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  1. Home
  2. Academy
  3. 3.10 Indicators in technical analysis
  • 3.01 What is fundamental analysis in crypto?
  • 3.02 Understanding technical analysis
  • 3.03 The Dow theory: principles and statements
  • 3.04 What are the types of charts? How to read a chart?
  • 3.05 Candlestick charts and patterns
  • 3.06 Understanding support and resistance levels
  • 3.07 What are trend lines and why are they important?
  • 3.08 Moving averages explained
  • 3.09 Application of Fibonacci sequence in technical analysis
  • 3.10 Indicators in technical analysis
Previous lesson

3.10 Indicators in technical analysis

This lesson provides an overview of technical indicators.

article
Zonda Team
14 January 2022
18 August 2022



Technical analysis software and trading platforms have tens or even hundreds of indicators sewn into them. You can find many investors who are die-hard followers of certain indicators. They have plenty of examples to prove that their favorite indicator is the most effective in the financial market. 

Technical indicators perfectly match the programming of investment machines due to their objective nature. As a beginner, understanding different types of indicators helps you perform technical analysis effectively. 

This lesson provides an overview of technical indicators. 

Contents

  • What are technical indicators?
  • Types of technical indicators 

What are technical indicators?

A technical indicator is a mathematical pattern derived from historical data of price movements. Technical indicators, also known as, “technicals” are shown graphically on charts. They focus on historical trading data of price, volume, and open interest data, etc. 

The indicators in technical analysis serve as an aid in the interpretation of the charts. They show the dynamics of the price movement of an asset, the strength of a trend or volatility. Investors and traders use different types of indicators to predict future price trends and make trading decisions. 

As we discussed in previous lessons, unlike fundamental analysis, technical analysis focuses on patterns of price movements, trading signals, etc. Though indicators help you forecast future trends, it is always important to consider other information as well to get a clear picture. 

Types of technical indicators

Although there are various types of indicators, the group of the most frequently used indicators is usually limited to a dozen or so. Indicators can be broadly classified into the following types. 

  • Momentum indicators or oscillators (eg. Relative Strength Index (RSI), Stochastic)
  • Trend or trend strength indicators (eg. Moving Average Convergence Divergence (MACD), Moving Averages)
  • Volatility indicators (eg. Average True Range (ATR))

The above division is rather fluid because some of the oscillators can be trend indicators and vice-versa. Some indicators dedicated to the analysis of trends or strength of trends will take the shape of oscillators. It is important to note that using them does not differ significantly from the methods known from other markets. 

Indicators measure the dynamics of price movement i.e., how fast the price moves over time. Reaching extreme values of the oscillators is interpreted as a too fast price move which in turn leads to a price correction. Most oscillators have three interpretations that are discussed below.

  • Reaching extreme values - The market is then said to be overbought or oversold and this can be interpreted as a warning signal. 
  • Divergences - Discrepancies between the behavior of the oscillator and the price. For example, the rate continues to rise and the oscillator is falling. 
  • The intersection of the zero level - This can be a signal to trade in line with the direction of the main trend. 

Let’s look at the typical layout of the trading platform that is given below with three indicators (RSI, MACD, and Stochastic oscillator).


 

There are multiple technical indicators that can help you identify the trends in price movements to make better trading decisions. Some of them are cycle volumes, momentum readings, volume patterns, moving averages, Bollinger bands, sentiment indicators, Elliot waves, etc. 

Indicators are an essential part of technical analysis that will help you reap potential profits from crypto trading.

DISCLAIMER

This material does not constitute investment advice, nor is it an offer or solicitation to purchase any cryptocurrency assets.

This material is for general informational and educational purposes only and, to that extent, makes no warranty as to, nor should it be construed as such, regarding the reliability, accuracy, completeness or correctness of the materials or opinions contained herein.

Certain statements in this educational material may relate to future expectations that are based on our current views and assumptions and involve uncertainties that could cause actual results, performance or events to differ from those statements.

BB Trade Estonia OU and its representatives and those working directly or indirectly with BB Trade Estonia OU do not accept any liability arising from this article.

Please note that investing in cryptocurrency assets carries risks in addition to the opportunities described above.

Previous lesson
16 / 1 / 22
Trading
Investing

3.03 The Dow theory: principles and statements

This lesson helps you understand the principles and statements of Dow’s theory.

Read more
3.03 The Dow theory: principles and statements
16 / 1 / 22
Trading

3.05 Candlestick charts and patterns

This lesson focuses on understanding candlestick charts and patterns.

Read more
3.05 Candlestick charts and patterns
16 / 1 / 22
Trading
Investing

2.05 Bid-Ask spread and slippage

This lesson explains bid-ask spread and slippage.

Read more
2.05 Bid-Ask spread and slippage
14 / 1 / 22
Trading

3.02 Understanding technical analysis

This lesson helps you understand technical analysis in crypto trading. 

Read more
3.02 Understanding technical analysis
14 / 1 / 22
Trading
Investing

3.01 What is fundamental analysis in crypto?

This lesson walks you through the fundamental analysis of cryptocurrencies. 

Read more
3.01 What is fundamental analysis in crypto?
14 / 1 / 22
Trading

3.04 What are the types of charts? How to read a chart?

This lesson explains how to read a chart and types of charts in technical analysis. 

Read more
3.04 What are the types of charts? How to read a chart?
14 / 1 / 22
Trading

3.09 Application of Fibonacci sequence in technical analysis

This lesson explains the importance of Fibonacci retracements in technical analysis.

Read more
3.09 Application of Fibonacci sequence in technical analysis
14 / 1 / 22
Trading

3.06 Understanding support and resistance levels

This lesson helps you understand the support and resistance levels and explains how to find them in the ...

Read more
3.06 Understanding support and resistance levels
14 / 1 / 22
Trading

3.08 Moving averages explained

This lesson explains the basics of moving averages.

Read more
3.08 Moving averages explained
14 / 1 / 22
Trading
Investing

2.06 Market participants explained

There are two market participants: market makers and market takers.

Read more
2.06 Market participants explained
14 / 1 / 22
Essentials
Trading
Investing

2.07 Measuring market depth and liquidity

This lesson explains market depth, market liquidity, and volatility.

Read more
2.07 Measuring market depth and liquidity
14 / 1 / 22
Trading

3.07 What are trend lines and why are they important?

This lesson focuses on trend lines and explains three types of trends in detail.

Read more
3.07 What are trend lines and why are they important?
14 / 1 / 22
Essentials
Trading
Investing

2.08 Three major types of trade orders you need to know

This lesson explains three major types of trade orders and how they work. 

Read more
2.08 Three major types of trade orders you need to know
14 / 1 / 22
Trading

2.13 What is paper trading?

This lesson covers what paper trading is, why it is a good idea, and possible drawbacks.

Read more
2.13 What is paper trading?
14 / 1 / 22
Essentials
Trading
Investing

2.09 Fundamental and technical analysis for crypto trading

This lesson focuses on explaining how fundamental and technical analysis will help you assess cryptocurrencies.

Read more
2.09 Fundamental and technical analysis for crypto trading
14 / 1 / 22
Trading

2.11 What is arbitrage trading?

This lesson explains what arbitrage is, its types, and the benefits of arbitrage trading.

Read more
2.11 What is arbitrage trading?

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