Free Trading School · Level 7: Technical Indicators
What indicators really do
An indicator is a formula applied to price (and sometimes volume) and drawn on the chart. It does not know anything the price does not already show; it simply summarises it in a different way, such as an average, a speed or a range.
That is why indicators lag. A moving average can only turn up after price has already risen. Their value is not prediction but clarity: they turn a noisy chart into a clean answer to one question, such as "is the trend up?" or "is the market stretched?".
| Family | Answers the question | Examples |
|---|---|---|
| Trend | Which way is the market going? | Moving averages, MACD |
| Momentum (oscillators) | How fast, and is it stretched? | RSI, Stochastic |
| Volatility | How big are the moves? | ATR, Bollinger Bands |
| Volume | How much conviction is behind the move? | Volume bars, VWAP, OBV |
Pick one indicator per question. Three momentum oscillators do not give you three opinions; they give you the same opinion three times.
Quick answers
An indicator is a formula applied to price (and sometimes volume) and drawn on the chart. It does not know anything the price does not already show; it simply summarises it in a different way, such as an average, a speed or a range.
Pick one indicator per question. Three momentum oscillators do not give you three opinions; they give you the same opinion three times.
They are calculated from past prices. Every indicator is a formula applied to prices that have already printed.
Next lesson: Moving averages: SMA and EMA