| Indicators Most indicators highlight a particular aspect of price or volume behavior. Newcomers often attach mystical significance to their favorite indicators but none are infallible. When using indicators: - Select a small number of indicators (2 or 3) and use them to confirm signals from each other;
- Study their behavior until you know them well. Indicators are like a carpenter's tools - skilled use can produce excellent results, unskilled use may lead to injury.
- Select indicators that complement each other and are not based on the same data. For example: three indicators based on closing price will tend to confirm each other; while indicators based respectively on closing price, volume and trading range will often conflict and are therefore more reliable when they do confirm each other.
- Use a trend indicator in a longer time frame than the cycle being traded (e.g. if trading the secondary cycle, use a 150-day moving average to indicate the direction of the primary trend). Only trade in the direction of the trend signaled.
Indicator Categories Price/volume indicators As the name suggests, these are based on price and/or volume. Market indicators Used to summarize activity in the entire market or in a particular sector, market indicators include: - economic indicators (such as interest rates),
- sentiment indicators (such as the ratio of bullish to bearish investment analysts), and
- price/volume indicators applied to the market as a whole.
Visit Reading The Market for an overview of techniques used to track market direction. Indicators A - Z A complete list of indicators is displayed in the left margin.
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