Developing a technical directional view is really critical for you to succeed in the stock market. To get that, you need to plan out your trading strategies before you hop into trading. Planning with the right skills and weapons helps you to win your trade. So, a better understanding of stock market technical analysis tools lets you trade like a pro and eventually generate huge cash.
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With the help of stock market technical analysis tools, you can enter into a trade at the right price. Moreover, it also helps you to calculate the risk-reward ratio.
This tool allows you to view the markets like a Hawkeye and helps you to catch the fish at the right time. Stock market technical analysis tools like chart Indicators and Oscillators makes it easy for you to trade.
What is all About Technical Analysis?
Technical Analysis lets you scan for any opportunities in the stock markets. You can easily visualize how the stock market is behaving, whether it is trending or range-bound. Furthermore, you can track each and every move by market participants that evolve in the chart as patterns.
All you need is to identify these patterns that help you to set up your trade. It allows you to identify short-term and day trading opportunities to quickly make some money. Technical analysis lets you enter into a trade and exit from it at the right time.
How much you can extract profit from trading, is all depends on how quickly you identify the signals generated by the Indicators and Oscillators.
Once you know how technical analysis works, you can apply it to any asset class having historical data. It doesn’t matter, whether the asset class is equity, futures and options, commodity, or currency.
Stock Market Technical Analysis Tools
You know what, technical analysis really works wonder as everything reflects in the chart. Imagine someone is buying stocks of a particular company in bulk or a company gets bankrupt. The price will eventually react to the news and you can see that on the chart itself.
You can easily know the trends using stock market technical analysis tools and sail along with it to make some cash. Every technical analyst says that trend is your friend. So, you must follow the trend and exit from your position, once the trend reverses.
Chart Types
You can track the daily trading behavior by closely monitoring the open, high, low, and close prices of any asset class. In a chart, you will find the OHLC information in a much better way. Although monitoring the 4 data points is really a complex one if the time-frame is higher.
You will find many chart types for technical analysis. Some of the most used chart types are Candlestick, Heiken Ashi, Line, and Bar Chart.
In technical analysis, you can use any one of the chart types. However, I suggest you use the Japanese Candlestick Chart.
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Once you select the chart type, all you need is to set the time frame. Scalpers and day traders prefer smaller time frames whereas investors like longer time duration.
So, before you hop into trading, set the right time frame as indicators and oscillators may give different results. Time-frames in stock market trading are extremely crucial. It really impacts your trading decision and discards the noise as well.
Support, Resistance & Volumes
You need to focus on where to enter and exit from your trade so that your trade is in profit. Moreover, you may also cover your losses by putting
Stop Loss if your trade goes wrong. So, Entry point, Targets, and Stop Loss are very crucial for trading success.
Understanding Support, Resistance & Volumes will help you to enter and exit from your trade profitable. You can easily identify support and resistance levels by using technical indicators or support & resistance points.
Support levels are those levels from where the price may bounce back because of more buyers than sellers. Similarly, the resistance levels resist the price to move upwards as you may see more sellers.
So, you can buy or enter into a trade near the support zone and exit near the resistance zone. If you are buying a stock, then put your buy Stop Loss just below the support point.
On the other hand, if you are shorting stocks, make sure you put your Stop Loss just above resistance points.
In case, your trade goes wrong then SL will make sure that you incur a minimum loss. Most of the retail traders don’t use Stop Loss in their trade and eventually make more loss than profit. I suggest you make a habit of putting Stop-Loss.
You will surprise by the stock market volatility as trading is a highly risky game. So, before you jump into trading, put yourself with all the guards like SL, which may help you to minimize losses.
Before any trade setup, don’t forget volumes that play a crucial role to identify and confirm trends and patterns. Volume lets you understand the psychology of other market participants.
Basically, the volume helps you to know how many shares are traded over a given time period. If you find volume is rising along with price, then consider there are more buyers than sellers.
Similarly, a trend will bearish, if you notice more sellers and price is also going down. So trade only when there is a strong volume and avoid trading when the volume is low.
Indicators & Oscillators – Stock Market Technical Analysis Tools
Technical Indicators & Oscillators helps you to analyze the price movement of any asset class by identifying its trends and patterns. It also helps you to set up a trading decision based on different set parameters.
You can use either or both leading and lagging technical indicators while trading. A leading indicator always confirms trends before its occurrence but may give you more false signals. On the other hand, a lagging indicator provides you signals after the trend has confirmed.
RSI or Relative Strength Index
It is one of the most popular technical oscillators. It allows you to identify a trend reversal that oscillates between 0 and 100. You can set the oversold and overbought parameters as per requirements. However, I prefer to use 70 as overbought and 30 as oversold.
You can look into buying opportunity once it started to come out from the oversold region. Similarly, you can short any asset class if it started to come out of the overbought region. However, if the RSI value stuck in any region for a longer period, then you can consider trading in the same direction.
Stochastic Oscillator
You can use it along with RSI as it is also a leading oscillator that oscillates between 0 to 100. Whenever you notice the fast line crosses over the slow line, then it signals you to buy at that level. Similarly, a sell signal is generated when the slow line crosses over the fast line.
Stochastic also has overbought and oversold zones like RSI. You can enter into a trade whenever the crossover between fast and slow lines happens at the overbought and oversold region.
Moving Averages
Moving Averages are trend indicators that help you while you are trading. Stocks will remain bullish until the market price resides above the MA line. The moment the current market price turns below the MA line, it becomes bearish.
In a range-bound market, MA may not work properly and also cause you losses. However, in a trending market, it will cover your all small losses and you will be in profit as well.
Typically Moving Averages works awesome in a trending market. You can choose Simple Moving Averages or Exponential Moving Averages. Moreover, I prefer to use EMA over SMA while trading.
MACD – Moving Average Convergence and Divergence
MACD is actually a convergence and divergence of two moving averages. Convergence happens when both the MA attract each other and Divergence occurs when they move away from each other.
When you find the MACD line crosses over the Signal line, then you might consider buying. You must look for a shorting opportunity when you notice MACD lies below the Signal line. MACD also works great in a trending market and not so useful in a flat market.
Bollinger Bands
Bollinger Bands works great in a sideways market and failed to perform in a trending market as it generates lots of false signals. You can go long when the market price touches the Bollinger Bands Bottom line. When the market price touches Bollinger Bands Top line then, you can look for a shorting opportunity.
Although, there are many other technical indicators and oscillators available like
Supertrend, ADX, ATR,
Ichimoku Clouds, and more. However, I suggest you use only the basic indicators that suits your trading style.
I hope you like this guide on stock market technical analysis tools for traders. Your valuable suggestion is always welcome and you can express your views in the comments section.
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Published on: April 04, 2018
