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Indicators explained

Trading on margin can lose you more than you put in. Past results, including backtests, do not predict future results. Cloud9Trader provides tools and education, not financial advice. Read the full risk warning.

A technical indicator is a calculation on past prices, drawn on or under a chart. A moving average smooths the price; the Relative Strength Index measures how strong recent rises were against recent falls; Bollinger Bands show how far price usually strays from its average.

An indicator describes what the price has done. It does not know what the price will do next. Every indicator lags the price, and every one gives false signals. Indicators are useful as rules you can test, not as forecasts.

A worked example

Section titled “A worked example”

A 5-bar simple moving average (SMA) of closing prices 1.0850, 1.0856, 1.0847, 1.0853 and 1.0859:

  • (1.0850 + 1.0856 + 1.0847 + 1.0853 + 1.0859) ÷ 5 = 5.4265 ÷ 5 = 1.0853.

A common rule is “buy when the price closes above its moving average”. Here the last close, 1.0859, is above 1.0853. Whether that rule makes money is a question for a backtest, not for the indicator.

In Cloud9Trader

Section titled “In Cloud9Trader”

Algorithms can call built-in technical indicators, such as moving averages, the Relative Strength Index, Bollinger Bands and Average True Range. You can also write your own indicators in JavaScript on the Algorithms screen and draw them on charts. Each new account starts with one example indicator, Simple Moving Average. The indicator catalogue explains each built-in indicator, with its formula and a chart.

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