Types of Technical Indicators

Three types of technical indicators are commonly used to get a handle on the technical picture. They are:

• Trend indicators, such as moving averages and moving average convergence/divergence (MACD)
• Momentum indicators, such as the relative strength index (RSI)
• Volume indicators, such as Chaikin money flow (CMF)

Trend indicators are used to ascertain the general direction of price. Rising peaks and troughs form an uptrend, while falling peaks and troughs form a downtrend. Moving averages and moving average convergence-divergence are among the more commonly used trend indicators, which are often lagging indicators.

Momentum Indicators measure the rate of price change of a security and are usually leading Indicators. Momentum is often assessed using oscillators that compare the magnitude of recent losses with magnitude of recent gains and indicates this by a number ranging between 0 and 100. The relative strength index (RSI) is a popular momentum indicator.