Example (made-up closes)
Closes: 10, 11, 12, 13, 14. A 3-period moving average and a momentum calculation both rise. They agree because both are built from the same rising closes. That is one story told twice, not two independent witnesses.
01
The indicator families and the redundancy problem
In simple words
Imagine asking five friends how hot it is, and all five just look at the same thermometer. You got five answers but only one piece of information. Many indicators are like that: they look at the same prices in slightly different ways.
Key facts
- Education only. Indicators describe the past. None tells you what to buy or sell.
- An indicator is a calculation made from past prices (and sometimes volume), drawn on or under a chart.
- Common families:
| Family | Idea | Examples | Built from |
|---|---|---|---|
| Trend | Smooths prices to show direction | Moving averages | Closing prices |
| Momentum | How fast prices moved recently | RSI, MACD, stochastic oscillator | Closing prices (stochastic also uses highs and lows) |
| Volatility | How big the price swings are | Bollinger Bands, ATR | Highs, lows, closes |
| Volume | How much was traded | Volume bars | Traded amounts |
- Redundancy: indicators in the same family are built from the same few numbers (open, high, low, close). When you add several momentum indicators, they often say the same thing at the same time. That feels like confirmation but it is mostly repetition.
- Lag: every indicator is calculated from past prices, so it cannot see news that has not happened yet.
- Settings: each indicator has settings (for example 14 periods). Changing the setting changes the picture. Nothing makes one setting "the correct one".
- Costs: an indicator line does not show fees, spreads or slippage (see course 5.5). Costs come out of every real trade.
- Real example (WTI oil, daily closes): On 4 Oct 2023 the close ($84.32) fell below the 50-day SMA ($84.89) and below the lower Bollinger Band ($85.53), and the RSI dropped from 54.4 to 40.2. Tools from three families "agreed" on the same day because all three react to the same closing prices: one move, counted three times.
Step by step
- Open a free charting website or a demo chart. Do not log in to a real-money account.
- Choose a large, well-known market and a daily timeframe (names of buttons can differ by site).
- Add one trend indicator: a 50-period moving average.
- Add one momentum indicator: the RSI with the default 14 periods.
- Add one volatility indicator: Bollinger Bands with the default settings.
- Look at one clear up move and one clear down move. Write which indicators changed direction first and which last.
- Write one sentence on which indicators told the same story twice.
- Check: you can name each indicator's family and say what it is built from.
Watch on YouTube
Videos by other creators on YouTube, for reference. They are not made by or affiliated with The Future Market.
LESSON 01The indicator families and the redundancy problem
Read the video script
[Host] "Five indicators. One chart. Five different answers? Not really."
[Screen: a chart with a moving average, RSI and Bollinger Bands] "Trend, momentum, volatility, volume: four families."
[Text on screen: same prices in, similar story out] "Indicators in the same family are built from the same prices, so they often repeat each other."
[Text on screen: indicators describe the past] "And every one of them looks backward. None of them sees tomorrow's news."
[Host] "More lines do not mean more certainty."
Try it now
On a demo or free chart, add one indicator from each family to the same market. Take a screenshot or notes. For three turning points, write which indicator turned first, which turned last, and which added no new information. Do not place any trade.
ClaudeStuck? Copy a ready-made prompt for Claude
Copy this, open Claude, paste it, and Claude will walk you through the lesson step by step.
For a grown-up: Claude is for adults (18+). Copy this, paste it into Claude, and use the answer to explain the lesson to your child.
I'm learning "Technical Analysis in Depth: indicators and their limits (education only)" on The Future Market. Lesson 1: "The indicator families and the redundancy problem". What the lesson teaches: - Education only. Indicators describe the past. None tells you what to buy or sell. - An indicator is a calculation made from past prices (and sometimes volume), drawn on or under a chart. - Common families: - Family - Idea - Examples - Built from - Trend - Smooths prices to show direction - Moving averages - Closing prices - Momentum - How fast prices moved recently - RSI, MACD, stochastic oscillator - Closing prices (stochastic also uses highs and lows) - Volatility - How big the price swings are - Bollinger Bands, ATR - Highs, lows, closes The exercise I'm working on: On a demo or free chart, add one indicator from each family to the same market. Take a screenshot or notes. For three turning points, write which indicator turned first, which turned last, and which added no new information. Do not place any trade. I'm stuck. Please: 1. Explain the main idea in plain, simple words with one everyday example. 2. Walk me through the exercise one small step at a time. Ask me what I've done so far before giving the next step. 3. Don't just give me the final answer. Help me do it myself, and check my work when I share it. 4. This is for learning only. Remind me to check with a licensed professional before I make a real decision about my own money, health or legal situation.
I'm a parent helping my child (about 8 years old) with a lesson called "The indicator families and the redundancy problem" from the course "Technical Analysis in Depth: indicators and their limits (education only)". Here's what the lesson says: Imagine asking five friends how hot it is, and all five just look at the same thermometer. You got five answers but only one piece of information. Many indicators are like that: they look at the same prices in slightly different ways. The activity: On a demo or free chart, add one indicator from each family to the same market. Take a screenshot or notes. For three turning points, write which indicator turned first, which turned last, and which added no new information. Do not place any trade. Please explain this so an 8-year-old understands: short sentences, a fun everyday example, and no hard words. Then give me 3 simple questions I can ask my child to check they understood, and a way to do the activity together, one tiny step at a time. Keep it general and educational. This is not advice for a real situation.
Sources
- CME Group Education, Technical Analysis course: www.cmegroup.com/education/courses/technical-analysis.html
- Fidelity Learning Center, Technical indicator guide: www.fidelity.com/learning-center/trading-investing/technical-analysis/
- U.S. Energy Information Administration via FRED, WTI crude oil daily prices (DCOILWTICO), used for the charts in this lesson: fred.stlouisfed.org/series/DCOILWTICO
My notes
Saved on this device
02
MACD and the stochastic oscillator
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03
Volatility tools: Bollinger Bands and ATR
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04
Chart patterns and candlestick patterns: what the evidence says
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05
Testing an idea on past and demo data
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06
Combining tools, multiple timeframes and the "confluence" trap
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07
Capstone: build a "limits sheet" and run one honest paper test
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++
Final project
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??
Quiz
Why might adding a second momentum indicator add little?
It is built from the same prices as the first, so it mostly repeats it.
How is the standard MACD line built?
The 12-period EMA minus the 26-period EMA; the signal line is a 9-period EMA of it.
When does MACD often give many false crosses?
In sideways (trading range) markets.
What does %K measure in the stochastic oscillator?
Where the latest close sits inside the recent high-low range, from 0 to 100.
How are Bollinger Bands built by default?
A 20-period simple moving average plus and minus 2 standard deviations.
Does ATR show direction?
No. It measures the size of price moves only.
What is the true range of a period?
The greatest of: high minus low, high minus previous close (absolute), and low minus previous close (absolute).
Why is a vaguely defined chart pattern hard to test?
Two people can draw it differently, so results cannot be compared fairly.
What is out-of-sample data?
Data the rule has never seen, kept aside to test it.
Why record how many versions you tried?
The more versions you try, the more likely one looks good by luck.
A test shows +0.2% per trade before costs and costs are 0.25%. What is the result?
-0.05% per trade, a loss.
Does agreement among many indicators prove a move will continue?
No. They may all be repeating the same prices, and any of them can fail.
EX
Final exam
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CE
Certificate
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