Indicator Types

What are the types of Indicators?

Technical indicators can be categorized into several types, depending on how they present the data and the kind of market conditions for which they are best suited.

• Trend Indicators, as their name suggests, are most useful in identifying or confirming price trends and in spotting points when a trend may be ending or a new trend may be starting to emerge.

• Momentum indicators are most useful in detecting shifts in trading activity in trading or non-trending market conditions where markets spend much of their time. They are also often known as oscillators and can be split further into those that are based on a neutral center or zero line with no limit on the extent of the indicator reading and those that are confined to a limited range by boundaries or thresholds, often set at 0 and 100.

• Volatility Indicators measure the degree of variation in price movement within a given period of time and how it compares to historical price movements.

• Strength and Sentiment Indicators are used in conjunction with price-based indicators to get clues about traders' responses to price activity or perceptions about future price movement.

• Stock market indicators provide readings that are specifically related to trading activity in stocks and offer insights into potential price movement based on the opinions and actions of traders.

Indicators can also be classified into other  2 distinct types also. They are Leading Indicators and Lagging Indicators.

• Leading Indicators are indicators that lead price movement. In other words, they indicate the probability of a trend reversal in advance. Most leading indicators measure price momentum over a fixed look-back period. Some of the popular leading indicators include the Commodity Channel Index (CCI), the Relative Strength Index (RSI), the Stochastic Oscillator etc

• Lagging Indicators, which follow the price movement, are usually trend-following indicators, such as the moving averages (MA) and Moving Average Convergence/Divergence (MACD). These indicators turn only after the price action has already turned and therefore lag price action.

Leading Indicators vs Lagging Indicators 

• Leading indicators change before the underneath commodity changes, whereas lagging indicators are usually behind, or follow the event.

• The main benefits of leading indicators is the early signaling for entry and exit, it generates more signals and allows more opportunities to trade in trading markets.

• Lagging indicators follow the price action and are also known as trend-following indicators. Trend-following indicators work best when markets or securities develop a strong trend and signals traders to take long position and keep holding the position as long as the trend is intact. 

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