How do you explain technical indicators and oscillators to others?

1 What are technical indicators?

Technical indicators are calculations that produce graphical representations of the price action or the market conditions of a security or an asset. They can be used to identify patterns, confirm trends, measure strength, gauge sentiment, and anticipate potential changes in the market. There are many types of technical indicators, such as moving averages, trend lines, support and resistance levels, Fibonacci retracements, Bollinger bands, and Ichimoku clouds.

2 What are oscillators?

Oscillators are a specific type of technical indicators that fluctuate between two extreme values, usually within a fixed range. They are designed to show the degree of overbought or oversold conditions in the market, as well as the momentum and direction of the price movements. Some examples of oscillators are relative strength index (RSI), stochastic, moving average convergence divergence (MACD), and momentum.

3 How do technical indicators and oscillators work?

Technical indicators and oscillators work by applying mathematical formulas to the historical data of the price, volume, or time of a security or an asset. The formulas can vary depending on the type and the purpose of the indicator or oscillator. The output of the formulas can be displayed as lines, bars, dots, histograms, or other shapes on the charts. The shapes can then be interpreted by traders to make informed decisions based on the signals or values they provide.

4 How do you choose technical indicators and oscillators?

When determining which technical indicators and oscillators to use, there is no one-size-fits-all answer. Different traders may have varying preferences, strategies, goals, and risk profiles. Nevertheless, some general guidelines are to consider the type of market you are trading in (trending or ranging? volatile or stable? liquid or illiquid?), the time frame you are trading on (long-term investor, swing trader, day trader, or scalper?), and the style and objective of your trading (trend follower, contrarian, breakout trader, or mean reversion trader?). Additionally, it is important to assess the compatibility and reliability of the indicators and oscillators - do they match your trading plan and risk management? Do they provide consistent and accurate results? Do they avoid false or conflicting signals?

5 How do you use technical indicators and oscillators?

When using technical indicators and oscillators, it is essential to remember that they are not infallible or magical. They are merely tools to help analyze the market, not predict future outcomes or guarantee profits. Therefore, use them with precaution and sound judgement, and supplement them with other sources of information, such as fundamental analysis, news events, market sentiment, and intuition. Here are some tips to use technical indicators and oscillators effectively: Employ them as a confirmation rather than a trigger; use them to complement each other instead of replacing each other; and keep in mind that they are only guidelines, not rules. For instance, you can use a trend indicator to identify the direction of the market, an oscillator to measure the momentum and overbought/oversold conditions, and a volume indicator to gauge the strength and interest of the market participants. However, be aware that indicators may lag behind actual price movements or be broken or tested by price fluctuations.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?