What an indicator is
An indicator is a calculation applied to market data, usually price and trading activity, and drawn on a chart so that something about the data is easier to see. It adds no new information. Everything it shows was already in the price history; the indicator just rearranges it into a line, a band or a bar.
That is worth remembering when a chart has six of them stacked on top of each other. Most are different views of the same numbers.
Two places indicators appear
Charting tools generally put indicators in one of two places.
- Overlays are drawn directly on the price chart, sharing its price scale. Moving averages and Bollinger Bands are overlays.
- Panels sit in a separate strip below the price, with their own scale. Oscillators such as the relative strength index and MACD, and the volume bars, usually appear this way.
On most platforms, there is a button labelled something like “Indicators”, “Studies” or “Fx”. Selecting it opens a searchable list. Each indicator has a settings window where the number of periods and the colours can be changed.
A beginner glossary
The entries below are grouped by what they try to describe. None is a signal on its own.
Trend
- Simple moving average (SMA). The average closing price over the last N periods. It smooths out short-term noise.
- Exponential moving average (EMA). A similar average that gives more weight to recent prices, so it reacts faster.
- MACD. Built from the difference between two exponential averages, usually with a third line smoothing that difference. It is drawn in a panel.
Momentum
- Relative strength index (RSI). Compares recent average gains to recent average losses on a scale from 0 to 100.
- Stochastic oscillator. Shows where the latest close sits within the recent high-to-low range, also on a 0 to 100 scale.
- Rate of change. The percentage difference between the current price and the price N periods ago.
Volatility
- Bollinger Bands. A moving average with an upper and lower band set a number of standard deviations away.
- Average true range (ATR). The average of recent period ranges, adjusted for gaps. It measures size of movement, not direction.
Volume
- Volume bars. The amount traded in each period, shown as columns beneath the chart.
- On-balance volume. A running total that adds volume on up periods and subtracts it on down periods.
- Volume-weighted average price (VWAP). An average price weighted by volume, usually reset each day.
Structure
- Support and resistance lines. Horizontal lines drawn by hand at prices where the market previously turned.
- Trend lines and channels. Sloping lines connecting a series of highs or lows.
- Fibonacci retracement. Lines placed at ratios between a swing high and a swing low. Their usefulness is disputed and there is little evidence behind them.
Reading the settings
Most indicators have a “length” or “period” setting. A 20-period average on a daily chart covers 20 days; on an hourly chart it covers 20 hours. Changing the length changes how quickly the line responds, and no setting is known to be the “right” one. Popular defaults, such as 14 for RSI or 20 for Bollinger Bands, are conventions, not discoveries.
Settings are also something to be careful with. If you keep adjusting them until the chart seems to fit the past nicely, you may be fitting noise rather than finding something real.
Related tools beyond indicators
Charting platforms often bundle other features that are not indicators in the strict sense: drawing tools, price alerts, multi-timeframe views, and the ability to compare two assets. Some also display order book depth, funding rate or open interest. Those come from the exchange or derivatives data rather than from a formula on price, and they have their own caveats. When choosing between analysis tools or trading platforms, the data source and timeframe options matter more than the number of indicators on offer.
Common beginner mistakes
- Stacking similar indicators. Three momentum oscillators on one chart mostly repeat each other.
- Treating overbought or oversold labels as commands. These are descriptions of recent movement, and a market can stay in either state for a long time.
- Ignoring the timeframe. A reading on a five-minute chart says little about the weekly picture.
- Assuming a default means a proven rule. Defaults are historical habits.
- Forgetting that crypto is volatile. Prices can move sharply, and indicators lag behind such moves.
A sensible way to learn
A reasonable approach is to add a single indicator, read its definition, and watch how it behaves on past data before adding another. Try to work out by hand what it is calculating. Most of the indicators above are simple enough to compute with a spreadsheet, which is a good way to see exactly what they do.
Indicators are descriptive tools for studying a market. They do not predict the future, past performance does not predict future results, and people can lose all the money they put into cryptocurrency. Nothing here is financial advice.