If you consider yourself to be a rookie trader in the financial markets, the chances are you won’t be familiar with the concept of technical analysis. This method of financial trading relies heavily on interpreting past data from the markets to help anticipate future shifts in the price of an asset.
Technical analysis rarely considers the fundamentals of an asset. While traders in equities will look at a listed company’s annual earnings, shareholder dividends and recent news or events to get a feel for a business’ success or failure, technical analysis primarily ignores this data. Technical analysis is founded upon the belief that price action drives patterns in the market that are replicated repeatedly.
The most popular trading software, open to retail traders and institutional traders, includes built-in technical analysis indicators and signals that can help traders to frame entry and exit points for prospective trades. MetaTrader 4, one of the household names in trading software, offers access to thousands of trading indicators and signals that can customise trading setups for those reliant on technical analysis. This software is also available on iOS and Android devices, allowing traders to track indicators and signals on the move. For those wondering วิธี ใช้ mt4 บน มือ ถือ, the app can be quickly downloaded and installed requiring minor storage space and modest device resources to access the most powerful technical charts, signals, news feeds and price chart timeframes.
For those thinking of delving into the realms of technical analysis for the first time, there’s a handful of basic indicators ideal for beginners in this trading style. Below, we explain the reasoning behind the four must-know technical indicators and how to use them.
Moving Average Convergence/Divergence (MACD) indicator
The MACD indicator is one of the most popular charts used to determine momentum in the markets. The tool measures how quickly the price of an asset is moving in the market. It also aims to find areas in the market where the price has reached a natural point of retraction. The histogram triggers buy and sell signals whenever it peaks and changes course.
Relative Strength Index (RSI)
The RSI indicator provides another strong picture of market momentum. This momentum oscillator identifies the speed and strength of the movement of an asset’s price and is a popular tool of Jim Cramer, the hedge fund manager-turned-TV personality. It does so by comparing the current momentum with past performance. RSI can help identify overbought assets, which suggests the price could fall, and oversold, suggesting the price could rise.
Moving Averages
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A moving average indicator is a useful tool to get a feel for the direction of an ongoing trend in the market. It can pinpoint potential support and resistance levels, allowing traders to chart price points that could reflect shifts in momentum. Typically, traders will sell an asset or close an open position when its price falls below the moving average. When it moves above the moving average, traders will buy the asset.
Fibonacci Retracements
Fibonacci retracements help rookie and experienced traders to recognise price point battlegrounds known as support and resistance levels. The theory of this indicator, inspired by the sequence of numbers discovered by Leonardo Fibonacci, is that it measures how far a price move may retrace before regaining its previous trend.
Don’t panic if you struggle to grasp these indicators from day one. It takes time to understand and interpret the real-time data in front of you. Technical analysis can prove particularly useful in markets with high liquidity, which helps to solidify trends and minimise volatility.