Technical indicators

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Numerous technical indicators may automatically appear on the charts you generate. Technical indicators are ways of analyzing current trends in the market in hopes of being able to predict future trends. You can usually expect to see some sort of average of closing prices (a moving average), and possibly another basic technical indicator, on a chart. Don't let them rattle you, because you can remove them if you want, or — even better — alter them to your personal preferences. (I discuss a variety of technical indicators in detail in Part IV.) Take a look at Figure 3-6 — a chart that includes a moving average, one common type of technical indicator.

Among the different types of technical indicators are those that need their own space on a chart, much like volume or open interest. Figure 3-7 is a chart with a technical indicator known as the relative strength index (RSI) on the bottom. The RSI indicates the trend of price movements. (RSI is covered in depth in Chapter 13.) The crooked line is the calculated RSI; the lines at 30 and 70 are permanent and signify where a market is considered overbought or oversold (more on that in Chapter 13, as well).

As you can see, the RSI takes nothing away from the rest of the chart and actually provides some useful additional information that you can take into consideration when making chart-based decisions.

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