Technical Analysis Tools That You Should Learn About

My efforts on developing trading strategies taught me how significant technical analysis is

. This is due to its potential in forecasting future trends of price through the assessment of historical market actions. To efficiently use this method for developing strategies for your investments or trades, it is vital that you know all technical analysis tools as well as concepts.

Below is a list of technical analysis tools that can help enhance your comprehension of the method:

1. Trends

Trends can show the path where price is most likely to take. The existing trend"s steepness can be validated through the "rising peaks and troughs" and the "falling peaks and troughs". A trend reversal is generally indicated by a trend break. A trend range is set apart by "horizontal peaks and troughs".

2. Waves

This is based on the theory of the Elliot wave. The Fibonacci number sequence and the continual wave patterns support this type of market analysis. The best wave patterns reveal a five-wave advance then a succeeding three wave decline.

3. Number Assumption

(1, 1, 2, 3, 5, 8, 13, 21") is an example of the Fibonacci number sequence. It involves adding the primary two numbers to compute for the third. 62% is a well-known Fibonacci retracement number that can be computed from the ratio of any number to the succeeding bigger number.

4. Stochastic Oscillator

One of the technical analysis tools utilized to recognize oversold/overbought condition (usually on a range of 0-100%) is known as the Stochastic Oscillator. This an indicator that is upheld by the assessment on strong up trend in which the closing period of prices will generally focus on the upper portion of the period"s range. %K and %D are two lines created by stochastic calculation to spot oversold/overbought areas on the chart. The divergence between the main price of the instrument and the stochastic lines generates a strong trading signal.

5. Gaps

These are the areas on the bar chart that signifies no trading activity occurrence. An "up gap" symbolizes market potency and it is fashioned when the least price on a given trading day is higher than the preceding trading day"s maximum price. The "down gap" on the other hand, symbolizes market susceptibility and is mainly fashioned when the utmost price of a present trading event is lesser than the prior trading event"s least price. "Break away gap" signals the development of a vital change in price. A "runaway gap" transpires around the center of an important market trend. An "exhaustion gap" signals the coming conclusion of a trend.

6. Gann Numbers

This assumption explicates the essence of utilizing angles in the charts to recognize resistance and support areas as well as to foresee the time that trend will go through changes. It also utilizes the lines on the charts to predict the areas of resistance and support.

7. Moving Average Convergence Divergence or MACD

It is a presentation that requires the plotting of two momentum lines specifically the MACD line and signal or trigger line. The signal or trigger line shows the exponential moving average of the divergence while the MACD lines demonstrates the diversity between two exponential moving averages.

8. Relative Strength Index (RSI)

The calculation of the ratio of up-moves and down moves then subsequently balancing this measurement to produce an index range of 0-100 is done in the RSI. The instrument can be labeled as overbought if it contains an RSI of 70 or more. An instrument is labeled as oversold if it contains an RSI of 30 or less.

The technical analysis tools that are commonly utilized are the Coppock Curve and DMI (Directional Movement Indicator). You can use the Coppock Curve to predict bear market lows and the DMI for knowing whether a currency pair is trending or not.

by: Johncoe

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