Study indicators. Part One. Introduction

Introduction

This article was written to introduce the concept of indicators and explain how to use them in your analysis. We pour some light on the differences between advanced and lagging indicators, as well as examine their advantages and disadvantages. Many, if not the most popular indicators are as oscillators. Mindful of this, we also show how to read and oscillators to explain how to get signals. Later vetom number of indicators on, we turn our attention to certain indicators, and present examples of signals in action.
What is the indicator?

The indicator - a number of data points, which are obtained by applying a formula to price data protection. Price data includes any combination of the opening (open), the highest value (high), the lowest value (low) or the closure of close) during the period of time. Some indicators can only use the closing price in tovremya others include in their formula for the volume and open interest. Introduce the price data in a formula and calculated

. For example, the average number of 3 closing price - provides a single point of data ((4 1 +43 +43) / 3 = 42.33).

However, one data point does not daetmnogo information and does not show that makes indikator.Dlya analysis requires a number of data points over time. By creating time-series data points, the comparison can be made between present and past levels. For purposes of analysis, indicators usually show in graphic form above or below the price chart (a chart). Shown in graphic form, the indicator can be compared with the corresponding price schedule. Sometimes the indicators are built on top of price schedule for a more accurate comparison.
With the proposed indicators?

The indicator suggests a different perspective to analyze the price movement. Some, such as moving averages of values derived from simple formulas, and mechanics is relatively simple to understand. Others, like stohastikov (Stochastics), have complex formulas and require more time to study, to fully understand and appreciate. Regardless of the complexity of the formula, the indicators can provide a unique perspective in defining the strength and direction of price changes.
Simple moving average (Simple moving average) - an indicator, which calculates the average

price on the number of periods. If extremely volatile price fluctuations, the moving average value can help smooth the data. Moving average value filters out random noise and offers a smooth-term price movements. Schedule of Veritas (VRTS) displays greater volatility, and the analyst may have difficulty in determining the trend. Applying the 1 0-day simple moving average value to the price schedule, random fluctuations smoothed to facilitate the opportunity to identify the trend.

Why use LEDs?
Indicators serve three broad functions: prevention, validation and prediction.
LED can act as a warning to examine the price movement of a little more closely. If momentum (driving force) is reduced, it could be a signal that can be expected to break through support. Or, if formed a more positive divergence (the difference), it can serve as a warning to watch for a sharp break through the resistance. LEDs can be used to confirm other technical analysis tools. If there is a drastic change in the price of the price chart, the intersection of the moving average values could serve as evidence of this breakthrough. Or, if the market punch line support, the corresponding indicator on the graph Low On-Balance-Volume (OBV), it could serve as a proof of the weakness of the market. Some investors and traders use indicators to predict the direction of future changes in prices.

Tips for using indicators.

Indicators show. This may sound too categorical, but sometimes traders ignored the change in the price and focus on the display. Indicators filtered price movement formulas. Also, they - and not derived directly reflect the price action. This should be taken into account when applying the analysis. Any analysis of the indicator should be taken, mindful of izmeneniitseny. As the indicator shows the change in prices? Price movement is becoming more powerful? Weaker?

Even though the situation may be obvious, sometimes indicators to generate signals for buying and selling, the signals must be taken in context with other technical analysis tools. The indicator may signal the purchase, but if the chart shows a downward triangle with a number of declining peaks, it could be a false alarm.

Figure Inktomi (INKT), MACD grew from April to August and formed a positive divergence in August. MACD signaled the possibility of buying, but the market was unable to overcome the resistance level and reach the previous peak. This is not confirmation of the market was a sign warning against long positions. For the record, the signal for the sale took place when the market prorval line support decreasing the triangle at the beginning of October 00.

As always in the technical analysis, the ability to read the indicators more art than science. The same indicator may show different behavioral models that are applicable to different actions. LEDs, which work well for IBM, c could not work for the airlines Delta. Expertise with the various indicators can be done through careful study and analysis.

Today, using hundreds of indicators, new indicators under construction each week. Technical analysis programs come with sets of indicators, which vstraivayut, and even allow users to create their own display. Given the number of fraud, which is associated with indicators, choosing an indicator that you will follow, the challenge of his ukroscheniya. Even with the introduction of hundreds novyhindikatorov, only a few offer an excellent prospect and worthy of attention. Strangely enough, but the indicators, which generally deserve more attention - those who have passed the test of time.

When choosing an indicator to analyze, select it carefully and sparingly. Attempts to reach more than five indicators is usually futile. Better to concentrate on two or three indicators, and to study their effect. Try to select indicators, which complement each other, rather than those that operate in unison, and generates the same signals. For example, it would be redundant to use two indicators, which are good to show perekuplennye and resell the levels, such as Stochastics and RSI . Both of them show momentum (driving force) levels perekuplennosti and pereprodannosti.

Arthur Hill