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Technical indicators
Technical indicator is the result of mathematical calculations based on price and/or volume. It is used as an indicator of price movement, to confirm certain assumptions (e.g. breakthrough resistance line) and so on. Today, there are a large number of indicators. However, traders usually rely on just few indicators.
Unlike the chart patterns where two technicians can argue whether the formed pattern is triangle or wedge, with technical indicators there is no doubt. Indicator is drawn using the mathematical formula, and the rules for generating buying and selling signals are clearly defined.
Technical indicators could be classified as:
Leading indicators: they are related to price and generally show moments of big price movements. They are most effective for determining entry and exit points. They provide relatively early signals and thus may reduce the risk, but they can provide also false signals.
Lagging indicators: they follow current price. They are used to track the strong trends, while for the weak trends can give false signals.
There is a group of indicators called oscillators. They are drawn on separate panel on chart. Indicator usually takes values between two defined limits (usually 0 and 100). Oscillators are often used in cases where there is no strong trend (price is moving sideways).