Using Technical Analysis in Online Trading

Online traders develop their own trading style, depending on whether they are going to be long-term, medium term, short-term or day traders. Making a decision on the type of trader you want to be, however, means you need to be aware of some of the trading tools that are used in daily trading. Here are a few charts that gets used for analysis on a daily basis.

Stock charts

Stock charts are used and analysed by an online trader in order to help him determine when to buy and sell stock. The main types of stock charts in use include:

• Line charts - is a line on a chart connecting stock price over a period of time (can be minutes, hours, days, weeks, months, or even years).
• Bar charts - similar to line chart, however the information contained is the open, high, low and close price of the stock for one particular day.
• Reference chart – charts the stocks price and trading volume and is used to plot where the stock price may go to.
• Candlestick charts – the information contained in candlestick charts is the same as that you can find in bar charts; however, the display format is slightly different.
  

Technical indicators

As above name suggests, technical indicators are used by online traders to track a stock’s previous performance in the hope that it may forecast where the stock is going to go. This is done by making use of the stock charts previously mentioned, plus additional analytical indicators which might have a part to play.

It should be noted that technical indicators can be very confusing if you are new to this type of information analysis. Here are a few that gets frequently used by day traders.

Bollinger band - invented by John Bollinger and uses 3 band lines to track stock price fluctuations: an upper, centre and lower. The centreline is the moving average, while the upper and lower lines are twice the plus and minus standard deviations, respectively.

Moving Average - is a stock price/time series technical indicator. These can then be calculated over short, medium and long term periods, as the need requires, to determine where the stock may go and whether you should be looking to maintain a short, medium or longer term position.

Candle Stick trend reversal - using a candle stick chart, a candle stick trend reversal technical indicator will use the information in the chart to determine when to enter a trade and buy in and sell out of a stock.

Always bear in mind that there are other types of technical indicators in use, but the above are primarily the types used by new online traders.

Analysing the information

Assuming you have correctly analysed the stock chart and technical indicator data, you should then be able to chart a stock’s movements – thereby hopefully ensuring that you will become one of the succesful traders who makes a profit from online trading.