A technical indicator is a tool in the technical analyst's box. Those based on price data include any combination of the open, high, low or close over a period of time. Some indicators may use only the closing prices, while others incorporate volume and open interest into their formulas. The price data is entered into the formula and a data point is produced.
A technical indicator offers a different perspective from which to analyse the price action. Some are derived from simple formulas and the mechanics are relatively easy to understand. Others have complex formulas and require more study to fully understand and appreciate. Regardless of the complexity of the formula, technical indicators can provide unique perspective on the strength and direction of the underlying price action.
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