What are Indicators and Overlays?
Technical analysis focuses on price action, price movement and volume behaviour
to anticipate what is likely to happen in the future.
Technical analysts believe that the market already factors in all available information
and discounts the same in the current price level. Technical analysts use a variety
of tools including charts and graphs to analyse this price and volume movement and
behaviour over different time-periods.
This helps analysts identify distinct patterns of trading that have occurred in
the past and are likely to happen again. In other words, technical analysis focuses
on what is happening in the market rather than why it is happening. Therefore, technical
analysis considers the price action and the price movement as paramount to help
identify the dominant market sentiment and discern any patterns of trading that
potentially indicate which way the price is likely to move.
An important part of the toolset used by Technical Analysts includes Technical Indicators
and Overlays. In simple terms, an indicator is a mathematical formula that is applied
to the price or volume of a security.
The formula generates a series of new calculated data points that give a trader
a different way to analyze a chart with the intention of predicting the future price.
Common examples of technical indicators are the
RSI. These are typically drawn above, below or overlaid on top of
a price chart.
Overlays are generally drawn on top of the price or volume chart. These include
calculated values, but may also be derived by observation of the price or volume
charts and identification of patterns. Examples of common overlays include supports
and resistances, trend lines, Moving averages, etc.
view a detailed description and explanation for each technical indicator,
click on the indicator or overlay listed in the column to the right.
Chaikin Money Flow (CMF) indicator with 5 smoothing averages.