Technical indicator is a mathematical calculation based on historic price, information for forecasting future stock/market direction.
Indicators plays important role in technical analysis, indicators helps in giving and confirming entry and exit signals for stock/indices . There may be number of different types of
indicators but they all can be categories in two categories:
1. Leading Indicators
2. Lagging Indicators
Leading Indicators:
Leading Indicators are indicators that lead price movement. In other words, we can say that they indicate the probability of a trend reversal in advance. Most leading indicators measure price momentum over a fixed look-back period. Example of leading indicators are Commodity Channel Index (CCI), the Relative Strength Index (RSI), the Stochastic Oscillator and the Williams' %R.
Lagging Indicators:
Lagging Indicators, which follow the price movement, are usually trend-following indicators, such as the moving averages (MA) and Moving Average Convergence/Divergence
(MACD).
So leading indicators are usually considered better than lagging indicators because , their predictive nature does not necessarily increase their accuracy or validity.
There are some Other types of indicators that can be trend indicators, momentum indicators, volatility indicators, market strength indicators and cycle indicators. so we safely
conclude that Different types of indicators can often contradict each other as some are better suited to trending markets while others are better suited to non-trending or ranging
markets. so It is very important that you understand an indicator, what it measures, how it is calculated, and how it reacts to price changes, before you use it for day trading
strategy, Once you know how an indicator works, and how it reacts to price changes, you would be more accurate rather you work on others developed strategies on the basis of
indicators.
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