Technical Indicators Dictionary

Complete guide to understanding and using technical indicators

30+
Indicators
6
Trend
5
Momentum
6
Volume

Understanding Indicator Categories

Trend Indicators

Identify direction and strength of market trends

Momentum

Measure speed and rate of price changes

Volatility

Gauge market volatility and price ranges

Volume

Analyze trading volume and money flow

Trend Following Indicators

Moving Average (MA)

Trend

Average price over specified periods, smooths price action

Formula:

SMA = Sum of prices / Number of periods

Common Settings:

20, 50, 200 periods common

Usage:

Trend identification, support/resistance, crossover signals

Pros:

  • • Simple to understand
  • • Smooth trend identification
  • • Multiple timeframe analysis

Cons:

  • • Lagging indicator
  • • Whipsaws in ranging markets

Exponential Moving Average (EMA)

Trend

Weighted average giving more importance to recent prices

Formula:

EMA = Price × Multiplier + EMA(prev) × (1 - Multiplier)

Common Settings:

12, 26, 50, 200 periods

Usage:

Faster trend detection than SMA, dynamic support/resistance

Pros:

  • • More responsive than SMA
  • • Better for short-term trading

Cons:

  • • More false signals
  • • Still lags price

MACD

Trend/Momentum

Shows relationship between two moving averages

Formula:

MACD = 12-EMA - 26-EMA

Common Settings:

12, 26, 9 (standard)

Usage:

Trend changes, momentum shifts, divergences

Pros:

  • • Multiple signals
  • • Works in trending markets
  • • Shows momentum

Cons:

  • • Lags significantly
  • • False signals in ranges

ADX (Average Directional Index)

Trend Strength

Measures trend strength regardless of direction

Formula:

Complex calculation using +DI and -DI

Common Settings:

14 periods standard

Usage:

Trend strength identification, filtering ranging markets

Pros:

  • • Quantifies trend strength
  • • Filters choppy markets

Cons:

  • • Does not show direction
  • • Lagging indicator

Parabolic SAR

Trend

Dots above/below price showing trend direction

Formula:

SAR = SAR(prev) + AF × (EP - SAR(prev))

Common Settings:

AF start: 0.02, max: 0.2

Usage:

Trend direction, trailing stops, reversal points

Pros:

  • • Clear signals
  • • Good trailing stop

Cons:

  • • Whipsaws in ranges
  • • Late in strong trends

Ichimoku Cloud

Trend

Complete trading system with multiple components

Formula:

Multiple calculations for cloud, lines

Common Settings:

9, 26, 52 periods

Usage:

Trend, support/resistance, momentum, signals

Pros:

  • • Complete system
  • • Multiple confirmations
  • • Future cloud projection

Cons:

  • • Complex to learn
  • • Cluttered charts

Momentum Indicators

RSI (Relative Strength Index)

Momentum

Measures speed and magnitude of price changes

Formula:

RSI = 100 - (100 / (1 + RS))

Common Settings:

14 periods, 70/30 levels

Usage:

Overbought/oversold, divergences, trend strength

Pros:

  • • Easy to interpret
  • • Good for ranges
  • • Divergence signals

Cons:

  • • Can stay OB/OS long time
  • • Less useful in strong trends

Stochastic Oscillator

Momentum

Compares closing price to price range

Formula:

%K = (Close - Low) / (High - Low) × 100

Common Settings:

14, 3, 3 (standard)

Usage:

Overbought/oversold, crossovers, divergences

Pros:

  • • Sensitive to price changes
  • • Good in ranges

Cons:

  • • Many false signals
  • • Erratic in volatile markets

CCI (Commodity Channel Index)

Momentum

Measures deviation from average price

Formula:

CCI = (Typical Price - SMA) / (0.015 × MD)

Common Settings:

20 periods, ±100 levels

Usage:

Trend identification, overbought/oversold

Pros:

  • • No fixed boundaries
  • • Works in trends and ranges

Cons:

  • • Requires experience
  • • Whipsaws possible

Williams %R

Momentum

Shows where price is relative to recent range

Formula:

%R = (Highest High - Close) / (Highest High - Lowest Low) × -100

Common Settings:

14 periods, -20/-80 levels

Usage:

Overbought/oversold, momentum shifts

Pros:

  • • Leading indicator
  • • Clear signals

Cons:

  • • Very sensitive
  • • Premature signals

ROC (Rate of Change)

Momentum

Percentage change between current and past price

Formula:

ROC = ((Close - Close n periods ago) / Close n periods ago) × 100

Common Settings:

10, 14, 20 periods

Usage:

Momentum measurement, divergences, overbought/oversold

Pros:

  • • Simple calculation
  • • Shows acceleration

Cons:

  • • Erratic on shorter timeframes
  • • No standard levels

Volatility Indicators

Bollinger Bands

Volatility

Bands that expand/contract with volatility

Formula:

Middle = SMA, Upper/Lower = SMA ± (StdDev × 2)

Common Settings:

20 periods, 2 std dev

Usage:

Volatility measurement, overbought/oversold, squeeze plays

Pros:

  • • Adapts to volatility
  • • Multiple uses
  • • Visual clarity

Cons:

  • • Not standalone system
  • • Settings need adjustment

ATR (Average True Range)

Volatility

Measures market volatility

Formula:

TR = Max(H-L, |H-Cp|, |L-Cp|)

Common Settings:

14 periods standard

Usage:

Stop loss placement, position sizing, volatility filter

Pros:

  • • Accounts for gaps
  • • Great for stops
  • • Universal application

Cons:

  • • No direction info
  • • Absolute not relative

Keltner Channels

Volatility

ATR-based bands around moving average

Formula:

Upper = EMA + (ATR × Multiplier)

Common Settings:

20 EMA, 10 ATR, 2× multiplier

Usage:

Trend following, breakouts, overbought/oversold

Pros:

  • • Smoother than Bollinger
  • • Good for trends

Cons:

  • • Less popular
  • • Requires fine-tuning

Standard Deviation

Volatility

Statistical measure of price dispersion

Formula:

σ = √(Σ(x - μ)² / N)

Common Settings:

20 periods common

Usage:

Volatility measurement, risk assessment

Pros:

  • • Pure volatility measure
  • • Statistical basis

Cons:

  • • No trading signals
  • • Academic indicator

Donchian Channels

Volatility/Trend

Highest high and lowest low channels

Formula:

Upper = Highest High(n), Lower = Lowest Low(n)

Common Settings:

20, 50 periods

Usage:

Breakout trading, support/resistance

Pros:

  • • Simple and effective
  • • Clear breakouts

Cons:

  • • Late signals
  • • No volatility adjustment

Volume Indicators

Volume

Volume

Number of shares/contracts traded

Formula:

Direct market data

Common Settings:

Often with moving average

Usage:

Confirmation, divergences, breakout validation

Pros:

  • • Leading indicator
  • • Confirms moves
  • • Shows interest

Cons:

  • • Not available forex
  • • Can be misleading

OBV (On Balance Volume)

Volume

Cumulative volume based on price direction

Formula:

If close > prev: OBV + Volume, else: OBV - Volume

Common Settings:

No settings needed

Usage:

Trend confirmation, divergences, accumulation/distribution

Pros:

  • • Simple concept
  • • Shows money flow
  • • Leading indicator

Cons:

  • • Absolute values meaningless
  • • Gap issues

Volume Profile

Volume

Volume distribution at price levels

Formula:

Horizontal volume histogram

Common Settings:

Session, weekly, monthly

Usage:

Support/resistance, value areas, market structure

Pros:

  • • Shows important levels
  • • Market structure insight

Cons:

  • • Complex interpretation
  • • Resource intensive

VWAP

Volume

Volume Weighted Average Price

Formula:

Σ(Price × Volume) / Σ(Volume)

Common Settings:

Session, weekly, anchored

Usage:

Institutional benchmark, intraday support/resistance

Pros:

  • • Institutional relevance
  • • Dynamic S/R

Cons:

  • • Intraday primarily
  • • Resets daily

Money Flow Index

Volume/Momentum

Volume-weighted RSI

Formula:

MFI = 100 - (100 / (1 + Money Ratio))

Common Settings:

14 periods, 80/20 levels

Usage:

Overbought/oversold with volume confirmation

Pros:

  • • Includes volume
  • • Leading indicator

Cons:

  • • Requires volume data
  • • Complex calculation

Accumulation/Distribution

Volume

Money flow into/out of security

Formula:

A/D = ((Close - Low) - (High - Close)) / (High - Low) × Volume

Common Settings:

No settings

Usage:

Trend confirmation, divergences

Pros:

  • • Shows smart money
  • • Divergence signals

Cons:

  • • Gaps ignored
  • • Absolute value meaningless

Combining Indicators Effectively

Popular Combinations

  • • MACD + RSI: Trend and momentum confirmation
  • • Moving Averages + Volume: Breakout validation
  • • Bollinger Bands + RSI: Squeeze plays
  • • Stochastic + Support/Resistance: Reversal timing
  • • ADX + Moving Averages: Trend strength filter

Best Practices

  • • Use indicators from different categories
  • • Limit to 3-4 indicators maximum
  • • Confirm signals with price action
  • • Adjust settings for your timeframe
  • • Backtest your combinations

Related Resources

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Visual pattern recognition guide

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Technical Analysis Course

Complete TA education