With the ever-increasing use of virtual currency and its volatility, cryptocurrencies are being adopted across the world for various transactions. Cryptocurrency derivatives trading is a new trading area that many daytime traders are interested in. The last time we give you a brief introduction to the types of orders. In this article, we will give you the basics introduction of how to categorized indicator “types”, so you may have a deeper understanding of it.
What is an Indicator?
Indicators are typically categorized according to whether they are intended to identify longer-term trends or emphasize shorter-term price swings and countertrend moves. While it is true that smoothing functions, such as moving averages, lend themselves to trend analysis because they simplify price action, such classifications usually have more to do with an indicator’s look-back period than any inherent characteristic of the calculation.
Use an example to exemplify
For example, although moving average crossovers are “classic” trend-following signals, an MA3–MA10 calculation, which conforms to the standard moving-average crossover form, could hardly be described as a long-term trend-following indicator. By contrast, the basic C–C momentum calculation, most often used to highlight short-term price swings, will nonetheless reflect longer-term trends as its look-back period increases.
Because they are derivatives of price, it can be argued that technical indicators—when used to generate trading signals—actually distance traders and analysts from the data they are attempting to understand.
Although indicators can, perhaps, highlight certain aspects of market action that might not be immediately evident by looking at a chart or a spreadsheet, they cannot create information that is not already present in the market data itself.
Simplicity is generally a virtue with regard to technical indicators. There are only so many ways to measure the direction and magnitude of price changes, and the slight differences between approaches are unlikely to produce meaningful differences in trading signals.
The more inputs an indicator has (and the more arcane those inputs are), the more likely that either it is obscuring, rather than clarifying, the market action it is intended to interpret, or it is merely a more complex version of a simpler calculation.
Perhaps the most important insight the reader can take away from this chapter is that indicators that tend to work well in non trending conditions will unavoidably perform miserably in trending conditions, whereas tools designed for trends will fare poorly in trendless markets.
Unfortunately, markets do not ring bells when they are switching from one phase to the other. As a result, no single indicator or parameter input (such as the look-back period) can be expected to perform consistently well across multiple markets and time frames.
Thanks for your time, after reading this article, you may have a deeper understanding of how to categorized indicator “Types”?
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