What is the "Indicators"?

What is the "Indicators"?

The next approach to the analysis of graphs of market prices, often used by traders, is to use technical indicators. The technical indicator called the Line, which is usually calculated by applying mathematical operations over the main price Open, High, Low and Close or over the lines of another indicator. Mathematical operations performed by computers, and manually calculate the values of the indicator is not necessary.

The meaning of an indicator to show the current direction of movement of the price signal about the price reaches the critical areas of price, and sometimes to indicate the location of such areas. On the latter basis of the category indicators can be made and levels, for example, if they are calculated with the use of any a mathematical algorithm.

As already mentioned, the basis for calculating the indicators are the main price for a certain time period. The commodity and stock exchanges with a clearly limited time of their work during the day it was difficult to determine which fixed prices should be taken as an object of close attention of traders. The first price - the price of opening auction (Open Price). Traders arriving in the morning on the stock exchange with a particular mood, may soon begin to offer higher than yesterday, the price effect of dominant views on the possible growth of asset value and, conversely, a lower price - by virtue of the resulting information about the adverse conditions for the asset.

During the day, the maximum power of the "bulls" (traders calculating the price increase) will be reflected in the chart in the form of a maximum price for the period (High Price), and the mood of "bears" (expected decline in asset prices in the future) are reflected in the lowest price day (Low Price). At the end of the work of the exchange set a short-term balance between these two types of players, and the closing price (Close Price) appears that the equilibrium price. That's it changed often and analyze the traders in the decision about which group traders - Bullish or Bearish "- they embark on the next day. Closing price involved in the calculation of most technical indicators, maximum and minimum - in some.

In FOREX, functioning round the clock, the opening price of the day ceases to play an important role, because usually it is almost the same as the closing price of the previous day. Currency day in this case are distributed among the various geographic and economic zones (Asia, Europe, America), and in each zone there are banks willing to quote most currency pairs, regardless of whether a currency pair is directly related to the domestic currency or not.

At the current market players to work using the scale, smaller trading day, for example, hour, half an hour, four hours. Prices open intervals of less than one day, most often in the analysis is also not considered due to the high liquidity of currencies traded in FOREX, and the rarity of significant differences between opening and closing. In addition, short-term intraday trading on the FOREX prices strengthens the role of High and Low - the maximum and minimum, determine the extreme forces of "bulls" and "bears" in terms of trade highly liquid commodity - money.

Thus, at basic prices of selected time periods of construction of new lines - technical indicators. But more often than the minimum standard time period for calculating the indicator will take more time range, ie the number of periods that should be taken into account in the calculations. Time range for which the traders are trying to trace the change in price and standard time, which is calculated based on the current values of the indicators are important factors in the analysis, and their choice may depend on both time of appearance of the signal, so the number of false alarms.

It has a definite meaning to bind the time range for the size of any cycle times, assuming that under the new cycle of the LED will display signals, alarms, submitted during the previous natural cycles. It can be day, week, month, quarter, year, etc. For example, if a trader works inside the day, it may be interested in the time range of 1 day or 24 hours and, accordingly, within the parameters of mathematical indicator, he will indicate the number closest in value to 24.

How to analyze the price movement with the help of indicators? Let us consider this question on the example of the indicator "moving average".

The moving average - a line, the current value is equal to the average price over the last N periods (Fig. 1). In other words, to calculate it at the current period is the value of the closing prices of the last N periods and divide the sum by N. And so on for each new candle. As a result, we see that somewhere in the current price is above the moving average, but somewhere - on the contrary. In some locations closing price schedule will overlap with the schedule moving average. Signals given by the trader moving average, will be simple facts intersection graph of price and moving average. If we put on the schedule are two moving average ("long" with a big N and "short" with a little), then the signal could not become a fact of intersection with the price of a single medium, but the fact of crossing the short and long mean to each other. The basic assumptions underpinning the market analysis using averages, as follows:

If the price is in the chart above the moving average, the trend is up, if the price is below the moving average - the trend downwards.

The important point is the intersection of price chart with moving average or intersection faster (shorter) moving average with a slower (long): if the shortest crossing long from top to bottom, this signal is the trend turns down, if short crosses the long bottom-up, this gives signal to the trend turns up.

Fig.

1. EUR, definition of trend by moving average

Thus, the rules are very simple, so moving averages are the best-known technical indicators to formally answer the question: "trend up or down?". On the basis of moving averages are constructed more complex indicators, such as, Price Oscillator and MACD. Matematicheskie indicators used to detect the presence of a trend, determine its duration. But speaking of mathematical indicators to mention those that help determine whether the possible reversal of the trend or a small roll back prices. These include oscillators - such as the RSI or Stochastic (Fig. 2). oscillators often fluctuate within certain limits, and the trader selects those values of the oscillator, which suggests an overbought or oversold (overbought - when the goods purchased much money on the purchase no longer exists, the price may start to fall; oversold - when the price greatly decreased, and this means that buyers can begin to buy, citing the price to rise). At call graph of the oscillator in an overbought zone or preprodannosti or have the reverse output of the oscillator from the zone of the trader makes an assumption about the future behavior of prices. The specific interpretation of the signal depends on the rules of the trading system of a particular trader.

Fig.

2. EUR, use Stochastics indicator to search for the resumption of the trend

Thus, with such a powerful tool, as the mathematical analysis, it is possible to obtain comprehensive information about the market: a trend, the beginning of the correction, the possibility of resuming the trend. To increase the likelihood of success traders should consider a combination of signals of different indicators that can be confirmed by one indicator another and eventually formulate clear rules for working in a single trading system. These rules should allow the trader to make profitable trades with the highest possible probability, and it is desirable that the winning trades were the most profitable, but losses were minimized.

To check the quality of signals, indicators, the trader must answer yet to the questions about how he will put a stop loss and record profits. Correct work with the indicators - this is important, but not the only element of the trading system, as a result of work with which you achieve success.

On the trading systems will be discussed in one of the regular lessons.