The technical indicator is a stock market analysis tool that serves to study the future evolution of the prices of a financial asset. Therefore, it helps to interpret whether the prices of an asset are in a situation of overbought or oversold in order to succeed in the decision of an investment.
We must bear in mind that the most important variable that a financial asset has is its price , and therefore, all technical indicators will be delayed with respect to it, therefore, it is convenient to use other types of analysis tools, such as For example, the fundamental analysis or volatility tools that allow us to be more accurate when investing.
Classification of technical indicators
The technical indicators are classified into four broad categories:
- Trend:They are those that are more effective when the price is in an upward or downward trend but less effective when they are in lateral moments of accumulation. Within this category we can highlight the moving averages , the Bollinguer Bands , the Parabolic Sar, the standard deviation or the Ichimoku.
- Oscillators:They are constructed through the variable price combined with other fators such as volatility, movement speed or moving averages. The most important to highlight are the MACD , RSI , Stochastic , Momentum , ATR and Williams.
- Volumes:This category is built through the trading volume in the market. Money Flow, Accumulation / Distribution Indicator is included within it. Trading volume , Balance in volume,
- Bill Williams:They combine different variables based on simple but more complex mataematic models than in the previous categories. The most important are the Acceleration Oscillator, Fractals or Alligator.
We can also highlight the Fibonacci retracements, which is a technical indicator that does not fall into these categories, since it is of the chartist type or plotted on the chart and allows you to search for market entry points through specific recoil levels that meet a mathematical logic of number succession, caused by the sum of the previous number. Outside the category of technical indicator is the Elliot wave theory that says that the market moves by impulse and reverse wave effects of different magnitude and that allow to know the movements that are going to occur in the market as consequence of their interaction.