Business, Legal & Accounting Glossary
An indicator is a predictor of the economic future.
Indicators are used by market timers to try and divine future market action. There are three primary varieties of indicators; technical, market, and economic.
Technical indicators are mathematical or graphical representations of recent market activity. Most technical indicators are based solely on movements in price, but some also incorporate trading volume into the calculation. Because they use existing data, all technical indicators are by definition lagging indicators. Examples of widely used technical indicators are RSI, CCI, and Bollinger Bands.
Market indicators attempt to measure the characteristics of the market as a whole. The Volatility Index (VIX), for example, is an indicator of the market’s expectations for future volatility. Other market indicators include the Arms Index (TRIN) and the McClellan Summation Index.
Economic indicators can be useful in determining prospects for the economy. Many economic indicators, such as unemployment and inflation numbers, are calculated by the government. Others, such as GDP growth and measures of consumer sentiment, are calculated by semi-public or private organizations.
An indicator is a term used extensively in technical analysis as the name of a graphed statistic or other mathematical formula used in conjunction with a stock chart.
An indicator is used to confirm current stock (or market) conditions or predict future direction.
In fundamental analysis, economic indicators that quantify current economic and industry conditions are used to provide insight into the future profitability potential of public companies.
Experts come to rely on certain indicators as most reliable as predictors in their business or sector. But all of these have their weaknesses and sometimes give false indications due to short-term fluctuations. They are all subject to adjustment, correction, and debate.
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This glossary post was last updated: 6th August, 2021 | 4 Views.