trading. As the stock market is a place where everyone wants to gain profit and to meet this expectation, one should have knowledge about the technical and fundamental analysis of the stocks.