Technical indicators are computations that predict how an asset’s price will move.
These calculations assess an asset from different perspectives and can be an extremely powerful tool, providing insightful information and helping you improve your trading strategy.
This blog will help you understand why technical indicators are an essential tool for every trader. Read the blog till the end to find what they are, how they work, and discover the best technical indicators available.
What are Technical Analysis Indicators?
Technical indicators are tools for chart analysis that can help traders better understand and react to market movements.
Indicators are employed by traders who use technical analysis to deliver accurate market information represented by pattern-based data created by volume, price, and open interest of a contract or instrument.
Additionally, they can provide accurate market information, such as when a commodity is overbought or sold relative to its range and is ready for a reversal. Technical analysis tools are widely accessible and can be used to assess patterns, offer price averages, calculate volatility, and much more.
Types Of Technical Indicators
There are many indicators to choose from, but they are often classified according to the information they provide.
Here are the four main types of indicators, along with a brief description of how each group helps traders identify market opportunities.
Momentum Indicators: In trading, momentum refers to the rate at which prices fluctuate. Momentum indicators determine this momentum and can help predict upcoming trend changes.
Some common momentum indicators:
- Relative Strength Index (RSI)
- Moving Average Convergence Divergence (MACD)
- Stochastic Oscillator (SO)
Volume Indicators: The number of deals done within a specific period is called volume in the trading world. It provides a clear picture of the supply and demand of the asset. Volume indicators determine if a trend will endure by gauging trade volume.
Some common volume indicators:
- On Balance Volume
- Accumulation / Distribution Indicator
- Money Flow Index
Trend Indicators: The direction of price movement over a long period is called a trend in trading. For example, an uptrend occurs when the price continues to rise, and a downtrend occurs when the price continues to fall. Trend indicators can assist in predicting the market’s direction.
Some common trend indicators:
- Moving averages
- Parabolic stop & reverse
- The Ichimoku Cloud
Volatility Indicators: The degree to which a price moves over time is determined by volatility in trade. Price fluctuations are quick and unpredictable when there is high volatility. Volatility indicators evaluate an asset’s price range and aid in identifying periods of excessive volatility.
Some common volatility indicators:
- Bolinger bands
- Donchian channel
- Average true range
Importance of the Technical Indicators
Technical indicator tools are essential for traders to identify risks and develop appropriate tactics. Technical analysis is a way of appraising securities that involve researching market activity data, such as previous volume and prices.
Technical analysts do not attempt to determine an asset’s inherent worth but rather utilize charts and other tools to identify patterns that suggest future activity.
How Do Technical Indicators Work?
Technical indicators work as a reflection of the market’s psyche. They illustrate how the price has changed from past prices and can be used as trading guidance.
Technical indicators are very helpful if you want to avoid emotion in your trading decisions or think that someone else’s opinion may affect your decisions in a certain situation, as they are completely data-driven.
However, trendlines, which make it possible for traders to determine whether an asset is going up or down, act as trading indicators. It prevents traders from making timing mistakes while trading.
8 Best Technical Indicators for Day Trading
- FTreset – Pivot Point Support and Resistance. When price approaches the pivot or mid pivot line
quickly with a strong push, the relative strength reading at the end of the line indicates to the
trader whether to expect a strong reaction to the line.
- SuperD – Super Divergence measuring price movement against 7 different momentum
- Mometer – Measures increasing momentum. The longer the momentum of price movement in
one direction, the more imminent the exhaustion and immediate pullback.
- OBOS – Overbought/Oversold. Measures and reports when exhaustion is most likely.
- Pullback Alert – Identifies when volume is largely in one direction and then competition jumps
into the fray. A churning of volume will occur which is often an indicator that price is going to
- SpeedTick – Market Makers, High Frequency Traders, and Hedge Funds have an advantage over
retail traders in that they have ample funds and technology available to move the markets
based on their trading. The SpeedTick helps us to know when those trades are happening so
that we can follow in their footsteps and take advantage of the retail traders that do not realize
the markets have been manipulated.
- Ricochet – When processed orders accelerate at a rate that it is unlikely retail traders could
trade that quickly, it must be concluded that the orders were traded by the institutions
mentioned above. When this happens, it is likely price is going to pull back over the short term.
- RockStar – Combine momentum, exhaustion, order flow, and divergence into one indicator.
When conditions in the market are right, this indicator will point to where price turns within just
a few ticks or pips. Very accurate and reliable signals.
Conclusion: Get All Your NinjaTrader Indicators from One Platform!
By now, you must have understood the importance of technical indicators. They will help you determine when to enter or exit a trade to make a profit.
Technical analysis indicators examine price data and convert it into clear, easy-to-read signals. These signals help the investor to identify the appropriate time to buy or sell.
The Intentional Trader is the top NinjaTrader indicator developer, providing high-performance indicators to help you maximize your probability of success in long-term trading or day trading.