Best Technical Analysis Tools

When analyzing a security in trading, technical tools can be used but not essential. We are going to look at a few tools that can really aid your trading alongside using Technical Analysis and applying some simple rules. This is the best way to take emotions out of trading.

These tools we cover will assist in finding trends, potential turning points in the market by giving overbought and oversold zones and dynamic support and resistance levels supplied by moving averages.

Forex Oscillators

An oscillator is a technical analysis tool that constructs high and low bands between two extreme values, and then builds a trend indicator that fluctuates within these bounds. Traders use the trend indicator to discover short-term overbought or oversold conditions. When the value of the oscillator approaches the upper extreme value, technical analysts interpret that information to mean that the asset is overbought, and as it approaches the lower extreme, technicians consider the asset to be oversold.

Moving Averages

Also considered as the leading technical tool designed to point out the predominant trend of the market. Moving averages will use a variety of look back periods, the smaller the number the faster the moving average will respond to market fluctuations.

Moving averages can be installed on any timeframe so the smaller the timeframe the more reactive these moving average will respond to market movements.

The best way to use moving averages for trend direction is to think of 3 simple words, Angle, Order and Separation. The steeper the angle of the moving averages the stronger the trend. Then look for confirmation by are the average in ascending or descending order. Finally, the separation between the averages, the bigger the distance between the lines the stronger the trend.

The next step for the more advanced trader would be to look at timeframe correlation and trade as one timeframe finishes the correction and starts the next impulse, but in line with the trend on higher timeframes.

For more information on this make sure you attend on of our Free Trader Clinics, the next session will be listed on the website.

Stochastics

This oscillator is designed to indicate zones of overbought and oversold and point out possible price reversals. This is also a favorite tool to many traders because of its accuracy on the results; helping investors of all levels determine better entry and exit points.

This indicator can be used to identify trend exhaustion, a correction could be on the cards (trend reversal) or alternatively when the trend is about to reengage in the direction of the predominant trend. To find out more about divergences and how they can be used in trading send an email to mark@tradeandtrain.com

Relative Strength Index

Just like the previous tools, this is an oscillator used to find potential exhaustive conditions in the market.

This is most useful for traders who like buy low and sell high. Values are plotted between zero and 100. In the trading industry, < 30 down and to 0 is considered oversold, and > 70 and up to 100 is overbought.

However, this is much more reliable when used with other technical skills, such as being able to understand price action, supply and demand areas and the predominant trend.

Thus,

The goal of every trader is to determine the next direction of an asset’s movement this will entail better speculative results. These indicators have been used for many years to create rules to adhere to improve one’s trading. Every indicator has its flaws, make sure you test every indicator prior to implementing  into your trading with live money.