Technical Analysis Tools
By: Stephanie | Posted:December 15, 2008 12:00 am
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In an earlier lesson we explained the basics of Technical Analysis. In this lesson, I'm going to give you a basic explaination of some of the more common tools used for Technical Analysis.
Some of the tools of technical analysis are:
Price charts - This is simply a chart of the historical prices up to the present. There are a variety of charts that show prices. The most common are bar charts and candlestick charts. Each bar or candlestick will represent one period of time, depending on your selection. That period can be anything from one minute to one month to several years. These charts will show distinct price patterns that develop over time.
Trend indicators - Trend is a term used to describe the persistence of price movement in one direction over time. Trends move in three directions: up, down and sideways. Trend indicators smooth variable price data to create a composite of market direction. Example trend indicators include Moving Averages and Trend lines.
Strength indicators - Market strength describes the intensity of market positions taken by traders. In other words, the volume of trading or the interest in the security. For example, a Volume indicator shows how much trading is going on for the security.
Volatility indicators - Volatility is a term used to describe the magnatude of price fluctuations regardless of their direction. Generally, changes in volatility tend to lead changes in prices. An example Volatility indicator would be Bollinger Bands.
Cycle indicators - A cycle is a term used to indicate repeating patterns of market movement. Many markets have a tendency to move in cyclical or semi-predictable patterns. Cycle indicators determine the timing of particular market patterns. Elliott Wave Theory is a perfect example of a cycle indicator.
Support and Resistance indicators - Support and Resistance describes the price levels where markets tend to rise or fall to a given value and then reverse. Trend Lines and Fibonacci levels are typically used to indicate support and resistance levels.
Momentum indicators - Momentum is a term used to describe the speed at which prices change. Momentum indicators determine the strength of a trend as it progresses. Momentum is highest at the beginning of a trend and lowest at trend turning points. Any divergence of directions in price and momentum indicates weakness. For example, if price extremes occur with weak momentum, it indicates an end of movement in that direction. If momentum is trending strongly and prices are flat, it indicates a potential change in price direction. Example trend indicators include Stochastics, MACD and RSI.
Well, now you know a little about tools used in Technical Analysis. We will dive into more specific information regarding various Technical Analysis tools in other lessons. Keep learning and mastering Forex, here at PipsAngels.com. See you soon!
