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What Are the Different Types of Technical Analysis Signals?

Article Details
  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 17 March 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Technical analysis signals represent specific points on a stock chart that provide individuals with information on purchasing a stock. The two main types are indicators and oscillators; indicators may be leading or lagging. Between these two groups of technical analysis signals, oscillators are often the most common. These occur in a bounded range that can indicate whether a stock is overbought or oversold. The use of charts in technical stock analysis is typically the most important piece of information in picking stocks.

A leading indicator usually signals an upcoming movement in a stock’s price. When looking at a chart, investors must look for historical patterns regarding price movements. Technical analysis signals that are leading indicators most often represent a period where stock prices are going to break out of a specific pattern. For example, a stock’s price may be moving in a short price range period. If the chart points are looking correct, the price should take an upcoming increase or decrease in the near future.

The description of leading indicators — as part of technical analysis signals — is also known as a leading momentum oscillator. Historical analysis should reveal a few different 20-day periods where a stock’s price oscillates, or moves within a short-term price range. After this 20-day period, the stock is going to break the pattern and move up or down. To discover which way the stock will move, the investor must determine if the momentum is bearish or bullish. Sentiment on the stock can help provide this detail, so the investor can make the correct purchase.

Lagging indicators represent historical price movements that are either peaking upward or downward. A basic review for technical analysis signals on a technical chart is to find either three short upward peaks or three short downward spikes. Upward peaks can mean the stock’s price is going to continue up for a period of time. The same goes for downward spikes as the stock price may continue its downward trend. The use of moving averages is also necessary here in order to measure stock movement properly.

Indicators and oscillators as technical analysis signals are not always reliable. Investors may be unable to properly read the chart, or the chart simply does not take into consideration a stock’s fundamental aspects. In some cases, the longer a moving average occurs in stock chart, the slower the stock will respond to technical signals. This makes it difficult for investors to make proper stock purchases at the right time.

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