A sum on price, drawn on the screen:it shows what was, not what's unseen.
A mathematical calculation applied to past market data, such as price, volume or open interest, and drawn on or under a chart to describe trend, speed or the size of price swings.
An indicator rearranges information already in the data and changes only after the price has changed; common examples include RSI, MACD, Bollinger Bands and moving averages.
In plain words
A technical indicator is a calculation applied to past market data, usually prices and sometimes volume, and drawn on or under a chart. It rearranges information that is already in the chart, for example by smoothing it or by measuring how fast the price is changing.
See it move
Stage 2 of 3: Formula
Why it matters
Traders use indicators to describe trend, speed or the width of price swings in a consistent way. An indicator has no knowledge of the future: it changes only after the price has changed, and different settings give different readings from the same data.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A simple indicator, the 3-period average, is applied to closing prices of 10, 11 and 12, and then updated when the next close is 13.
- 1First value(10 + 11 + 12) ÷ 3 = 11
- 2The oldest close, 10, drops out and 13 comes in
- 3Second value(11 + 12 + 13) ÷ 3 = 12
The indicator moved from 11 to 12 only because the price had already moved.
A common mistake
Adding more indicators can feel like adding more evidence. Many are built from the same prices, so they often repeat one another instead of confirming anything independently.
Check yourself
Educational information, not investment advice or a recommendation to trade.