Select your preferred language
Language changes will apply immediately
Select your preferred language
Language changes will apply immediately
Common Tools and Indicators for Each Type of Analysis
"Explore the most common tools and key indicators used across different types of analysis, from business and finance to research and data science."
Wikilix Team
Educational Content Team
Data surrounds us in almost any way, shape, and form, such as numbers, text, financial statements, and environmental impact documents, to name a few. Without proper tools, we're left with no choice but to stand in front of a locked treasure chest. We have the data, but we can't derive any meaningful value from it until we extract the information.
Regardless of the analysis we conduct, whether technical, statistical, financial, or qualitative, we will rely on a set of trusted tools and indicators that professionals have confidence in. In this article, we will explain the tools that professionals from different fields have used, illustrating how they use them, why they are helpful, and how we can get them to sharpen better insights.
Just as you use a map with a compass, GPS, or landmarks to guide you, the tools you choose serve as your compass, GPS, or landmarks. If you select the incorrect indicator, the guide may lead you in the wrong direction. Utilizing the appropriate indicator gives you comfort, confidence, and security. Knowing which tool fits the type of analysis lets you take your judgement almost bias-free and make a better decision, and be more efficient and more reliable. To sum up, it's not how many tools you have, it's when to use the right tools at the right time.
In financial markets, analysts will use technical indicators to represent price characteristics and momentum.
• Moving Averages smooth the price over a short time frame, capturing long-term price trends.
• Relative Strength Index (RSI) shows whether a stock is overbought or oversold.
• Moving Average Convergence Divergence (MACD) is an indicator that indicates when momentum conditions are likely to change or reverse.• Bollinger Bands are an indicator that marks low and high volatility sections that may help to identify when volatility is changing in securities.
• Volume Indicators are helpful indicators to prove whether that price movement is happening in a growing fashion.
Indicators do not create winning trades, but they establish an organized set of signals which may be paired together. As an investor or trader, one may take several indicators to help with their trading decision process.
When we begin with a raw dataset, we first start to explore it. Exploratory Data Analysis (EDA) is a process used to summarise the basic characteristics and uncover hidden structures within our dataset.
• Visual Tools: Histograms, scatterplots, and boxplots are visual tools to get the eye in on potential patterns or anomalies relatively fast.
• Summary Statistics: a collection of statistics that summarises aspects of datasets (mean, median, standard deviation), may be used to summarise central tendency and variation (and are the basis for further Bayesian analysis).
• Correlation Matrix: compares the correlation coefficient across variables, can help to identify how the variables may relate to each other (often, hidden connections).
These statistics are not going to give you a definite answer to your questions, but they provide a foundation for analysis and hypothesis testing.
From a business accounting perspective, trust me, financial statements have loads of numbers in them that literally will give you a headache - one person's pile of numbers means a lot to them. Still, for anybody trying to work with it all, there is too much data to digest the information. Ratios and indicators provide a less complicated, alternative summary measure.
• Liquidity Ratios: (Current Ratio) can quantify how financially healthy a company is, currently, in the short term.
• Profitability Ratios: (Return on Assets/net margin) can denote how effective a company is, and its productive potential (potential to generate earnings).
• Leverage Ratios: denote a firm's debt ratio about equity.
• Trend Analysis: periodically measure the relative shifts in key data over a specific period (months, quarters, years), which can create cycles for you to assess growth or decline.
Using these ratios, decision makers can assess financial position, efficiency, and long-term sustainability.
In today's digital data landscape, there are enormous amounts of text and relationships that require special-purpose tools.
• Text mining tools indicate word or character frequency, keywords in context, and sentiment or opinions. These tools can help an organization understand customer opinions or the representation of the public discourse about an issue or product.
• Network analysis tools can show relationships, including social networks, communication patterns, and organizational structures. These may provide indicators like centrality and density to illuminate who, if anyone, has real influence and how information is shared.
These two methods together can highlight information about underlying structures and sentiments that cannot be captured through numbers alone.
Beyond business and finance, analysis is also used to support sustainability and planning. Environmental and systems analysis has specific ways of organizing information or data through established frameworks, which include:
• Cost–Benefit Analysis (CBA) considers the benefits and costs of projects.
• Life-Cycle Assessment (LCA) evaluates the environmental impact of a product through its life-cycle, from creation and design to eventual disposal.
• Impact Assessments help examine social or environmental effects before approving policies or projects.
All of these analytical methods ensure that decision-making balances pace with responsibility to future generations.
A data analytics tool will rarely tell the complete story by itself. Using multiple indicators can provide a richer understanding in many contexts. For example:
• A trader might combine moving averages with the relative strength index (RSI) to screen out potential false signals from the market or price movement of an individual stock.
• A data scientist might find patterns in the data using visualization before applying more thorough tests using statistical methods to confirm the observation.
• A manager might apply profitability ratios to cash flow analysis to determine not only if they are performing well, but whether their enterprise is stable, too. The key to success is choosing complementary tools so each adds clarity rather than noise.
Building a practical analysis toolkit is strategic:
1. Start with your question—let the problem determine the tool; the reverse approach is not practical.
2. Identify a core approach—pick one reliable method and use it as your starting point.
3. Add signals—add complementary tools to help filter for clarity and avoid potential confusion.
4. Keep it simple—using an excess of tools at once can confuse, rather than clarity.
5. Be flexible—methods have a way of changing over time, so update your toolkit to include newer approaches.
By doing this toolkit planning, you can stay focused and to the point!
The use of multiple tools is powerful, but it has risks:
- Indicator overload—Too many indicators can send conflicting signals, leading to paralysis of thought and subsequently decision paralysis.
- Cherry-picking your results—A lack of credibility arises if you ignore indicators' belief is engaging with your analysis when the signs have told you otherwise.
- The context of indicators—Indicators don't know if they are accurate or not; they must be interpreted using your judgement and existing knowledge.
- Being overconfident in tools—a method is a tool, it does not guarantee accuracy, and human judgement remains necessary.
Being aware of these risks can save you more in CV (Cost of Validation)
Analysis is a skill in all disciplines through the careful use of tools and indicators. Traders use moving averages and momentum indicators, data analysts use visualization and statistics, accountants use ratios, and environmental professionals use impact assessments. Each group of tools is specific to the respective field, but the principle is the same; the right tools enable the effective conversion of raw data into information and knowledge.
The absolute mastery is not using every tool available, it is picking and combining the correct tools for the question, problem or issue that you have. By understanding what each indicator will reveal and acknowledging its limitations, you can remove the noise, see the larger picture, and make decisive and timely decisions. In a world of increasing data, this will not only be useful but necessary.
Keep building your knowledge with our structured learning path. Each section builds upon the previous one.
This is the first section
You're at the beginning of your journey!
This is the last section
You've completed this course!
16 min
Reading time
Beginner
Difficulty
