Types of Technical Indicators:

Most of the indicators can be divided into two major categories.

• Leading Indicators

• Lagging Indicators

Leading Indicators:

This indicator behaves like a name.

• This indicator gives information whether the market or shares are overbought or oversold.

• He delivers good performance in the market without getting stuck at any level of momentum.

This indicator is very useful for those who do short term buying and selling.

• They provide more trading signals and if the trader works diligently then he can make good profits.

Famous Leading Indicators:

• Relative Strength Index (RSI)

• Stochastic Oscillator (Stochastics)

Lagging Indicators:

• Lagging indicators are trend-following indicators.

• They are created so that traders or investors in established trends remain invested in the trend and remain involved as long as the trend is established.

• Such indicators work very well in trends that are formed over a long period of time.

• They cannot predict future prices but they tell the direction of the market.

• It makes it clear where to take support in a similar bullish period as per the time. Every investor can stay invested in any stock with a healthy mind for the long term.

Famous Lagging Indicators:

• Moving Average

• MACD

Momentum Indicators:

• Through this indicator, you can know how strong the momentum is in the rise or fall seen in the market or shares. Momentum calculates the rate of change of the share price.

• When the price rises, the momentum is seen to increase and the faster the price rises, the more the momentum is seen to increase. When this increase slows down, the momentum is also seen to slow down.

When the stock price moves flat and shows little to no volatility, the momentum starts declining from its previous highs. But sideways prices and declining momentum are not always considered a sign of recession.

• By using these indicators at different levels one can know whether the market or shares are at top or bottom at any given time in a short period or in a specific period of time.

Trend Indicators:

• As the name suggests, trend indicator shows the trend in the market or any stock.

• The sentiment data is smoothed and plotted in the form of a line, such as a moving average, to represent the trend.

• But this smoothing method makes such indicators sluggish and hence they are called trend following indicators.

• Trend indicators are lagging indicators and hence the signals given by them are less.

Moving Average:

• This is a slow indicator, meaning you get less signals from it.

•Moving average is a way of presenting the average price of any stock over any period of time. As the price changes with time, the average also changes. This change is a little slow.

•If the current price crosses above an average, then you are said to get a buy signal. Similarly, if an average of "x" days crosses above an average of more than that number of days, then also you get a buy signal. How many days' average will be "x" depends on any timeframe.

• One thing should always be kept in mind that for moving average you have to show the established trend of any stock or market, it is not for knowing the top or bottom of the market.

• Support and resistance are visible on the moving average and are useful in that way also.

Types of Moving Average:

1. Exponential Moving Average:

•Many experts use exponential moving averages to reduce the lag inherent in simple moving averages.

• Exponential moving average emphasizes shorter term price movements more than longer term ones and reduces lag. It can give very good response with price changes.

• Which moving average to use depends on your practice, trading style and interest.

2. Simple Moving Average:

• It is true that there is a lag in simple moving average. But in exponential moving average a breakout can occur very soon.

• Therefore, investors should first see whether a trend is established in any stock or market or not. Only then should they focus on the practice of moving average.

• If there is chaos in the prices then moving average should not be used at such times.

Two Moving Average System:

• In this two averages are used in which one average is fast like 5 days average and the other is slow average which is based on the time period for which you are going to trade.

MACD (Moving Average Convergence Divergence - MACD):

• It is an important indicator that shows changes in momentum and also indicates whether a trend will remain established or not.

• This is also a slow indicator so it gives a little more signals.

Structure:

• MACD has two lines. One is fast line and the other is slow line.

• Both these lines are seen moving above and below the main "0" level. On studying this, trend establishment and 'buy' or 'sell' signal can be obtained.

Divergence:

• When the stock price makes a new high and the MACD fails to make a new high, it is called a negative divergence. At such times, it should be understood that the bulls are getting weak and a downtrend will begin in the short term.

• Similarly if shares make a new low and MACD does not form a new low then it should be understood that bears are getting weak and a bullish move is seen in the short term.

Relative Strength Index -RSI:

Structure:

RSI is an indicator that moves between 1 and 100. Three levels of 30-50-70 have special importance in it.

Time frame:

The setting of 14 days is prevalent in RSI. This number can be adjusted slightly as per the requirement.

The use of RSI primarily gives two signals.

• A rising RSI is a sign of rising momentum. A falling RSI also gives the same signal but it is rising momentum in the downward direction. When the RSI moves close to 50, then the momentum is in no evidence.

• Based on RSI, indication can be obtained whether the shares are overbought or oversold at any time.

Stochastics Oscillator:

The Stochastic Oscillator was developed by George Lane in 1950. It is used to find support and resistance and to check for overbought and oversold markets.

Structure:

• Stochastic Oscillator has two lines, %K which is the main line and the other line is %D which is the moving average of %K.

• %K line is solid line and %D is dotted line.

• This is an indicator that moves between 1 to 100. In which the levels of 20 and 80 have more importance.

Bollinger Bands:

Structure:

Bollinger Bands has a moving average in the center and two lines based on standard deviation above and below it, which form a band.

Time frame:

Generally most softwares have a 20 day setting. In which simple moving averages are used. A setting less than 10 days does not give systematic signals and makes the indicator very volatile.