There are two principles of analysis used to forecast price movements in the financial markets -- fundamental analysis and technical analysis. Fundamental analysis, depending on the market being analyzed, can deal with economic factors that focus mainly on supply and demand (commodities) or valuing a company based upon its financial strength (equities). Fundamental analysis helps to determine what to buy or sell. Technical analysis is the study of market action through the use of charts to forecast future trends. Technical analysis helps to determine when to buy and sell.
Technical analysis has been used for hundreds of years. It can be applied to any market, an advantage over fundamental analysis. Technicians believe that the study of market action will tell all and that each and every fundamental aspect will be revealed through the actions of investors entering or exiting positions. Market action includes many sources of information -- price, volume, open interest, and volatility.
Technical analysis is based upon three main premises;
1) Market action discounts everything
2) Prices move in trends
3) History repeats itself
Technical analysis has been proven to be an effective tool for investors and is constantly becoming more accepted by market participants. When used in conjunction with fundamental analysis, technical analysis can offer a more complete valuation, which can make the difference in executing profitable trades.
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Trend indicators reflect three tendencies in price movements: Up moves, Down moves and Sideways price moves. These indicators help define prevailing directions/ trends of the price moves by smoothing price data over a certain period of time. In simple words, Trend indicators allow us to visualize Trends in the market.
- Directional Movement Index (DMI)
- Double Exponential Moving Average (DEMA)
- Heiken Ashi
- Moving Average Convergence and Divergence (MACD)
- Moving Averages: EMA, SMA and WMA
- Parabolic SAR
- Percentage Price Oscillator (PPO)
- Point & Figure
- Triple Exponential Moving Average (TEMA)
- Triple Exponential Moving Average (TRIX)
Momentum indicators show the strength of trends by recording the speed of prices moving over certain time period. At the same time, Momentum indicators track strength and weakness of a trend as it progresses over a given period of time: the highest momentum is always registered at the beginning of a trend, the lowest - at its end point.
Volatility indicators show the size and the magnitude of price fluctuations. In any market there are periods of high volatility (high intensity) and low volatility (low intensity). These periods come in waves: low volatility is replaced by increasing volatility, while after a period of high volatility there comes a period of low volatility and so on. Volatility indicators measure the intensity of price fluctuations, providing an insight into the market activity level.
- Donchian Channel
- Keltner Bands
- McGinley Dynamic indicator (MDI)
- Moving Average Envelopes
- Starc Bands
Volume indicators are used to determine investors' interest in the market. High volume, especially near important market levels, suggests a possible start of a new trend, while low volume suggests traders uncertainty and/or no interest in a particular market.
A cycle in the market is determined by a series of repeating patterns. These patterns are, as a rule, dedicated to certain market events, such as seasons, simple day counts, event-to-event sequence, market theories and formulas and so on.
- Andrew's Pitchfork
- Auto Regression Bands
- Coppock Indicator
- Erlanger Put / Call Ratio
- McClellan Oscillator
- Pivot Points
- Projection Oscillator
- Renko Charts
- Rex Oscillator
- Trend Lines
- Zig Zag