A Beginner’s Guide to Technical Indicators

By Aleksandra Wilson
3 min read September 13, 2021

What Are Technical Indicators?

Technical Indicators are tools employed by traders to understand the supply and demand of marketable securities. When put all together, these indicators create the base for technical analysis. They are commonly used to set buy and sell signals. These indicators help us understand the stock market’s behavior now or how it will work in the future. This can be very useful considering that our primary goal is to profit from our investments in the markets.

How Can We Classify Indicators?

There are two groups: economic indicators and technical indicators. The first are statistics measuring the growth or decline of the complete economy or a specific area within that economy. They are used for fundamental analysis since they enable us to quantify the economic and industrial conditions at the moment. These indicators are commonly used to supplying info about the future potential of public companies. The second, technical indicators, are used for predicting specific changes in price or trend patterns of an asset.

Lagged Indicators

These are a group of indicators that exhibit a factor of the economy that can be measured after an essential change in the economy has happened. These kinds of indicators can be classified within the technical indicators since they follow the price movements of an asset. That name is given because they show the results from previous actions in a determined time frame. These indicators are very convenient to track signals in the market as they confirm a trend’s strength before making any decision. This is because lagged indicators wait for basic movements within the market before they provide a signal.

On the other hand, although they can be helpful for the trend’s confirmation, there are also a couple of disadvantages. First, they cannot predict a movement in the market; they can only confirm it. Second, the signal to enter a particular position will always be delayed, which doesn’t allow traders to take advantage of the trend’s momentum.

Some Indicators With Lag

Averages – this indicator is used to recognize a specific trend of an asset in the market.

MACD – is used to interpret the trend and shows the relationship between two moving averages of the prices of a security in the market.

Double EMA – has a reduced lag, seeking to provide information more quickly to the trader.

Crossover – crosses data so that the trader can observe price characteristics and predict its movements.

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