Technical indicators calculate metrics related to a financial instrument. This calculation can be based on price, volume, on-chain data, open interest, social metrics, or even another indicator.
As we’ve discussed earlier, technical analysts base their methods on the assumption that historical price patterns may dictate future price movements. As such, traders who use technical analysis may use an array of technical indicators to identify potential entry and exit points on a chart.
Technical indicators may be categorized by multiple methods. This can include whether they’re pointing towards future trends (leading indicators), confirming a pattern that’s already underway (lagging indicators), or clarify real-time events (coincident indicators).
Some other categorization may concern itself with how these indicators present the information. In this sense, there are overlay indicators that overlay data over price, and there are oscillators that oscillate between a minimum and a maximum value.
There are also types of indicators that aim to measure a specific aspect of the market, such as momentum indicators. As the name would suggest, they aim to measure and display market momentum.
So, which is the best technical analysis indicator out there? There isn’t a simple answer to this question. Traders may use many different types of technical indicators, and their choice is largely based on their individual trading strategy.