Continue reading...Indicators, such as moving averages and Bollinger Bands, are mathematically-based technical analysis tools that traders and investors use to analyze the past and predict future price trends and patterns. Where fundamentalists may track economic reports and annual reports, technical traders rely on indicators to help interpret the market. The goal in using indicators is to identify trading opportunities. For example, a moving average crossover often predicts a trend change. In this instance, applying the moving average indicator to a price chart allows traders to identify areas where the trend may change. Figure 1 shows an example of a price chart with a 20-period moving average.
Fig1: QQQQ with a 20-period moving average. Source: TradeStation.
Strategies, on the other hand, frequently employ indicators in an objective manner to determine entry, exit and/or trade management rules. A strategy is a definitive set of rules...
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