A Brief Guide about Technical Analysis Tools and how they can help you
Technical analysis is one of the three types of analysis that traders use to make decisions (the other two are fundamental and sentimental). This analysis involves the use of technical indicators to make forecasts on how the asset price will move.
This article will look at the types of tools and how you can succeed as a technician.
→ Best Technical Indicators for Day Trading
Trend indicators
The core of trading and investing is to find a trend and follow it to the end. When you find a trend that is moving upwards, the goal is to buy and when you find a trend that is moving downwards, the goal is to sell.
Trend indicators are used to show when a new trend is forming and when it is coming to an end. Examples of this technical analysis tool are:
Oscillators
Oscillators are indicators that are used to show the extremes of the trends. They are mostly known as indicators of oversold and overbought positions. Examples of these types of indicators are:
- MACD
- Relative Strength Index
- Stochastics
- Bulls and Bears Power
- DeMarker
- Relative Vigor Index
- Momentum
Volumes
Wise traders don’t focus on oscillators and trend indicators alone. Those who focus on these alone often find themselves making the wrong decision. Instead, the ideal process is to incorporate the concept of volumes in the technical analysis.
The volumes show the activity of the other investors in the market. For example, the trend and volumes indicator can reveal a bullish trend but at a low volume environment. If this happens, it could be a false breakout.
If the volume is high, it means that more investors are following the trend. Examples of these tools are:
Other Indicators
There are other indicators that are not in either of the classification but ones that help the traders make decisions. These include: Fractals, Heiken Ashi, and iExposure among others.
Other Technical Analysis Tools
Apart from these indicators, there are other tools that will help you improve your technical analysis skills. These are known as charting tools because they give you an indication of where the price of an asset will move next.
Examples of these are the Fibonacci Retracement, Gann line and grid, and linear regression.
Another important aspect in technical analysis is the candlestick patterns. It is almost impossible to be successful in this analysis if you don’t know how to interpret a candlestick chart.
Examples of the most popular patterns are:
- Three Line Strikes
- Two black gapping
- Three black cows
- Evening and morning stars
- Abandoned baby
- Doji
- Hammer reversal
All these technical analysis tools were created using complex mathematical formulas, but fortunately you don’t need to calculate them yourselves!
Instead, all you need to do is to apply them in the charts provided by us.
In addition, you don’t need to master all the indicators.
You just need to master a few and then learn how you can use them in doing the analysis.
External resources and tools for your Technical Analysis
- discover more on CorporateFinanceInstitute
- A beginner Guide on Investagrams
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