Trading Indicators
How the most popular indicators are calculated, how to read them, and the mistakes that make their signals fail.
All indicator guides
The four types of trading indicators
Trend indicators such as moving averages and MACD show direction. Momentum indicators such as RSI and the Stochastic Oscillator show how fast price is moving and flag possible overbought or oversold conditions. Volatility indicators such as ATR and Bollinger Bands show how much price is moving. Volume indicators such as VWAP show where trading activity is concentrated.
Avoid stacking similar indicators
Two momentum indicators on the same chart usually tell you the same thing twice. A cleaner setup combines one indicator from different groups, for example a moving average for trend and RSI for momentum, with price action and support and resistance doing most of the work.
Frequently asked questions
What is the most accurate trading indicator?
No indicator is accurate on its own, because all of them are calculated from past price or volume. Indicators work best as confirmation for a clear set of rules, not as standalone buy and sell signals.
What are the best indicators for day trading?
Day traders commonly use VWAP, moving averages, RSI and ATR. VWAP and moving averages help with direction, RSI with momentum and ATR with setting stop distances.
What do overbought and oversold mean?
They describe readings where price has moved far and fast in one direction, for example RSI above 70 or below 30. In a strong trend, price can stay overbought or oversold for a long time, so these readings are not automatic reversal signals.
Which indicator settings should I use?
Start with the default settings listed in each guide, such as 14 periods for RSI and ATR. Change one setting at a time and test the effect before trading it live.