Learning objectives
After studying this chapter the student should be able to understand:
• What are technical indicators and how to interpret them
• Difference between leading and lagging indicators
• Moving Averages – the trend following indicator
• Oscillators – MACD and RSI
• How to look at divergences
• Using multiple indicators for trading signals

A Technical indicator is a mathematical formula applied to the security’s price, volume or open interest. The result is a value that is used to anticipate future changes in prices. A technical indicator is a series of data points derived by applying a formula to the price data of a security. Price data includes any combination of the open, high, low or close over a period of time. Some indicators may use only the closing prices, while others incorporate volume and open interest into their formulas. The price data is entered into the formula and a data point is produced.

4.1 What Does a Technical indicator offer?

Technical analysts use indicators to look into a different perspective from which stock prices can be analyzed. Technical indicators provide unique outlook on the strength and direction of the underlying price action for a given timeframe.