What is Indicator? Why is it used?

Indicator, which can be defined as an indicator, is a tool to see the market trend. Indicators help find entry, exit and return points. Based on this definition, as mathematical indicators in which price or volume data are calculated with different formulas, they are an important factor in the decision point for investors.

 

INDICATOR TYPES

Indicators can be about buy and sell signals, or they can be types that show economic data hours. Each indicator represents a different situation or data in the market and can guide investors to increase their return rates.

 

Correct use of the indicator

Because they are tools of technical analysis, every indicator has the potential to cause false results, even if they are widely used. For this reason, it is recommended to use more than one indicator during an analysis. By using more than one indicator together, the price can be analyzed better and being able to determine the correct transaction price increases the probability of obtaining a higher return on the investment.

 

What is an oscillator?

If there is no trend in the markets and the prices are moving in a horizontal band, the indicators that detect correction levels within the trend are called oscillators.

 

12 types of indicators are commonly used in technical analysis and there are sub-types of these indicators. Can explain five commonly used indicators by grouping them as follows.

 

1 – Moving Averages:
  • Simple Moving Averages (SMA)

 

  • Exponential Moving Averages (EMA)

 

  • Weighted Moving Averages

 

It is the most basic indicator used to take the price average of the last period the price is in, and it is one of the best ways to understand how much the price movement has deviated from its usual course. It provides marking at the current price level by averaging a particular price data for the past. Thus, it can be determined how far the current price is from its historical average, and combining the realized deviation from the average with important data determines the trading decision. Moving averages are divided into different types according to the way they are calculated. Explanations of these types What are Moving Averages? You can read it in our article.

 

2 – Bollinger Bands:

Bollinger Bands are an indicator that is frequently used by many experts and recommended by investors because of the advantages it brings. It was invented by John Bollinger to make rational and knowledge-based investment plans.

 

It is plotted using a moving average and the changes in prices are monitored by making use of these averages. Basically, moving average and standard deviation are used. It also gives signals of trend change.

 

A total of three level lines are obtained by calculating the standard deviation of the moving average in the Bollinger band. It is based on the principle that low volatility will create high volatility, high volatility will cause low volatility and this will continue as a cycle. Since the Bollinger band contains the moving average, the levels are used as support-resistance and pivot zone.

 

3 – Parabolic SAR:

   Parabolic SAR is generally used by traders who want to analyze the short-term outlook of an instrument and learn about the trading time. The Parabolic SAR indicator is suitable for use because it offers two-way trading opportunities in the market, and it means “Stop and Reverse”, that is, “stop and take a reverse position”. The abbreviation SAR stands for "Stop and Turn".

 

The concept of parabolic is a (lagging) trend-following indicator. It can be used to adjust the loss by trailing stop or identify entry or exit points for prices that tend to stay in a parabolic curve during a strong trend.

 

  The Parabolic SAR is a time and price technical analysis tool primarily used to identify potential stops and turns.

 

4 – Ichimoku Indicator:

It is a technical analysis method that combines multiple indicators on a single chart and provides information on potential support and resistance price zones. It is mainly used in candlestick charts as a tool in the technical analysis of a buy-sell decision. At the same time, as a forecasting tool, this method is widely used when trying to determine the direction of future trends and market momentum.

 

The Ichimoku Cloud was conceptualized and coined by a Japanese journalist named Goichi Hosada in the late 1930s. This innovative trading strategy was only published in 1969, after decades of work and technical development. Hosada named this system Ichimoku Kinyo Hyo, which means balance chart at a glance in Japanese.

 

Also called Ichimoku Clouds or Equity Chart, Ichimoku Indicator helps in identifying support, resistance and trend in financial markets. Trend detection and potential signals about the trend can also be seen with a single image. Although it seems very complicated, it is actually a useful and simple indicator in terms of usage.

 

It consists of five lines graphically;

             Return Line: 9-period moving average

             Baseline: 26-period moving average

             Leading Span A: Future 26-period moving averages of Return and Baselines

             Leading Span B: Representation of the 52-period moving average in the future 26-periods

             Delayed Span: Representation of the current period's closing price 26 periods in the past

 

5 – ZigZag Indicator:

The ZigZag indicator can be used to eliminate the negative effects of noise in a stock's price, that is, the upward or downward movement. ZigZag filters price changes that are less than the specified rate or percentage. Its main purpose is to facilitate visual inspection of the chart. This indicator is a type of indicator that anyone interested in Elliot Wave Counting can use as it shows important turning points.

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