The Primary Technical Indicators in Technical Analysis

In technical analysis, technical indicators are used to predict how well a stock will perform in the future given current market conditions. A technical indicator is often used in an effort to anticipate short-term price trends- upward or downward movements- of a particular stock or the market as a whole. The two categories of technical indicators are indicators and overlays. Indicators are used to build data that supplements the main price chart on a separate graph, while overlays create data that is superimposed on the main price chart.

Overview of Technical Indicators

The consistent and distinguishing feature of technical indicators is that they are not concerned with any of the fundamentals of a business. Instead, technical traders monitor indicators as a way of analyzing and predicting short-term price moves. Long-term investors derive little or no value from technical indicators.

Some of the Primary Technical Indicators

Moving Average Convergence/ Divergence (MACD): Uses closing prices to illustrate the difference between fast and slow exponential moving average (EMA).

Money Flow Index (MFI): The MFI uses a single line to provide an oscillating indicator to establish the strength of a price with the goal of determining whether a price move has the strength to last.

Rate of Change (ROC): Used to measure the change in percentage between the most recent price and a price in a specified number of periods in the past.

Relative Strength Index (RSI): Measure a security’s current price against its past price performance do determine strength. RSI compares the magnitude of recent gains against recent losses to output a number that falls within a range of 0 to 100.

Stochastics: Stochastics are used to compare the close of a security’s price relative to the price range that security has seen over a set period of time.

Volume: Represents the number of shares exchanged over a given period.

Williams %R: Similar to stochastic, this momentum indicator is used to measure overbought and oversold levels.

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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