The technical tools used in stock trading in Australia

Technical analysis is a technique that stock traders use to evaluate stocks and make investment decisions. Traders believe that the market price reflects all relevant information about the company and its prospects and analysing this price data makes it possible to predict future price movements. There are many different technical indicators that stock traders use to identify trends and make trading decisions.

While there is no guarantee that technical analysis will always be successful, it can be a valuable tool for stock traders who know how to use it effectively. By understanding and using technical analysis, traders can potentially improve their chances of making profitable trades.

Moving Averages

A moving average shows the standard price over a certain period. You can use moving averages to smooth out price data and can be used to identify trends. There are different moving averages, including simple, exponential, and weighted. Simple moving averages give impartial weight to each data point, while exponential and weighted moving averages give more weight to recent data points.

You can use moving averages to generate buy and sell signals. You can generate a buy when the stock price crosses above the moving average, while a sell signal is generated when the stock price crosses below the moving average.

Support and Resistance Levels

Support and resistance levels are technical indicators that show areas where the stock price is likely to find support or resistance. These levels are typically based on past price data, and you can use them to predict future price movements. Support and resistance levels can be used to generate buy and sell signals. You can generate a buy signal when the stock price exceeds a resistance level, while a sell signal works oppositely.

Momentum

Momentum measures how fast the price of stock changes, so you can use it to identify trends and make trading decisions. You can use momentum to generate buy and sell signals. You can generate a buy signal when the momentum indicator moves from negative to positive territory, while a sell signal is the other way around.

Relative Strength Index (RSI)

The relative strength index (RSI) measures the strength of a stock’s price movement. It can identify overbought and oversold conditions and generate buy and sell signals.

The RSI is calculated using a formula that compares the average gain of the stock to the average loss over a certain period. The indicator varies from 0 to 100, with readings below 30 indicating an oversold condition and above 70 indicating an overbought condition.

You can use an RSI to generate buy and sell signals. You can generate a buy signal when the RSI moves from below 30 to above 30. In contrast, a sell signal is generated when the RSI moves from above 70 to below 70.

Bollinger Bands

Bollinger bands are technical indicators that show the upper and lower limits of a stock’s price movement. They are based on standard deviation, which is a measure of volatility.

The Bollinger bands are used to generate buy and sell signals. You can generate a buy signal when the stock price breaks above the upper Bollinger band, while a sell signal works oppositely.

The MACD

The moving average convergence divergence (MACD) shows the relationship between two moving averages. You can use it to identify trends and make trading decisions. You can calculate the MACD by subtracting the 26-day exponential moving average from the 12-day exponential. The resulting line is then plotted on a histogram to generate buy and sell signals.

You can generate a buy signal when the MACD line crosses above the signal line, while a sell signal works oppositely.

Fibonacci Retracements

Fibonacci retracements are technical indicators that show support and resistance levels based on Fibonacci numbers. They are typically used to predict future price movements after a stock has experienced a significant move.

You can use Fibonacci retracements to generate buy and sell signals. You can generate a buy signal when the stock price returns to a support level, while a sell signal is generated when the stock price returns to a resistance level.

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