Define technical indicators and their types and Discuss them on the Candlestick chart
Definition of technical indicators
A technical indicator is a series of data points that are derived by applying a formula to the price and/or volume data of a security. Price data can be any combination of the open, high, low or closing price over a period of time.
Some indicators may use only the closing prices, while others incorporate volume and open interest in their formulae. The price data is entered into the formula and a data point is produced.
Types of technical indicators
There are many different types of technical traders: some rely on chart patterns, others use technical indicators and oscillators, and most use some combination of the two.
- Charting: Technical analysts are sometimes called chartists, because they study records or charts of past stock prices and trading volume, hoping to find patterns they can exploit to make a profit.
- Technical Indicators: Technical analysts also use technical indicators besides charts to assess prospects for market declines or advances. A technical indicator is a series of data points that are derived by applying a formula to the price data of a security. Price data includes any combination of the open, high, low or close over a period of time.
Technical indicators can be classified in a number of ways. One classification divides them into three types: sentiment indicators, the flow of funds indicators, and market structure indicators.
- Sentiment indicators are intended to measure the expectations of various groups of investors, for example, mutual fund investors, and corporate insiders.
- The flow of funds indicators is intended to measure the potential for various investor groups to buy or sell stocks, in order to predict the price pressure from those actions.
- Market structure indicators monitor price trends and cycles.
A candlestick displays the open, high, low and closing prices in a format similar to a modern-day bar-chart, but in a manner that extenuates the relationship between the opening and closing prices. Candlesticks don’t involve any calculations. Each candlestick represents one period (e.g. day) of data.
A candlestick chart can be created using the data of high, low, open and closing prices for each time period that you want to display. The hollow or filled portion of the candlestick is called “the body” (also referred to as “the real body”).