What is an indicator?
An indicator is a statistical measure used to evaluate and predict future conditions, and values of stocks and other tradable securities. They can also be used to forecast the economic conditions of nations or particular sectors of the economy. Indicators use past data to predict future performance.
Given the broad use of indicators, individuals and entities use them to understand anything that can be represented in terms of data.
Although indicators can help you predict the future, they are not perfect. This is due to the fact that we live in a world where anything can happen and alter future predictions. This is why the best indicator is the one that gives you the closest answer to reality.
Categories of Indicators
- Technical Indicators: These indicators are used in the technical analysis to predict future directions of stocks and other tradable securities.
- Economic Indicators: Are indicators used to measure and forecast economic conditions.
- Fundamental Analysis Indicators: Are used for quantification of a given sector and industrial performance.
Examples of most used Indicators
- Exponential Moving Average (EMA)
- Moving Average (MA)
- Moving Average Convergence Divergence (MACD)
- Relative Strength Index (RSI)
- Bollinger Bands
- Standard Deviation
- Stochastic Oscillator
- Fibonacci Retracement
Benefits of indicators.
- Indicators simplify complex problems and make them easy for us to understand.
- We make quick decisions in big matters because of indicators.
- They help us organize our portfolios to minimize losses.
Disadvantages of indicators
- Indicators are not perfect and therefore cannot give you an exact answer.
- Sometimes answers from indicators do not make sense.
- They can lead you to make a bad decision. The past does not always reflect the future.
- Indicators are sometimes difficult to understand especially when they are giving different answers from our own predictions.
Even if indicators can help you learn about the future, you must not blindly use findings from indicators. Your own analysis can help you diminish investment losses.
You must use multiple indicators to help you achieve the best answer to your analysis and predictions.
