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VIDEO NOTES: The first lesson in a new series on technical indicators which gives an introduction to the concept so that we can move on to learning about specific indicators and how to use them to trade profitably in the forex market, stock market, and futures market. Technical analysis for daytraders and investors.
In our last lesson we finished up our series on chart patterns with a look at strategies which can be used to trade triangle chart patterns. In this lesson we are going to start a new series on technical indicators with an overview of what technical indicators are, and how traders use them to help pick their entry and exit points.
A technical indicator is a mathematical formula which is derived from the price action of a financial instrument and/or the volume traded. The results of these formulas are commonly displayed in graphical form above or below a financial instruments price chart, and are used to help predict future price movement. When used in combination with other forms of technical analysis, such as the chart patterns we have learned so far, technical indicators can be a powerful compliment which traders can use to assist in their trading decisions.
Technical indicators can be broken down into two main categories which are leading and lagging indicators. As their name suggests, leading indicators are created to try and predict future price movement. Because most leading indicators are trying to gauge price momentum from relatively recent price action, these indicators tend to generate frequent buy and sell signals and are therefore normally used in ranging markets. While some traders like the opportunity to enter more trades, it is important to keep in mind that the potential for false signals with leading indicators is high.
Lagging indicators on the other hand are created to give a picture of where the market has been, and therefore where it is likely to continue to go. As this is the case these indicators are normally used by traders looking to trade with the trend, and offer little value in ranging markets. Secondly because these indicators are designed to catch and stay with the trend for as long as possible, they generate less trading signals than leading indicators. This is often seen as a positive from the standpoint of generating less false trading signals and also a negative as this also means that they normally get you into a move later than a leading indicator.
One of the biggest issues when deciding how and when to use a particular indicator is determining how sensitive to make the indicator to price movements. The more sensitive the indicator the earlier you will catch the move, however the more false signals that will be given. Conversely the less sensitive the indicator the less false signals but the later you will get into the move.
That completes this lesson. You should now have a good understanding of what a technical indicator is and how they are used in trading. In the lessons that come we will look at some of the more popular indicators, starting in the next lesson with moving averages, as well as how to use these indicators in your trading, so we hope to see you in those lessons.
Course Index
- Intro to Technical Analysis
- Introduction to Dow Theory
- Second 3 Tenets of Dow Theory
- How to Read Stock Charts
- How to Trade Support and Resistance
- Multi Time Frame Analysis
- Introduction to the Double Top and Double Bottom Charting Pattern
- How to Trade Double Tops Like a Pro
- How to Trade the Head and Shoulders Pattern Part 1
- How to Trade the Head and Shoulders Pattern Part 2
- How to Trade the Wedge Chart Pattern Like a Pro Part 1
- How to Trade the Wedge Chart Pattern Like a Pro Part 2
- How to Trade the Flag/Pennant Patterns Like a Pro Part 1
- How to Trade the Flag/Pennant Patterns Like a Pro Part 2
- How to Trade Triangle Chart Patterns Like a Pro Part 1
- How to Trade Triangle Chart Patterns Like a Pro Part 2
- Learn to Trade with Technical Indicators
- How to Trade Moving Averages Like a Pro (Part 1)
- How toTrade Moving Averages Like a Pro (Part 2)
- How to Trade the MACD Indicator Like a Pro (Part 1)
- MACD Indicator: Trade it Like a Pro (Part 2)
- How to Trade the Relative Strength Index (RSI) Like a Pro
- How to Trade Stochastics Like the Pro's Do
- The Difference Between the Fast, Slow and Full Stochastic
- How to Trade Bollinger Bands - Stocks, Futures, Forex
- How to Trade the Average Directional Index (ADX)
- How to Trade the Parabolic SAR
- How to Trade Candlestick Chart Formations Part 1
- How to Trade Spinning Tops and Doji Candlestick Patterns
- How to Trade the Bullish/Bearish Engulfing Candlesticks
- How to Trade the Hammer Hanging Man Candlesticks
- How to Trade the Morning/Evening Star Candlestick Pattern
- How to Trade the Inverted Hammer/Shooting Star Patterns
- Why Most Traders Lose Money and The Solution
- Why Traders Hold On to Losing Positions
- Two Trading Mistakes Which Will Destroy Your Account
- Herd Mentality is the Psychology That Leads to Big Trading Losses
- Profit Expectations: What Millionaire Traders Know
- How to Join the Minority of Traders Who Are Successful
- How To Determine Where to Put Your Initial Stop Loss Order
- How to Use the Average True Range (ATR) To Set Stops
- How to Up Your Chances for Profit When Setting Stops
- How to Reduce the Chances of Being Stopped Out on a Trade
- How Successful Traders Use Indicators to Place Stops
- Stop Your Mind From Causing You to Take Profits Too Soon
- How To Use Trailing Stops
- Why Position Sizing is So Important in Trading
- Why Fixed Position Sizing Is Not the Best Way to Trade
- Trading The Martingale and Anti Martingale Strategies
- How to Set Trade Position Size for Maximum Profits
- Maximize Trading Profits with Correct Position Sizing 2
- Fundamental Analysis and The US Economy
- A Simple Explanation of the US Economy for Traders
- Simple Explanation of The US Economy For Traders Part 2
- The Business Cycle and Fiscal Policy - What Traders Know
- How Interest Rates Move Markets
- What Traders Know About Interest Rates Part 2
- What Traders Need to Know About The Structure of The Fed
- How the Fed Changes Interest Rates
- How to Determine When the Fed is Going to Change Rates
- Why Markets Move Ahead of Interest Rate Announcements
- How to Trade the GDP Number (Part 1)
- The Components of the Gross Domestic Product (GDP)
- Intro to Trading Non Farm Payrolls (NFP's)
- Trading the News - Economic Numbers - Retail Sales
- Trading the News - Economic Numbers - ISM Manufacturing
- The Producer Price Index (PPI)
- The Consumer Price Index (CPI)
- Trade the News - Existing Home Sales Index
- How To Interpret the Consumer Confidence Index (CCI)
- How to Interpret the Index of Leading Economic Indicators
- The Advantages and Disadvantages of Day Trading
- The Advantages and Disadvantages of Swing Trading
- The Advantages and Disadvantages of Position Trading
- How to Keep a Trading Journal
- The Most Important Attributes of a Good Trading Journal
- The 20 Components of a Successful Trading Plan
Course Description
This is a series of 77 short video lessons meant to give traders an introduction to the basics of trading as well as the components necessary to develop a profitable trading plan.