Technical Analysis Tools Used in Stock Trading

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Stock Trend Line  

A stock trend line is a technical analysis indicator consisting of at least three points plotted on a chart for security to form an upward sloping or downward sloping trend line. You can use the slope and direction of the trendline to forecast future prices. 

Short selling signals are often derived from these lines by considering where the price has broken below a previously identified support level, reaching toward a new resistance level which may indicate further price declines ahead. Basing the trend line on the closing price for candlestick charts can produce a more reliable line.

The Relative Strength Index

(RSI) measures the magnitude of recent gains and losses over a specified period. If the RSI is between 30 and 0, the security is overbought because investors are buying aggressively. If it is between 0 and 30, the asset is oversold and primed for a rally. When the RSI approaches the 70 to 100 levels, most traders will observe as that’s where strong uptrends or downtrends often reverse.

This indicator attempts to forecast prices by comparing recent highs to recent lows concerning their overall distance from each other. Peaks represent areas of possible market tops, and valleys represent areas of possible market bottoms. 

To draw this indicator on your chart, simply calculate two moving averages. One with a short term time frame (such as five days) and basic stock charting software will automatically draw stock trend lines, usually straight parallel lines representing either an uptrend or downtrend over time, frequently updated as trends change. 

Trendlines can also be drawn by hand using different types of drawing tools available in trading



A technical analysis indicator consisting of respective highs or lows of a security’s price plotted against a corresponding high or low indicator, oscillator, or moving average. 

Divergences can occur between different stock indicators and prices and indicators, usually representing the continuation of a current move or trend. 

Advantages to identifying these divergences with divergence trading strategies include reducing exposure to market risk by locking in part of the gain on a trade before potentially unfavourable price actions occur. 

This method also identifies buying opportunities when a less volatile high upper shadow occurs during an uptrend and selling opportunities by taking profits when lower shadow occurs during downtrends.

Technical Analysis Trading 

The reading and analysis of charts to predict the market direction is known as technical analysis.

This indicator uses price, volume, and open interest information to tell you more about supply and demand in a particular stock. 

The Accumulation Distribution Line (ADL) rises when the closing price on an uptrend is higher than previous closes; it falls on downtrends. 

The ADL is composed of two separate lines: the daily settlement prices and the other measuring volume (which increases when advancing prices on increased volume). 

Technical analysis traders will buy when the ADL rises above the confirmation line – this represents accumulation by intelligent money investors who are gradually pushing stock prices up. They will sell when it falls below zero – indicating that holders are selling their positions by distributing shares.

The Relative Velocity Index 

(RVI) measures the difference between two moving averages, indicating whether security moves with or against a more significant market trend. 

RVI can be used to determine overbought and oversold conditions and changes in the direction of a current trend. It should be noted that there are different ways to calculate an RVI; some brokers have different RVI formulas, so be sure to use the same formula for buy signals and sell signals. 

A common way to calculate a Relative Velocity Index is by using a 13-period exponential moving average (EMA) and a 21-period EMA of price data.

These values are then plotted on the chart and connected with straight lines to form a channel. If the price is above the top line of the RVI channel, then it is generally considered overbought; if it falls below the bottom, it is thought to be oversold. 

Any time price reaches one end of the channel (the “trigger” line), it indicates that momentum has shifted. This momentum shift can indicate either a reversal or continuation in the trend. 

Follow Saxo Hong Kong for more technical analysis tools.