TECHNICAL INDICATORS

There are many different types of technical indicators, however they can be grouped into five categories:

1. Trend Indicators: As mentioned before, trends show the persistence of price directions, either upwards, downwards or sideways. Trend indicators smooth out the historical prices to show market direction. The most common of these are Moving Averages. Simple trend lines can also be used to the same effect by drawing a line that joins the low and high points over a period of time; these are also used to form tunnels and triangles as popular means of analysis. Trend lines are also used to pick support and resistance levels.

2. Strength Indicators: This is essentially a volume indicator and more popular in futures markets than in foreign exchange. The most popular of these is Volume.

3. Volatility: This measures and shows fluctuations over a period of time. These indicators help to pinpoint support and resistance levels. The most popular of these is Bollinger Bands.

4. Cycle: These indicators tend to find patterns or, more correctly, repetitious cycles. Once again, this is more popular in other financial markets. The most popular cycle indicator is the Elliot Wave.

5. Momentum or Oscillators: These indicators map the speed at which prices move over a given period of time. Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest at the beginning of a trend and lowest at trend turning points. Any divergence of directions in price and momentum is a warning of weakness; if price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction. The most popular momentum indicators are the Stochastic, MACD and RSI.