Technical Analysis The Basic

Technical analysis is the method used by traders to anticipate future price movements so they can act accordingly. The method is often used alongside fundamental analysis, and traders who weigh their trades based on the technical analysis are called technical traders, while traders who use more the fundamental analysis – fundamental traders.

To perform technical analysis, traders use different tools and indicators:

Past Price as an Indicator of Future Performance

This indicator comes from the notion that the current or past price is a reliable indicator of future price action.

Charts based on different time frames

Technical traders analyse price charts to predict price movement. The time frames shown on charts scope from a few-minutes to monthly and sometimes even yearly spans.

Candlesticks

Candlesticks are created from the price action during a specific time period at any time frame. They are the most often used method of displaying price movement on a chart. Candlesticks are displayed in different colours to help traders to determine at a glance whether the price closed higher or lower at the end of a given time period.

Candlestick Patterns – Dojis

Variation of Candlesticks, Doji the opening and the closing prices are the same, so the candlestick body is a flat line. The longer the upper and/or lower “shadows”, or “tails”, on a Doji candlestick – the part of the candlestick that indicates the low-to-high range for the time period – the stronger the indication of market indecision and potential reversal.

Moving Averages

Moving Averages are among the most often used technical indicators together with candlesticks. Many trading strategies utilise one or more moving averages.

Daily Pivot Points

Many traders use daily pivot point indicators to identify price levels for entering or closing out trades. They often signal significant support or resistance levels or the levels where trading is contained within a range.

Fibonacci Levels

Fibonacci levels are commonly used to pinpoint trading opportunities and trade entry and profit targets that arise during sustained trends.

Momentum Indicators

Momentum indicators include such popular tools as the Stochastic Oscillator, the Relative Strength Index (RSI), the Moving Average Convergence-Divergence (MACD) indicator, and the Average Directional Movement Index (ADX).

Technical analysis is a useful yet not perfect method to predict the market. However performed smartly, they can certainly improve the traders’ profitability.