Charts are key to technical analysis. This is because the most important measure of a market’s past and current performance is the price itself; this is the starting point when delving into analyzing the potential of a trade. Price action can be represented on a chart as this is the clearest indication of what the price is doing.
Charts assist in determining the overall trend, whether there's an upward or downward trend, either over the long or short term or to identify range bound conditions. The most common types of technical analysis charts are line charts, bar charts and candlestick charts.
When using a bar or candlestick chart each period will give the technical analyst information on the price from where it opened, the high or low of the period as well as the close. Candlestick analysis is especially useful as the patterns and relationship within them can assist in making forecasts about the future direction of the price.
Once a trader has mastered the basics of charting, they can then make use of indicators to assist in determining the trend.
Indicators are used by technical traders when looking for opportunities in the market. Although many indicators exist, traders often make use of volume and priced-based indicators. These assist in determining where the levels of support and resistance are, how often they are maintained or breached as well ascertaining the length of a trend.
A trader can view the price or any other indicator using multiple time frame analysis, ranging from one second to a month which gives the trader a different perspective of the price action.
The more popular indicators for technical analysis include:
Moving Averages
Relative strength index (RSI)
Moving average convergence divergence (MACD)
Moving averages and MACD are often used to identify trends in the market while the RSI is typically used to determine possible entry and exit points. Indicators assist traders in analyzing the market, validating trade set ups and determining entry points.
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