What indicators really are - and how to test one
प्राविधिक सूचक भनेको के हो? कसरी पढ्ने र परीक्षण गर्ने
An indicator is a formula applied to past prices and volume. That's all. Before learning any of them, learn how to judge them - because the internet is full of rules that sound clever and lose money.
An indicator is just arithmetic
Open any charting app and you'll find hundreds of indicators: RSI, MACD, Stochastic, CCI, Ichimoku, Supertrend... It looks like a science. But every one of them is the same thing underneath: a formula applied to past prices (and sometimes volume). A moving average adds up the last 20 closes and divides by 20. RSI compares the size of recent up-days with recent down-days. Nothing more mysterious than that.
That has two consequences, and they're the most important ideas in this course:
- Indicators describe; they don't predict. They summarise what price already did. Whether that continues is a separate question.
- Indicators lag. Because they're built from past data, they always react after price has moved. Smoother indicators lag more.
The four families
Most indicators fall into one of four families. Indicators in the same family mostly tell you the same thing in different ways:
| Family | Measures | Examples | Lesson |
|---|---|---|---|
| Trend | Which way price is heading, smoothed | Moving averages, MACD | 2, 4 |
| Momentum | How strong recent moves have been | RSI, Stochastic, CCI | 3 |
| Volatility | How big the swings are | Bollinger Bands, ATR, ADR | 5, 6 |
| Volume | How many shares changed hands | Volume, OBV | 7 |
How to judge any indicator rule
Every lesson in this course tests a popular rule on NEPSE's real history. To read those tests - and to judge any rule you see online - you need three habits.
1. Compare with the base rate, not with zero
Suppose a rule's trades gained 1.5% on average over 20 days. Good? Only if an ordinary day didn't do the same. In our NEPSE data, buying on any day and holding 20 sessions averaged +1.5%. A rule has to beat that to be worth anything. We call this the base, and it's the first row of every results table in this course.
2. Look at the median, not just the average
The average can be pulled up by a few huge winners. On NEPSE, the average day gained +1.5% over 20 sessions - but the median day (the one in the middle) lost -0.4%. Most days were small losers; a minority of big runs (often thin stocks pushed by operators) lifted the average. If a rule's average looks great and its median is negative, most people following it lost money.
3. Look at both tails
How often did the rule lead to a big gain (+10% or more in 20 sessions)? And how often to a big loss (-10% or worse)? Some rules don't change the average much at all - they just make both tails fatter. That's a very different thing from an "edge", and it changes how you size a position.
- Cases - how many times the event happened across all listed companies.
- Avg / Median 20-day - from the next session's open to the close 20 sessions later, before costs.
- Up after 20 - the share of cases that were higher 20 sessions later.
- +10% runs / -10% drops - the two tails.
- Green / red - better or worse than the base (an ordinary day).
Costs (about 1% for a NEPSE round trip) and T+2 are not included - remember them: a small edge before costs is often no edge after.
NEPSE quirks every indicator must survive
- Book closures. Bonus and right share adjustments create fake "crashes" on unadjusted charts. Indicators calculated on them give false readings for weeks. (Our tests leave those windows out.)
- The 10% circuit. A stock locked at the limit hasn't found its real price yet - indicators read it as a normal day.
- Thin stocks. When a stock trades a few lakh rupees a day, one order can draw the chart - and every indicator built on it.
- T+2. You can't sell for two sessions after buying, so a "quick exit" rule is not quick on NEPSE.
With those habits, let's test the most popular tools - starting with the one everything else is built on: the moving average.
See it live on MacroLens NP Charts → Every NEPSE stock's chart, with the indicators from this course.See it live on MacroLens NP
Everything in this lesson, worked out on real NEPSE data for every listed company - inside the MacroLens NP desk.
Lesson summary
- Indicators are calculations on past price and volume; they describe, they don't predict.
- Four families: trend, momentum, volatility and volume. Most indicators repeat one of these.
- Judge a rule against the base rate - what an ordinary day did - not against zero.
- Look at the median and both tails, not just the average: one huge winner can hide many losers.
Education only, not investment advice: nothing here tells you to buy or sell any share. Investing carries risk - you can lose money. Examples use made-up companies unless a real one is named.