What is a 'Hybrid Indicator '

A hybrid indicator is an indicator used by technical stock analysts and traders, which is comprised of two or more unique indicators. An indicator is simply a statistic used in the analysis of financial instruments that tells investors something important about a security.

BREAKING DOWN 'Hybrid Indicator '

Hybrid indicators are an important tool for investors who engage in technical analysis of stocks. Technical analysis is the practice of using past data on stock prices and the volume at which stocks are traded to predict future movements in a stock price. Technical analysis is engaged in based on the principle that all important, public information about a company’s performance is near instantaneously incorporated into the price of the stock, making it almost impossible to actually buy a fundamentally undervalued stock or to short sell a fundamentally overvalued stock.

One example of a popular hybrid indicator used by technical traders is the Moving Average Convergence Divergence indicator, or MACD. The Moving Average Convergence Divergence indicator combines three unique indicators: the 26-day exponential moving average (EMA), 12-day exponential moving average, and the nine-day exponential moving average. The MACD is derived by subtracting the 12-day moving average from the 26-day exponential moving average. Once this trendline is derived, a technical trader will plot this metric on a graph along with the nine-day exponential moving average. When this new Moving Average Convergence Divergence indicator is plotted against the nine-day moving average, traders will use the crossover points of the two trend lines to understand the best times to grow or reduce a position in a certain stock.

Utility of Hybrid Indicators

Hybrid indicators give technical traders more granular understanding of the movement of stock prices, especially in sideways markets, when there isn’t a strong, broad market trend towards higher or lower prices. In such a market, stocks will typically trade in a band that represents the bounds of the market’s thinking about a company, based on information about the business model that is mostly unchanged. On days when the market is optimistic, a stock may trade higher, and on days when it is pessimistic, it will trade lower, but most of the time there will be no dramatic reevaluations of a stock’s fundamental worth. Hybrid indicators allow traders to gauge inflection points in the market’s attitude toward a stock, allowing them to time their trades to maximize profits. By buying a stock when the market is about to become more optimistic, a trader can ride that wave of optimism and then sell the stock before sentiment turns negative.

  1. Unique Indicator

    A unique indicator is a technical indicator that can be developed ...
  2. Indicator

    Indicators are statistics used to measure current conditions ...
  3. Hybrid Fund

    A hybrid fund is an investment fund that is characterized by ...
  4. Technical Analysis of Stocks and ...

    Technical analysis of stocks and trends is the study of historical ...
  5. Sentiment Indicator

    Sentiment indicator refers to a graphical or numerical indicator ...
  6. Hybrid Annuity

    A hybrid annuity allows buyers to purchase fixed-rate and variable ...
Related Articles
  1. Trading

    How to Build a Trading Indicator

    Wondering how Ralph Nelson Elliott and W.D. Gann built their trading tools? Here are the basics of constructing an indicator.
  2. Taxes

    How Long Until Your Hybrid Pays Off?

    Buying a hybrid vehicle to save money on fuel costs is an appealing idea, but how long will you have to drive that fuel-sipper to break even on the high price tag?
  3. Managing Wealth

    Are Hybrid Cars Really More Economical?

    Find out if buying a hybrid vehicle is more economical than a fuel-based vehicle. Fewer trips to the gas station sounds nice, but you need to do the math.
  4. Trading

    Using Technical Indicators to Develop Trading Strategies

    There is no perfect investment strategy that will guarantee success, but you can find indicators and strategies that will work best for your position.
  5. Insights

    Ford Reveals Hybrid Police Car, Part of $4.5B EV Funding (F)

    Ford has unveiled its first fuel-battery hybrid pursuit car, which will save big on fuel cost
  6. Trading

    Intro to Types of Trading: Technical Traders

    Explore in detail the technical trading approach, which looks to the past to predict the future.
  7. Trading

    4 Key Indicators That Move The Markets

    Do you rely on indicators to make an investment move? Find out these key economic and market indicators to watch and react to market movements.
  1. How do I start using technical analysis?

    Technical analysis is a method of analyzing securities by evaluating current and historical price and/or volume activity. ... Read Answer >>
  2. What are the best technical indicators to complement the Moving Average Convergence ...

    Learn the best technical indicators to use as part of a trading strategy in conjunction with the moving average convergence ... Read Answer >>
  3. What do the bracketed numbers following a technical indicator mean?

    In technical analysis, it is common to see a series of numbers following a given technical indicator, usually in brackets. ... Read Answer >>
  4. What is the difference between fundamental and technical analysis?

    Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at ... Read Answer >>
  5. What are the best technical indicators to complement the Exponential Moving Average ...

    Utilize additional technical indicators to complement and improve a basic trading strategy that relies on exponential moving ... Read Answer >>
  6. What are the most common market indicators to follow the U.S stock market and economy?

    Understand some of the key indicators analysts use to follow the U.S. stock markets and to assess the overall condition of ... Read Answer >>
Hot Definitions
  1. Monero

    Monero is a digital currency that offers a high level of anonymity for users and their online transactions.
  2. Risk Tolerance

    Risk tolerance is the degree of variability in investment returns that an individual is willing to withstand.
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  5. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  6. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
Trading Center