Forex

Indicators can help you identify trends and their turning points. They can
provide a deeper insight into the balance of power between bulls and bears.
Indicators are more objective than chart patterns.

The trouble with indicators is that they often contradict one another. Some
of them work best in trending markets, others in flat markets. Some are good
at catching turning points, while others are better at following trends.
Most beginners look for a single indicator - a silver bullet to kill the confusion
in the markets. Others lump together many indicators and try to average
their signals. Either way, a careless beginner with a computer is like a
teenager with a sports car - an accident waiting to happen. A serious trader
needs to know which indicators work best under different conditions. Before
you use any indicator, you must understand what it measures and how it
works. Only then can you have confidence in its signals.

Professionals divide indicators into three groups: trend-following indicators,
oscillators, and miscellaneous. Trend-following indicators work best when
markets are moving but give bad and dangerous signals when the markets are
flat. Oscillators catch turning points in flat markets but give premature and
dangerous signals when the markets begin to trend. Miscellaneous indicators
provide special insights into mass psychology. The secret of successful trading
is to combine several indicators from different groups so that their negative
features cancel each other out while their positive features remain undisturbed.
This is the aim of the Triple Screen trading system (see Section 43).
Trend-following indicators include moving averages, MACD (moving
average convergence-divergence), MACD-Histogram, the Directional
System, On-Balance Volume, Accumulation/Distribution, and others. Trend following
indicators are coincident or lagging indicators- they turn after
trends reverse.
Oscillators help identify turning points. They include Stochastic, Rate of
Change, Smoothed Rate of Change, Momentum, the Relative Strength
Index, Elder-ray, the Force Index, Williams %R, the Commodity Channel
Index, and others. Oscillators are leading or coincident indicators and often
turn ahead of prices.
Miscellaneous indicators provide insights into the intensity of bullish or
bearish market opinion. They include the New High-New Low Index, the
Put-Call Ratio, Bullish Consensus, Commitments of Traders, the
Advance Decline Index, the Traders' Index, and so on. They can be leading
or coincident indicators.