Candlestick Trading Blog
September 23, 2008
Technical Indicators
Technical indicators are used in technical analysis to predict what may happen to stocks in the future. It is the use of patterns in past trading data to forecast future trading. Technical analysts who use technical indicators are not interested in a stock's intrinsic value, such as fundamental analysts, but instead they use stock charts and other tools to identify patterns that may predict future activity. There are tons of different technical indicators available for investors to use. In fact many are used in conjunction with each other. In today's article we will discuss some of the different indicators available for use when trading stocks. Gap Analysis – Gap traders are concerned with the performance of the stock above or below its open. This can indicate further movement in direction, similar to that of momentum trading. A gap is what occurs when the opening price of a stock is significantly lower or higher than its closing price the previous day. This drop or increase in price is typically due to reason in which fundamental analysts will track. Including reported earnings, mergers, or company news used in fundamental analysis. RSI (Relative Strength Index) – This is the measuring of a stock's recent performance as it relates to its historical strength. This is done by comparing the number and magnitude of recent and historical up and down closes. Trading Ranges – Support, resistance, and breakout are terms used when studying technical indicators such as trading ranges. A series of high, low, and closing stock prices are plotted on a graph for a specific period of time, and the support and resistance lines are also drawn across the top and bottom of the range. When the price sustains a movement, above or below the range (even for just one to two periods) a breakout occurs. Trend Analysis – this type of analysis looks at the short and long-term trends, and it also attempts to identify crossovers. Crossovers, used as technical indicators in trend analysis, occur when prices cross over their long-term averages. This type of analysis is highly complex mathematical analysis. Moving averages (known also known as long-term averages) occur when a price range is smoothed for a period of time by averaging a series of data points and plotting the smoothed line against the actual price line of the stock. Trend analysis tries to predict a trend like a bull market run and ride that trend until data suggests a trend reversal (e.g. bull to bear market). It is also helpful because moving with stock market trends, and not against them, will lead to profit for an investor. Pattern Analysis – this analysis is also a form of stock technical analysis. Price charts are analyzed for certain patterns that have historically appeared in the same stock or for common patterns that have been seen over time in many stocks. Technical indicators are used by many of the world's top stock traders as a method for predicting future price movements. Continue to learn about the different types of indicators to find out which work for you. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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