Technical analysis is a method used to evaluate and predict the future price movements of financial assets, such as stocks, by analysing past market data. Unlike fundamental analysis, which looks at economic indicators and company earnings, technical analysis focuses solely on price movements and trading volumes.
There are countless techniques and tools for using technical analysis and multiple are often combined to gain a profound view on a possible buy or sell. These include charts and patterns, indicators and tools, market psychology and risk management tools.
- Does Saxo support technical analysis?
- How can I view advanced graphs?
- How can you add indicators to your charts?
- The six most used technical indicators
Technical analysis vs fundamental analysis
Technical and fundamental analysis are two primary approaches in investing, each with distinct characteristics. Despite their differences, they can be effectively combined to form a comprehensive investment strategy.
- Time Horizon: Technical analysis is typically employed for short-term trading, such as day trading or swing trading. In contrast, fundamental analysis is more appropriate for medium to long-term investing.
- Focus Areas: Technical analysis involves examining price history and patterns, without considering the underlying fundamentals of an asset, such as a stock. On the other hand, fundamental analysis focuses on evaluating the intrinsic value of an asset by analysing the company's financial health and underlying fundamentals.
Does Saxo support technical analysis?
Saxo offers a wide range of tools and support for trading with technical analysis. Trading tools are available on all platforms.
- Note: You can use the same Saxo login for all our platforms
How can I view advanced graphs?
Choosing your desired type of graph can be done on all platforms:
SaxoInvestor
- Search for the instrument you are looking for
- Then go to the "Overview" tab of your product overview module
- Finally, click on "Advanced chart"
SaxoTrader
- First, you should go to the "Trading" tab
- And then click on "Charts"
SaxoTrader desktop
- Reach and click on the "Add Module" button
- Then go to the "Trading" tab
- You can now choose to display a "Chart" or "Multiple Charts"
What is a chart indicator?
Chart indicators are tools used to interpret price movements and identify potential opportunities. These indicators are typically derived from price, volume, or open interest data and are used to predict future price movements.
Among other functions, indicators can assist in identifying trends, momentum, volatility, volume, and support and resistance levels. They are often combined to provide a comprehensive market view.
How can I add indicators to my charts?
Once you are viewing an advanced chart, you will find several functions in the top right-hand corner. To access the list of available indicators, click the button shown below:
You will then be presented with a list of all available indicators and a search function among the available indicators.
The six most used technical indicators
There are hundreds of technical analysis indicators available, each serving different purposes such as identifying trends, momentum, volatility, and volume. Some of the most popular ones include the six presented below:
The moving averages (SMA, EMA, SMMA)
A moving average simplifies the reading of an asset's trend on a price chart. The direction of the moving average gives an idea of the price trend:
- If it's pointing upwards, the price is generally rising (or has recently done so);
- If it's pointing downwards, the price is generally falling;
- If it's pointing sideways, the price is probably within a range.
The RSI (Relative Strength Index)
The Relative Strength Index (RSI) is a momentum indicator used in technical analysis that measures the speed and magnitude of recent price changes to detect overvaluation or undervaluation. Displayed as an oscillator from 0 to 100, an RSI above 70 suggests overbought conditions, while below 30 indicates oversold. It can also signal trend reversals or corrective declines.
The Bollinger Bands (BOLL)
Bollinger Bands, are popular for assessing asset volatility and valuation. They consist of three lines: a central 20-day simple moving average (SMA) and upper and lower bands set typically two standard deviations from the SMA. The bands widen with increased volatility and contract with stability. Stocks nearing the upper band are seen as overbought, while those near the lower band are considered oversold, signalling potential trading opportunities.
The Volume (VOL)
Trading volume is the total number of shares or contracts traded for a security over a specific period. Most volume occurs during the first and last hours of the trading day. The first hour reflects overnight sentiment and strategies, while the last hour summarizes the day's themes and attracts speculative capital.
The MACD (Moving Average Convergence/Divergence)
It is a technical indicator that helps investors identify price trends, measure the strength of a trend and identify entry points for buying or selling. The Moving Average Convergence/Divergence (MACD) is a trend-following indicator that shows the relationship between two exponential moving averages (EMAs) of a stock's price. Developed in the 70s by Gerald Appel, MACD is one of the most popular technical tools.
The Ichimoku Kinko Hyo cloud (IKH)
The Ichimoku cloud is a set of technical indicators that show support and resistance levels, as well as momentum and trend direction. It does this by taking several averages and plotting them on a chart. It also uses these figures to calculate a “cloud” which attempts to predict where the price may find support or resistance in the future.