Value investing

Technical indicators are tools that help traders and market learners understand how prices have behaved in the past and what those patterns may suggest about future price movements. These indicators are calculated using historical data such as price, volume, and volatility. While they cannot guarantee what will happen next, they help create structure and clarity in situations where the market may otherwise feel unpredictable. For beginners, understanding technical indicators is a helpful way to learn how traders interpret charts, identify market patterns, and recognise moments when a stock may be under buying or selling pressure. Technical indicators are usually divided into different groups depending on the type of signals they offer, and each category plays a unique role in analysing the market. Some indicators are called leading indicators because they try to signal potential future price movements before they occur. These indicators attempt to predict turning points, helping traders identify when a trend might shift direction. One commonly used leading indicator is the Relative Strength Index, often referred to as RSI. This indicator helps identify whether a stock has been bought too aggressively or sold too heavily in recent sessions. For example, if Company A shows a very high RSI, it may mean the stock has been rising too quickly, making it prone to a short-term pause or correction. Another leading indicator is the stochastic oscillator, which compares the closing price of a stock to its recent price range. When this indicator reaches extreme levels, traders sometimes interpret it as a sign that the price may soon reverse. Other indicators, known as lagging indicators, respond to price movements after they occur. Lagging indicators are not designed to predict turns; instead, they help confirm whether a trend is strong or weakening. Moving averages are one of the most familiar examples of lagging indicators. A moving average smooths out price fluctuations by averaging past prices over a selected period. If Company A’s price stays consistently above its moving average, it suggests that the trend has been stable for some time. The Moving Average Convergence Divergence, commonly called MACD, is another lagging indicator that helps identify changes in momentum and the direction of trends. When plotted on a chart, MACD lines can help traders interpret whether the market is gaining strength or losing it. Volume-based indicators add another layer of understanding by studying the number of shares being traded. Volume often reveals how strongly traders feel about a price movement. If the price of Company A rises but the trading volume remains very low, the move may not be convincing. On the other hand, a price increase backed by strong volume suggests that a larger portion of the market is participating in the move. Indicators such as On-Balance Volume combine price and volume to show whether buying or selling pressure is increasing over time. The Accumulation/Distribution Line works similarly and helps identify whether a stock is being accumulated by buyers or distributed by sellers. Volatility indicators focus on how widely and how quickly prices move within a specific period. Understanding volatility is helpful because it allows beginners to recognise whether the market is calm or experiencing rapid fluctuations. The Average True Range, commonly known as ATR, measures the average amount of price movement during each period and gives traders an idea of how much a stock typically fluctuates. Bollinger Bands use a moving average along with standard deviations to create a visual range around the price. When Company A’s price moves closer to the upper band, it may reflect stronger momentum, while movement toward the lower band may signal weakness. These indicators do not predict direction but help show how volatile the market is at the moment. When combined thoughtfully, technical indicators can help paint a clearer picture of market behaviour. Traders often use more than one indicator at a time so they can compare signals and avoid relying on a single tool. For someone just beginning to understand stock market concepts, technical indicators offer a structured way to observe how price charts behave and how market sentiment shifts over time. The goal of learning about these indicators is not to encourage trading but to help beginners understand how market participants interpret trends, momentum, volatility, and volume. With practice and patience, learners can develop a stronger understanding of price behaviour and make more informed decisions based on their own comfort level and understanding rather than reacting emotionally to short-term movements.