What is an Indicator? 15 Technical Analysis Tools You Need to Know for Forex and Stock Trading

Anyone working with the financial markets faces a fundamental challenge: When to buy? When to sell? How to determine a fair price? To answer these questions, indicator là gì is the first thing to understand clearly. These are technical analysis tools that help investors make smarter decisions in the Forex, stock, and other asset markets.

What is an indicator and why is it important?

Technical analysis tools developed by financial experts over decades have now become standard across all trading platforms. Instead of relying solely on intuition, those who use indicators can identify clear signals: whether the price will go up or down, if the market is overbought or oversold, how strong the current trend is, and whether trading volume is sufficient to support a new move.

The four main groups of indicators in technical analysis

In technical analysis, tools are divided into 4 main types:

• Trend indicators - Help identify the direction of price movement
• Momentum indicators - Measure the strength of price volatility
• Volatility indicators - Show the extent of market fluctuations
• Volume indicators - Analyze buying-selling pressure based on trading volume

Group 1: Trend-following indicators

Moving Average (Moving Average - MA)

This is the most basic tool, showing the direction of price movement over a period. MA does not predict future prices exactly but helps detect emerging trends. The MA calculation is based on the closing prices of previous candles.

ADX (Directional Average Index)

ADX has a unique ability: it indicates whether a trend truly exists and how strong it is—all without considering the price direction. Even if the price is declining, the ADX line can still rise, signaling a very strong downtrend.

Ichimoku Cloud (Ichimoku Kinko Hyo)

Ichimoku is a comprehensive indicator composed of 5 separate lines (Tenkan-sen, Kijun-sen, Senkou span A, Senkou span B, Chikou span). It helps locate support and resistance zones and confirms the existence of a trend at a glance.

MACD (Moving Average Convergence Divergence)

MACD is built from two moving averages and a signal line. This tool mainly tracks changes in momentum, detects signs of trend reversals, and warns when trend strength weakens.

Parabolic SAR

SAR stands for “Stop and Reverse,” indicating the optimal timing to change strategies. This indicator warns when the price direction may change, helping investors decide when to stop-loss or take profit.

Group 2: Momentum indicators

RSI (Relative Strength Index)

RSI shows the relative strength of an asset compared to itself over a certain cycle. Values range from 0 to 100, and RSI is commonly used to identify initial trading signals, often combined with other tools.

Stochastic Oscillator (SO)

SO compares the current closing price with the historical price range to detect overbought or oversold assets. When SO exceeds 80, the market is overbought; below 20, oversold. SO also signals divergence, meaning price and indicator are moving in opposite directions.

Williams %R

%R is a similar indicator to SO but calculated differently. It helps investors identify overbought or oversold assets, with reversal tendencies opposite to Stochastic.

Group 3: Volatility indicators

ATR (Average True Range)

ATR measures the degree of market volatility. It is a standalone indicator providing basic information about price fluctuations over a period, helping to identify entry and exit points.

Bollinger Bands (Bollinger Bands - BB)

Bollinger Bands are built on a moving average and standard deviation. When the price touches the upper band, the market may be overbought; when it touches the lower band, oversold. Many traders combine BB with MACD and RSI for stronger signals.

Standard Deviation (Standard Deviation - SD)

SD measures how far the price deviates from the moving average. A large SD indicates high volatility; a small SD suggests stability. High SD often signals the end of an active phase and the start of consolidation, helping investors find optimal entry points.

Group 4: Volume analysis indicators

MFI (Money Flow Index)

MFI combines price and volume to determine whether an asset is overbought or oversold. It ranges from 0 to 100; low values suggest buying interest, high values indicate selling. MFI is often used with Elliott waves and Fibonacci ratios.

A/D Indicator (Accumulation/Distribution)

A/D helps identify whether an asset is being accumulated or distributed. Based on volume and the difference between high and low prices, A/D can reveal upward or downward trends and divergence signs. If the price rises but A/D falls, buying volume may be insufficient to support further gains.

OBV (On-Balance Volume)

OBV analyzes buying and selling pressure based on volume and price. The simple principle: if today’s price increases, today’s OBV equals the previous OBV plus trading volume. When OBV rises, it indicates investors are flowing capital into the asset.

Complete classification table of 15 indicators

Note: Bollinger Bands and Ichimoku Cloud are versatile indicators that can operate independently or in combination with other tools depending on specific strategies.

How to effectively combine indicators in trading

Knowing what an indicator is just the first step; more important is understanding when to use them, which markets to apply them to, and which tools to combine for optimal results. Here is a practical example combining 4 indicators (RSI, Ichimoku, Bollinger Band, OBV) in a buy strategy:

Step 1: Confirm price breaks the middle level of the BB

First, check if the price breaks and closes above the middle level of the Bollinger Bands. This is the initial signal indicating momentum is forming. After confirming this, proceed to the next step.

Step 2: Wait for RSI to cross above 50

Look for a connection between the BB and RSI. If momentum still follows the trend, it may signal an upcoming breakout. RSI above 50 is considered a positive momentum signal. Sometimes, RSI and price may not synchronize immediately, so you might need to wait for momentum to build.

Step 3: Observe OBV rising, then buy when volume is strong

This step is decisive: check if the planned trade is supported by strong buying volume. Rising OBV confirms this. When volume increases, it’s the right time to enter. Don’t forget to set a Stop Loss immediately to protect capital.

Step 4: Place Stop Loss below the lower Bollinger Band

Determining the Stop Loss point is crucial in any trade. The ideal place is just below the lower Bollinger Band. Setting Stop Loss too far below this level increases risk of capital loss.

Step 5: Take profit when price breaks above the upper BB

To effectively take profit, monitor a single indicator instead of multiple. Waiting for all indicators to signal can delay exit and reduce gains. When the price breaks above the upper Bollinger Band, it’s a clear sign of a potential reversal—close the trade and take profit.

If trading a sell, you can apply a similar process but in reverse.

In summary

What is an indicator? They are essential tools that help investors make decisions based on actual data rather than intuition. Once proficient with indicators, you will have a clear advantage in the market, and your trades will be safer. However, remember that indicators are not infallible—they can sometimes give false signals. This is why it’s important to combine multiple indicators from different groups and to practice regularly to use them effectively and accurately in the market.