Technical analysis is a technique that tries to predict the future direction of the market based on a quantitative analysis of past movements. Technical analysis doesn’t look at anything other than graphs. The assumption is that when you can spot a certain trend in historical market movements, you will be able to predict the future. There are thousands of methods that were developed over time, I will try to explain the most popular ones.
Traders strongly disagree about the value of technical analysis. Although you can be more of a fundamentals trader, you will have to understand the influence of technical analysis on the market. Every trader should therefore know the most popular indicators, and use them in their market analysis. Whether you believe in technical analysis or not, the fact is that if enough people do, the market will act accordingly. I therefore strongly advise you to read and learn the indicators that are listed below.
Technical analysis can be used to discover trends and to make predictions about the future direction of the market
The Momentum indicator shows the difference between today’s closing price and that of N days ago. The absolute difference between those is called the Momentum.
Elliot Wave Principle
The Elliot Wave principle is developed with the thought that every market moves from optimism to pessimism and back again. The waves that are a result of that move in similar patterns.
Relative Strength Index (RSI)
The RSI indicator shows price strength by comparing between the upward and downward close-to-close movements. This indicator can be used to spot the trend, and tries to identify overbought and oversold situations.
Fibonacci levels are invisible support and resistance lines. Learn how to use these levels in your trading, to spot possible reversal points.