Technicians typically use a range of tools to analyse market prices. These tools include:
Charting
A price chart plots a series of prices over a particular time period. The Time scale is a plotted vertical axis (y axis) whilst the Price scale is on the horizontal axis (x axis). Prices are plotted from left to right on the x axis.
Charts are essential for determining trends, seeking suitable entry and exit points and looking for chart patterns. A Technical Analyst would use charts as a main tool to seek potential trading opportunities.
Line, Open High Low Close (OHLC) and Candlesticks are the most common forms of charts used by Technical Analysts.
Line Chart
Line charts simply plot a line between a series of data points dictated by the settings used within the chart. For example, if the settings dictates ‘closing prices’ and ‘daily’ then the chart will automatically draw a line between each daily closing price. Line charts are a great way to get an instant visualisation of where current prices are trending.
OHLC Chart
The OHLC Chart plots four pieces of information: Open, High, Low and Close. By including both the Opening Price and Closing Price, a trader can immediately see if the price has closed higher or lower than the open. The Opening Price is plotted on the left hand side of a vertical bar, which represents the High and the Low of the trading range. The Close is plotted on the Right Hand side of the vertical bar. OHLC charts are a good instant representation of the typical price range for a given period.
Candle Chart
A Candle Chart contains the same information as the OHLC Bar. However Candle Charts are more visual and contain a Body, which is the difference between the Opening and Closing Price. When the Close is higher than the Open price, the body is hollow. If the Close is lower than the Open, the body is filled. The thin lines above the body are referred to as the Shadows and these are simply the High and Low prices.
The City Index Forex Trading Platform offers Line, OHLC and Candlestick charts to our clients. Simply open an account to access our charting package.
Time Frames
Charting is a useful form of looking back and observing how a market price has performed over a given time period.
Traders often choose different time frames to determine the trend over Short, Intermediate and Longer Term time periods to suit their personal trading style and strategies. For example, if you are looking to trade for a matter of days, you are most likely to use either an hourly or daily timeframe, as opposed to a yearly one.
Popular short-term time frames typically range from 5 minutes to 60 minutes. A trader wanting to hold positions for more than a few hours may look at daily charts for an intermediate time frame, while weekly and monthly charts would be used for longer term trades.
By utilising different time frame charts, traders or analysts could look for key Support and Resistance levels where a security may find potential reversals.
Technical Indicators
At City Index, we offer a range of customised indictors within our Advantage Platform Charting Package to help you build and enhance your technical strategies. With City Index Advanced Charts, you can utilise as many as 100 technical indicators to spot trends and potential trading opportunities.
Technical Indicators plot a series of data usually based on Price and or Volume. These indicators are used by traders along with additional information to make informed trading decisions.
There are many different types of indicators available to traders and can be useful to provide signals for:
o Trend – the current bias to which prices are trading (bullish/bearish/sideways).
o Momentum – the strength of the current trend
o Divergences – when the price of a financial market and an indicator diverge in trend i.e. move in opposing directions.
o Reversals – when a price trend reverses.
Some indicators are useful in trending markets whilst others, referred to as oscillators, can be used in range-bound markets to determine Overbought and Oversold conditions, which can then be used to spot potential price reversals.
There are many ways to use technical indicators and if used sensibly, technical indicators can help you to make better and more supportive trading decisions.
Trading With Technicals
In today’s fast paced financial markets, finding trading opportunities and utilising chart patterns and technical indicators can be an important aspect for any trader. City Index offers you the ability to use powerful tools with a combination of technical indicators and different charting styles to suit your needs across different time frames.
Open a City Index FX Account to take advantage of our sophisticated Charting Package and features.
Open a City Index CFD Account .
Find out more about using Fundamental Analysis with City Index.