The chosen technical indicators can significantly affect the analytical insight traders wanted to attain. Therefore, traders have to know the types of indicators and how to use them before they start their trade.
Once traders master that knowledge they can choose the right indicators that suit their trading.
How Traders Use Technical Indicators
Technical indicators have some settings to modify the way the indicators displayed. Traders can personally configure that setting.
These data points usually refer to a chart’s price bars. The data points consist of an open, a high, a low, and a close. With indicators, traders can choose the type of data points to be applied in their calculation.
As an alternative, traders can also use that data points to find the average of the open, high, low, and close. Traders usually call that as OHLC Average.
Besides OHLC, HLC (High, Low, Close) average is also common in many trading platforms. In some trading platforms, the close price is referred to as the ‘last’ price.
Types of Trading Indicators
The common setting for indicators is the closing price. Yet, there are situations where there is better insight from the open, high, low, or average.
For instance, if a trader sees price bars dropping below a moving average in an uptrend, the traders better use the low of each candle as the input than the close.
This way, the moving average is only breached when a price bar penetrates the average lows of other price bars.
The same concept could be applied during a downtrend. Traders can use price bar highs to calculate the moving average. However, this is not a requirement. It is only an example to configure the settings to achieve alternative insight.
With minor differences often happen, if an indicator provides trade signals, the input data will have a direct impact on the profitability of those trades signals.
Also read: Indicator Based Trading, How Does it Work?