Trading for Dummies® 2nd Edition

Chapter 11. Calculating Indicators and Oscillators

In This Chapter

• Identifying trends using moving averages

• Using oscillators and indicators to generate trading signals

• Deciphering relative strength

The personal computer ushered in a new era for technical analysts. Today's Internet-connected computers offer data access and analytic capabilities at speeds that were impossible only a decade or two ago. That's not to say that calculated indicators and oscillators weren't used before the PC, but rather that these indicators were so difficult to calculate and maintain that few technicians performed these calculations for themselves. Even fewer had access to real-time analysis tools that traders now take for granted.

However, the ease of calculating, modifying, testing, and using computer-generated trading tools is as much a curse as it is a blessing. New traders often shun visual pattern analysis, instead preferring computer-generated indicators and oscillators. Doing so is a mistake. Although the perceived precision of these calculations seems to add to their allure, you nevertheless need to be aware that computer-generated analysis tools are not necessarily more accurate, and neither are computers able to generate higher-quality trading signals than visual pattern analysis.

Tip

The indicators and oscillators that we describe in this chapter provide you with additional insight into the technical condition of a stock or the market; however, they can't provide faultless trading signals. No indicator ...