 | Technical Analysis helps us define entry and exit points for securities. As any trader will tell you, it is just as important to know when to get out of a trade as it is to know when to get into one. Many traders make the mistake of allowing emotion to drive their decisions, moves that are akin to many amateur gamblers. If you want to be a serious trader, you will find these tools very helpful in identifying profitable trades and effectively controlling risk. |
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The ADX (Average Directional Indicator) is used to evaluate the strength of a trend, regardless of its direction. It is often important to know whether the market is trending because certain indicators give more reliable signals in trending markets versus sideways or choppy markets. |
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The Aroon system of indicators was developed in 1995 by Tushar Chande. Much like the ADX, this set of indicators can determine the early turning points in a trend. |
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The Aroon oscillator can be used to identify up and down trends, and is often used in conjunction with the directional indicators. |
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The Average True Range is a measure of a security's volatility over a given time period. The indicator does not give a direction of movement, merely a measure of the strength of a move. |
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Bollinger Bands, developed by John Bollinger are used to illustrate a security’s volatility in price action. The indicator consists of 3 bands designed to capture the majority of a price’s movement. |
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The Chaikin Money Flow measures the accumulation or distribution of a security, indicating whether the security is being bought or sold over a given time period. |
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The +DI (Positive Directional Indicator) and -DI (Negative Directional Indicator) are used to measure the force of upward and downward movements in a security. |
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The Money Flow Index (MFI) is a momentum oscillator, similar to RSI and Rate of Change. The MFI is a more complete oscillator because it factors in the volume activity to measure the money flowing into and out of a stock to identify overbought and oversold conditions. |
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Moving averages are perhaps the most readily available and easy to understand technical indicators for traders. Their main purpose is to smooth out volatile price movement for easier trend identification that allows the trader to make more informed decisions based on a security’s general direction of movement. |
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The Parabolic SAR, developed by Welles Wilder, is used to set trailing price stops for long and short positions. Generally it will allow more breathing room for the position in the beginning, but will move to provide a tighter stop; i.e. the stop price is closer to the security’s price; as the price movement cycle completes and the trend weakens. |
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