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Trading indicators explained.

Indicators transform price, volume or volatility data into a simpler visual reference. They can help describe trend, momentum, volatility and market participation, but they do not predict the future or remove trading risk.

What is a trading indicator?

A trading indicator is a mathematical transformation of market data such as price, volume or range. The result can be plotted on the chart or in a separate panel.

What can indicators do?

They can make trend direction, momentum, volatility and volume distribution easier to describe and compare.

What can they not do?

No indicator knows what price will do next. Most indicators are derived from historical market data and therefore react to information that has already occurred.

Trend

Trend indicators

Trend

Moving Averages

SMA & EMA

Smoothed price averages used to describe trend direction and the relationship between short- and longer-term price behavior.

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Trend

Moving Average Convergence Divergence

MACD

A trend and momentum indicator built from the relationship between two exponential moving averages.

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Trend

Average Directional Index

ADX

An indicator designed to describe trend strength without directly defining trend direction.

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Momentum

Momentum indicators

Momentum

Relative Strength Index

RSI

A bounded momentum oscillator that compares the magnitude of recent gains with recent losses.

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Momentum

Stochastic Oscillator

Stochastic

A momentum oscillator comparing the latest closing price with the recent high-low range.

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Volatility

Volatility indicators

Volatility

Bollinger Bands

Bollinger Bands

A moving average surrounded by volatility bands based on standard deviation.

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Volatility

Average True Range

ATR

A volatility indicator that measures the average size of recent price ranges.

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Volume & Price

Volume & Price indicators

Volume & Price

Volume Weighted Average Price

VWAP

A volume-weighted average price commonly used as an intraday reference level.

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Volume & Price

Volume Profile

Volume Profile

A distribution showing how much volume traded at different price levels rather than at different points in time.

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Important principles

Indicators are context, not certainty.

Understand the input

Know whether an indicator is built from price, volume, volatility or a combination of them.

Expect lag

Most indicators summarize historical information. Smoothing usually reduces noise by adding delay.

Use market context

The same indicator reading can behave differently in a trend, a range or a high-volatility session.

Avoid indicator stacking

Several indicators calculated from the same price data can appear to confirm each other while measuring nearly the same thing.