WHAT IS TECHNICAL INDICATOR

WHAT IS TECHNICAL INDICATOR?

An indicator is a  mathematical calculation that can be applied to a security’s price and /or volume fields. The result is a value that is used to anticipate future changes in price.

WHAT IS LAGGING INDICATOR AND LEADING INDICATOR?

Lagging or trend following indicators are superb when prices in relatively long trends. They don’t warn you of upcoming changes in prices: they simply tell you what prices are doing( ie; rising or falling) so that you invest accordingly. Lagging indicators have you buy and sell late and in exchange for missing the early opportunities , they greatly reduce your risk by keeping you on the right side of the market.

EG : moving average, MACD

Remember that lagging indicators do not work well in sideways market

LEADING INDICATOR  OR OSCILLATORS

•       Leading indicators help you profit by predicting what prices will do next. Leading indicators provide greater rewards at the expense of increased risk.They perform best in sideways “trading” markets.

•       Leading indicators typically work by measuring how “overbought” or “oversold” a security is. This is the done with the assumption that a security that is “oversold” will bounce back.

•       You should use lagging indicators during trending markets and leading indicators during trading markets.

•       Eg : stochastic, Bollinger bands, William % r etc

•       Leading indicators are akin to a live telecast where you can see the actual in real time, feel the pulse of the game , its emotion, and the crowd behaviour, while lagging indicators are like watching a repeat telecast after the game is over.

MARKET INDICATORS

  Market indicators gauge an entire market, not just an individual security.

Eg : open interest, put-call ratio, advance-decline line etc.

WHAT IS MOMENTUM INDICATOR?

Momentum indicator show the difference between today’s closing price and the close a certain number of days ago. Momentum can be defined as a the strength or sustainability of a market move as measured by both volume and price. It is a velocity of a trend or a price move.

It measures the velocity of a price move, often giving advance warning the latent strength and weakness in a specific price trend.

Eg : RSI, MACD, ROC etc

The choice of the indicators to use should thus be made after asserting the nature of the market (up trend, down trend or side ways).