Trading Indicators

Written by Erin Jones
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Trading indicators are usually used by day traders to determine the direction of a stock's price. Momentum indicators, however, are not only used for equity trades. Technical indicators, like head and shoulders charts, are also used in currency trades, commodity trades, and other futures and derivative products.

Using Trading Indicators

Technical analysis is different from fundamental analysis in that technical analysts rely on charts and formulas to direct investment decisions. Whereas a fundamental trader might study the efficiency of a company's management team, technical traders usually disregard company news and rely on chart patterns for their investments.

An example of a trading indicator used by technical traders is the VPT, or volume price trend indicator. The VPT is a trading indicator that helps identify the demand and supply points for a stock. The VPT takes a stock or index's percentage change in share price and volume and charts it on a graph. Analysts use the line to help determine the future direction of a stock's price.

When you're day trading, you'll probably want to use a software program that automatically signals trading indicators. Many software programs will calculate and chart a variety of indicators for you, taking the guesswork out of trading. Before you commit to using one program, research what type of indicators are used for day trading recommendations. Becoming familiar with that indicator(s) will help you understand why your trading program is making specific buy and sell recommendations.

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