Technical indicators are mathematical in nature and because of their nature they often are wrongly interpreted. However, we cannot rule out the scope of these indicators in our technical analysis while reading and drawing conclusion on the basis of charts because these indicators are highly valuable since current market data information may prove adequate to reveal some missing picture about the stock if not all. It is also important to note that the indicators are best used together with the other tools of technical analysis. Indicators of technical analysis are used to help to identify:
- Direction of the trend,
- Strength of the trend,
- The level of resistance and support,
- The divergence between the movement of indicators and prices as signals of possible reverse trends,
- The trend reversal confirmation.
Technical Indicators try to decode things plotted on price chart with available information and convert them into a readable and simple language which helps us in to determine the exit and entry price area for our trading. Each technical indicator provides unique information. We have to find a way to read them and more importantly we have to get accustomed with those se to f indicators to understand their strength, failure or weakness because technical indicators work on historical price movement and there is no success guarantee that historical movement can surely lead us to success every time.
There are more than thousands of technical Indicators available in the market to choose from and they are primarily based on mathematical equations that produce a value that is then plotted on the chart.
Types of Indicator
- Leading Indicator
- Lagging Indicator