Some indicators are commonly used:
Broadly speaking there are three types of indicators are:
1. Price Momentum Indicator (Oscillator): This type of indicator is used to identify overbought or oversold situations. Momentum indicators are also used to see whether a trend will continue or fizzle.
Examples of indicators:
- Stochastic Oscillator
- Relative Strength Index (RSI)
- CommodityChannel Index (CCI)
2. Trend Following Indicator: This indicator is used to identify the beginning and end of a trend or when a trend will change so as to know when the best time to open and close positions.
Examples of indicators:
- Moving Average (MA)
- Moving Average Convergence - Divergence (MACD)
- Movements Directional Index (DMI)
- Parabolic SAR
3. Volatility Indicator: This indicator is used to look at the views of market power price fluctuations within a certain time period. The market is said to have a high volatility if the prices going up and down movements are sharp or highly volatile where there is a big difference between the highest and lowest prices.
Examples of indicators: - Bollinger Bands