Understanding Technical Indicators by Decomposition

One of the challenges I often face is understanding how a technical indicator really works. And without that insight, it’s hard to effectively use it as a trading tool, meaning to select the right combination of indicators to support your trading strategy, to understand the signals they are generating, to understand the strength and limitations, and to fine-tune the indicator parameters.

Since I’m no math genius, I found a way to understand indicators on a deeper level by decomposing and visualizing the components. In this post I’d like to share how this approach works.

This story is solely for general information purposes, and should not be relied upon for trading recommendations or financial advice. Source code and information is provided for educational purposes only, and should not be relied upon to make an investment decision. Please review my full cautionary guidance before continuing.

What are the different types of Technical Indicators?

Momentum Indicators
Momentum indicators measure the rate of change in an asset’s price, helping traders identify potential trend reversals, overbought, and oversold conditions.