Chart Indicators

Technical Indicator is a quantitative study of past financial market data used to spot and predict future price movement. In the past, traders struggled to calculate long algorithms by hand to produce technical indicator readings. Now, those same calculations are available through automated charting software packages.

Technical indicators serve three purposes:

  • To alert (e.g., warn of potential breakouts)
  • To verify (e.g., confirm a breakout on a price chart)
  • To predict (e.g., forecast future price direction)

The following section introduces and explains the technical indicators that new forex traders should learn to use to develop their trading plan.

Bollinger Bands

Created by John Bollinger, Bollinger Bands reflect volatility and, as such, can be an effective way to define an overbought or oversold price situation. If price trades into an upper Bollinger Band, technical analysts consider the price to be overbought. If price trades down into the lower Bollinger Band, price is said to be oversold.

Since standard deviation is often used to measure volatility, Bollinger Bands are plotted 2 standard deviations away from a simple moving average. As market conditions become more volatile, the bands move further away from the average.


Bollinger Bands

During quiet market conditions, the bands become close to the average. This indicates a decrease in price volatility.


Bollinger Bands
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