What indicators and oscillators are and introducing the best ones

Indicators are tools to measure current conditions and predict financial or economic trends. In investing and financial markets, indicators usually refer to technical chart patterns resulting from the price, volume, or profit of a security or other asset. Common technical indicators or popular indicators include Moving Average, Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), and On-Balanced Volume (OBV). In economics, indicators usually refer to pieces of economic data used to measure the economy's overall health and predict its direction. They include Consumer Price Index (CPI), Gross Domestic Product (GDP), and new figures.

An oscillator is a technical analysis tool that creates upper and lower bands between two values ​​and then creates a trend indicator that will oscillate within these ranges. Traders use oscillators to discover maximum short-term buy or sell conditions. When the oscillator's value approaches the upper limit, analysts interpret this information to mean that the asset is overbought, and as the oscillator comes to the lower limit, they Consider the investment in the maximum range.

What is an indicator?

Indicators can be generally classified into economic indicators and technical indicators.
Economic indicators are statistical measures used to measure the growth or decline of the economy as a whole or sectors within the economy. In fundamental analysis, economic indicators that measure current economic conditions are used to provide a general perspective on the future profitability potential of public companies. Technical indicators are widely used in technical analysis to predict changes in stock trends or price patterns in any traded asset.

Economic indicators

Various sources have developed many economic indicators in the private and public sectors.
For example, the Bureau of Labor Statistics, the US Department of Labor research arm, collects data on prices, employment and unemployment, compensation and working conditions, and productivity. In addition, the price report contains information on inflation, import and export prices, and consumer spending.

The Institute of Supply Management (ISM) is a non-profit professional association for supply management and purchasing professionals.
It has published the ISM Manufacturing Report on business monthly since 1931. This report contains a composite index called the Purchasing Managers' Index (PMI), which contains information on manufacturing and non-manufacturing orders. This index is an accurate barometer of economic activity.

The US Department of Commerce uses ISM data to assess the economy.

In the 21st century, housing and real estate have been leading economic indicators more than any other asset. Various metrics are used to measure housing growth, including the S&P/Case-Shiller Index, which measures home sales prices, and the NAHB/Wells Fargo Housing Market Index, a survey of homebuilders and measures market appetite for new homes.

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Other economic indicators include interest rates, money supply, and consumer sentiment. However, be careful not to rely too much on economic indicators to make investment decisions. Financial data is usually far from complete and will require proper analysis and interpretation.

Technical indicators

In technical analysis, an indicator is a mathematical calculation based on the price or trading volume of securities or any other asset. The results of the indicators' calculations are used to predict future prices.
Standard technical analysis indicators are moving average convergence-divergence (MACD) and relative strength index (RSI).
The moving average convergence-divergence (MACD) indicator is a trend-following movement indicator that shows the relationship between two moving averages of the prices of a security and any other asset.
The RSI compares the size of recent gains and losses to determine the asset's price movement, whether up or down. Traders and technical analysis experts use tools such as MACD and RSI to analyze asset price charts and look for patterns indicating when to buy or sell the asset.

Examples of indicators

Consumer Price Index (CPI)

One of the most common economic indicators among indicators is the Consumer Price Index (CPI), which is simply the weighted average price of a basket of consumer goods and services. Changes in the CPI are used to measure changes in the cost of living and identify periods of inflation or deflation.
Investors are increasingly concerned that rising inflation will eventually disrupt the stock market's uptrend. For example, in April 2021, the CPI rose 0.8%, making it the most significant 12-month growth since September 2008.

Moving average (MA)

A moving average (MA) is a technical indicator used to identify a particular asset's general direction or trend. It aims to smooth previous price data by creating an updated average price. If the MA moves positively, it indicates a bullish sign for the stock price. On the other hand, if the MA moves in a negative direction, the cost of the stock or asset in question will probably be bearish.

What is an oscillator, and how does it work?

Oscillators are usually used with other technical analysis indicators to make trade decisions and receive buy and sell signals. Analysts find oscillators more useful when they cannot easily see a clear trend in a company's stock price. For example, when a stock is trading horizontally or sideways, there is no clear trend in the stock price. The most common oscillators are stochastic oscillators, rate of change (ROC), and money flow (MFI). In technical analysis, investors consider oscillators one of the most essential technological tools for interpreting price movements. Still, analysts use other specialized tools to increase their trades, such as the ability to interpret technical charts and indicators. In fact, financial market investors use oscillators and indicators together to get more profit.
To use oscillators, investors first choose two values. Then by placing the instrument between the two, the oscillator will move and create a trend indicator. Investors then use the trend indicator to interpret current market conditions for the asset they are interested in. When the investor sees the oscillator move to a higher value, there is a high probability that the price will decline, which will signal a sell. In the opposite scenario, when the oscillator moves to a lower value, the cost of the target asset will likely increase, and the investor can take a position to buy the asset.

The performance of oscillators

In technical analysis, an investor measures oscillators on a percentage scale from 0 to 100, where the closing price is relative to the entire price range for a specified number of bars on a given bar chart. One uses various techniques to manipulate and smooth multiple moving averages to achieve this goal. When the market trades within a specific range, the oscillator follows the price fluctuations, and when it exceeds 70-80% of the full price range set, it indicates an overbought market condition, which means a selling opportunity. Is. An oversold condition exists when the oscillator drops below 30-20%, which would mean a buying opportunity.
As long as the underlying security price remains within the specified range, the signals remain valid. However, when a price breakout occurs, the signals can be misleading. Analysts view a price breakout as either a range reset that limits the current bearish market or as the start of a new trend. During a price breakout, the oscillator may stay in the overbought or oversold range for a long time.
Oscillators are best suited for sideways markets by technical analysts and are most effective when used in conjunction with a technical indicator that frames the market within a trend or range. For example, a moving average crossover indicator can be used to determine whether a call is in a direction or not. An oscillator's signals become much more valuable and practical when analysts recognize that the market is not in a trend.

Final word

Indicators are technical tools that refer to chart patterns formed from a specific asset's price, trading volume, or profit. Some popular indicators are moving average, moving average convergence divergence (MACD), relative strength index (RSI), and on balance volume (OBV).
Oscillators are usually used along with other technical analysis indicators to make trade decisions and receive buy and sell signals in the financial markets. The most common oscillators are stochastic oscillators, rate of change (ROC), and money flow (MFI).
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