Technical analysis definition
Technical analysis is a process of studying past price action to identify patterns that can help forecast future price movements. Technical analysis uses indicators that track price activity automatically to produce signals at which traders can open or close trades.
Technical analysis indicators focus on specific metrics like price averages, support and resistance levels, and trading volume.
Technical indicator examples
Popular technical indicators used in technical analysis include the:
- Moving Average Convergence Divergence (MACD): The indicator consists of a MACD line calculated by subtracting two moving averages, a signal line representing a moving average of the MACD line, and a histogram depicting the relationship between the two
- Relative Strength Index (RSI): this indicator compares the average number of days a security closes positive or negative and sets the result on a scale ranging from 1 to 100 to indicate if the market is overbought or oversold
- Stochastic Oscillator: this oscillator compares a security’s closing price to its average price to indicate when it is overbought or oversold
- Bollinger Bands: Bollinger bands use a moving average and two deviations or that moving average to help you visualize volatility and determine whether a trend will continue or reverse