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Technical Indicators and Signals

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Introduction to Technical Indicators and Signals

Technical Indicators and Signals Technical Indicators and Signals are mathematically-based market price analysis tools. Technical indicators are usually shown in graphical form above or below a security's price chart, and can provide a unique perspective on the strength and direction of the underlying price movement. They filter out random noise and provide a smoother view of the price action which makes it easier to analyze a trend's behavior.

One of the most important features of Technical Indicators is the ability to provide investors with alerts. Alerts are the warning signals that a price went too far too soon - that a current trend is out of steam and price reversal is just around the corner. Those alerts can be used to predict the direction for the future price.

Some technical indicators work well in trending markets when the price moves strongly in one direction, either up or down, but generate false signals in trading markets, when there is no strong movement in either direction and prices tend to ping back and forth near old highs and then fall to prior lows. For example, moving averages work quite well in strong trending conditions but poorly in trading markets. Other indicators work better in trending markets, but give false signals in choppy or ranging conditions. A common mistake is applying the wrong indicator to the wrong market condition. Technical signals should be taken in context with other technical analysis tools.

Pretty often, technical indicators are used in conjunction with other technical tools. Experienced traders usually do not rely on one single method of analyzing the market. The market forecast is much more reliable when it is confirmed by several different methods. Technical indicators are often used to confirm price predictions provided by chart patterns techniques. For example, the correspondent moving average crossover can be used as confirmation for the chart pattern breakout.

Another approach that can be used to improve the reliability of technical signals is to see if the same price forecast is confirmed by technical indicators in multiple time frames.
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Warning: TheGreedyTrader.com presents weekly analysis. Technical indicators and trend parameters are calculated for the close of business day indicated on the top right corner of the screen.

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