These are mathematical formulas and calculations, which mainly use historical data such as volume and price. They can help us recognize or anticipate new trends, identify entry and exit points and manage the risk we undertake in a more efficient way. The categories of indicators are as follows:
• Leading Indicators: These are indicators that are designed to precede price movements. Most attempt to reveal the market dynamics (momentum) in a timely manner using historical data for a certain number of past periods. Signals are considered more powerful and valid during periods of sideways movements of the prices, where there is not an apparent trend. Many of these indicators belong to the "Oscillators" category. Some well-known indicators are: The Commodity Channel Index (CCI), the Relative Strength Index (RSI), the Stochastic Oscillator (SO), etc.
• Lagging Indicators: These indicators are designed to follow price movements and offer slightly delayed but strong signals. They give the most when they are used to produce signals during strong trending periods. They give the investor the opportunity to open a strong position and keep it for as long as the dynamic of the trend continues. Most analysts recommend avoiding the use of these indicators during periods without a predominant trend, as many signals are expected to be wrong. Some of the lagging indicators are: Moving Averages, Bollinger Bands, Moving Averages Convergence-Divergence (MACD), etc.
• Oscillators: An oscillator is the indicator that ranges around a center line or between two extreme boundaries. Oscillators can provide us with timely entry points, reversing signals or continuation of a trend and signals for buying or selling opportunities. They are considered to be very effective when used in periods without apparent trend.
Let us bear in mind that an indicator may belong to more than one category.