What is a technical indicator?

A calculation applied to a market’s past prices (and sometimes its volume) and drawn on or under the chart. A moving average, RSI and Bollinger Bands are examples. An indicator rearranges information that is already in the prices; it changes only after the price has changed.

Do technical indicators predict prices?

No. An indicator is arithmetic on prices that have already happened. It can describe a trend, the pace of a move or how widely prices have been swinging. It cannot say what the next price will be, and every reading has cases where the outcome usually associated with it did not follow.

Which indicator is the best?

None is. Each one measures something different about the same past prices: an average level, the balance of rises and falls, the size of the bars. Which is useful depends on the question being asked, and many of them largely repeat one another because they are built from the same closes.

Are the charts on these pages real?

No. Every chart in Chart school is invented: a seeded random walk generated in your browser, labelled as such, so that the arithmetic can be shown without implying anything about a real market. The same chart number always draws the same chart.

Academy · reading a chart

Chart school

17 indicators, one page each. What it measures, exactly how it is calculated, how people read it and what it cannot tell you, with a chart of invented prices whose settings you can move. None of the pages says what to do.

The indicators The library, on one page Chart patterns

The indicators

Every sum, shown in full.

Each page gives the formula step by step, works a small example by hand and then lets you change the settings on an invented chart to see the line respond.

To look one up quickly, the indicators library lists all of them on one page by family: what each measures, its sum in one line and where it misleads.

SimulationThe small drawings are of one invented chart, not of any market. Educational information, not investment advice or a recommendation to trade.

Shapes, not sums

Patterns are read by eye.

An indicator is calculated. A pattern is recognised: a shape that a price has drawn, with a name. Two places on this site explain them.

Before any of them

What every indicator has in common.

The pages differ in their arithmetic and agree on these five points. They are the reason no page in this school says “buy” or “sell”. To see how easily a rule built on an indicator is flattered by one lucky stretch of prices, try the Rule bench.

01
It is arithmetic on past prices.
Every indicator on these pages is a sum done on bars that have already closed: an average, a ratio, a highest and a lowest. There is nothing in it that was not already in the prices.
02
It describes. It does not predict.
An indicator can say that recent closes were mostly rises, or that the price is far from its average. It cannot say what the next bar will do, and a reading that was followed by a rise last time may be followed by a fall next time.
03
It is late, by construction.
An average needs bars to average, so it turns after the price has turned. The smoother the line, the later it is. Shortening it makes it quicker and noisier; nothing makes it early.
04
Its settings are choices.
14, 20, 12-26-9: these are conventions, kept because they were published that way. Settings tuned until the past looks perfect have learned the past, and only that.
05
Several indicators are often one fact, counted twice.
RSI, MACD and the stochastic oscillator are all made from the same closes. When they agree, that is usually not three pieces of evidence.

Questions people ask

About indicators in general.

What is a technical indicator?: A calculation applied to a market’s past prices (and sometimes its volume) and drawn on or under the chart. A moving average, RSI and Bollinger Bands are examples. An indicator rearranges information that is already in the prices; it changes only after the price has changed.
Do technical indicators predict prices?: No. An indicator is arithmetic on prices that have already happened. It can describe a trend, the pace of a move or how widely prices have been swinging. It cannot say what the next price will be, and every reading has cases where the outcome usually associated with it did not follow.
Which indicator is the best?: None is. Each one measures something different about the same past prices: an average level, the balance of rises and falls, the size of the bars. Which is useful depends on the question being asked, and many of them largely repeat one another because they are built from the same closes.
Are the charts on these pages real?: No. Every chart in Chart school is invented: a seeded random walk generated in your browser, labelled as such, so that the arithmetic can be shown without implying anything about a real market. The same chart number always draws the same chart.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose.

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Fetching the page

Every sum, shown in full.

Patterns are read by eye.

What every indicator has in common.

It is arithmetic on past prices.

It describes. It does not predict.

It is late, by construction.

Its settings are choices.

Several indicators are often one fact, counted twice.

About indicators in general.

Every sum, shown in full.

Patterns are read by eye.

What every indicator has in common.

It is arithmetic on past prices.

It describes. It does not predict.

It is late, by construction.

Its settings are choices.

Several indicators are often one fact, counted twice.

About indicators in general.