TA: Indicators and Oscillators

Indicators are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum.

Indicators are used in two main ways: to confirm price movement and the quality of chart patterns, and to form buy and sell signals.

While some traders use a single indicator solely for buy and sell signals, they are best used in conjunction with price movement, chart patterns and other indicators.

Two main types of indicators

1) leading-strongest during periods of sideways of non-trending trading ranges
2) lagging-useful during trending periods

Two types of indicator constructions

1) fall in a bounded range-are called oscillators
2) do not fall in a bounded range

Two main ways indicators used to form buy and sell signals

1) crossovers
2) divergence - when the direction of the price trend and the direction of the indicator trend are moving in the opposite direction. This signals to indicator users that the direction of the price trend is weakening.




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ps: Content in this article are excerpted from Investopedia.