Indicators are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum. Indicators are used as a secondary measure to the actual price movements and add additional information to the analysis of securities.
Technical Analysis is an inexact science. It is a method used by technical traders to research stocks for investment purposes. Users of technical analysis like the fact that an examination of the trading charts of stocks through a chart can provide clues to the investor about the potential movement in the prices of that particular stock.
The basic requirement for performing technical Analysis is availability of a computer, equipped with internet access.
Stock Trading Charts
Stock charts are used in technical analysis of stocks. The stock daily movements are recorded on stock trading charts, which are the basis of technical analysis So to carry out technical analysis the investor must find and subscribe to good charting providers. The chart below illustrates an example of technical analysis formation.
Technical analysis also use raw data such as price of the stock, open interest, daily volume, open and closing prices and so on. The charting companies also provide such data, so once you are subscribed to the service of a good charting company all the trading data would be provided as well.
The last step is to analyze the data on the charts. Chart formations tell stories which only technical analysts could read. Examples are double top formations which signal a potential decline in the price of the particular stock. Double bottom is the opposite signal illustrating a stock ready to advance in price. Other formations include bull flags, another signal of an advancing stock, cup and handle formation illustrates a stock ready to soar in price. Technical analysts use such chart formations to enter or exit their positions.