Besides using price models and drawing tools… well technical indicators An integral part of price graph analysis. This article will explain in detail for you to understand What is a technical indicator? Basic types of technical indicators and detailed usage instructions.
What is a technical indicator?
Indicators are tools built from past price data, some of which are associated with trading volume. The price data includes: Highest price, lowest price, opening price and closing price. These data combined with the time period (price cycle) according to certain formulas will produce characteristic technical indicators. The difference between the indicators is only due to the difference in the calculation formula.
For example, with different formulas we will have indicators like RSI, MACD or Stochastic ...
Today, just from such price data, people have dived and processed thousands of different technical indicators. On popular trading software such as MT4 ... dozens of such indicators are integrated. The use of too many types of technical indicators makes traders confused. So I recommend that you do not need to use too many indicators. You just need to use the most common and basic indicators.
Classification of basic technical indicators
Technical indicators act as an auxiliary tool to look into the evolution of price (and volume). Each different indicator will reflect a different perspective on prices, from which will evaluate the next trend, price momentum and strength of the trend .... Therefore, it is also classified into oscillator and trend indicators ....
Group of oscillating technical indicators (Oscillators)
Oscillator indicator is a type of value whose value revolves around a horizontal axis. Its value only fluctuates within a certain range, revolving between 2 poles. Oscillating indicators are below and separate from price charts without overlapping price charts.
Some basic oscillator indicators include: RSI, MACD, Stochastic, ADX.
There are two ways to apply oscillator indicators:
- Based on high and low values. Because its value is just turning around, it is said that when it is too high or too low, it is the time when it is about to return to the middle level. Therefore, when the value of the indicators crosses a certain range, it is called the overbought or oversold zone ... and the forecast is the price to prepare to turn around.
- Based on signs of divergence. This technique relies on the different direction of movement between the commodity price chart and the indicator value chart. For example, if the price chart is trending upwards, while the trend of the indicator is going down, it is predicted that prices are about to reverse from up to down. To find out more, please refer to: What is divergence? Guidance for trading by divergence.
Detailed instructions for use of oscillator indicatorsFor detailed instructions on how to use, please visit each of the following tutorials:
Group of trend technical indicators (Trends)
In the previous section, you learned about oscillating indicators. These are called oscillators because they only fluctuate within a fixed range. In essence, they are also used to identify trends and trend reversals.
In this section, you will learn about trend indicators. It seems that this classification is not really accurate, but this is me based on the classification shown on the MT4 software. Perhaps it is called that because people rely on the direct direction of the price chart along with the indicator.
The trend indicators are not separated from the price graph as the oscillators above. They share a space and overlap the price chart. Thus, we can directly compare the price line and the trend indicator.
Trend indicators often rely on the intersection of the price line and the indicator line to compare. They are also called slow indicators, because they reflect price follow. This means that although the price has risen, if the technical indicators have not followed, the trend has not been confirmed.
Some trend indicators are: Moving averages MA, Bollinger Bands, Ichimoku, PSAR. To find out details about how to use the technical indicators, please click on the link of each indicator.
Detailed user guide for trend indicatorsFor detailed instructions of each type, please visit each of the following tutorials:
How to find technical indicators in MT4 software
To find and apply technical indicators in MT4, just click the f icon on the toolbar as shown in the picture. It will then display the types of indicators to choose from.
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Author: Pham Khuong