Technical analysis involves using historical price and volume data to forecast the future direction of prices. Those who solely use technical analysis are often referred to as technicians, and are often traders. While individual investors rarely rely exclusively on technical analysis, many use technical analysis in conjunction with fundamental analysis to try to enter or exit positions at an advantageous time.
While most investors can find education on fundamental analysis on the Internet, finding quality information on technical analysis—and, specifically, technical indicators—can be harder. In this issue’s On the Internet, we provide investors with some websites that offer educational resources on technical indicators.
The following two sites present educational resources on a wide range of technical analysis topics at no cost.
ChartSchool is a technical analysis education center created by StockCharts.com. Its table of contents is separated into three main sections: an overview of financial analysis, a how-to section on analyzing charts, and technical indicators and overlays.
The first section offers a comprehensive technical analysis article. This article provides an introduction to technical analysis and explains the basics. In the chart analysis section, articles are divided into subsections covering candlesticks, charting styles, and charting tools, with several articles in each section.
The technical indicators and overlays section is the main area of interest. Extensive articles explain numerous overlays and indicators. Information on overlays includes Bollinger bands, moving averages, pivot points, price channels and volume-weighted average price, just to name a few. Furthermore, there are articles on indicators such as accumulation distribution line, MACD (moving average convergence-divergence), relative strength index and standard deviation, among a number of other choices. Articles on market indicators such as advance-decline, high-low index, bullish percent index and volatility indexes are also provided.
StockCharts.com is a widely used technical analysis website. The education section also includes articles on how to use the various charts provided by the website. In addition, a glossary and links to other recommended sites are also presented.
IQ Chart is a provider of stock charting software to individual investors and technical analysts. IQ Chart’s website provides an expansive section on technical indicators. In order to navigate to this section from the home page, click on Stock Charts 101 and then on Technical Indicators.
On the technical indicators page, the left-hand side lists the indicators and overlays discussed on the website. Overlays mentioned include parabolic SAR, linear regression, Fibonacci retracement and moving average. In all, 11 overlays are listed. The indicators section is longer, providing descriptions of 17 common technical indicators, including commodity channel index, momentum, relative strength ranking and stochastics. Most of the articles present the definition, formula (if applicable) and interpretation of the indicator.
A section of the website is also devoted to candlestick charting, one of the oldest and most widely used techniques for forecasting price behavior (see below for more sites that cover candlestick charting). Not only does IQ Chart provide an introduction to candlestick charting, it also offers illustrations and descriptions of basic candlestick patterns and reversal patterns. The hope is, of course, that an understanding of these patterns will allow you to try to forecast common recurring market scenarios.
Lastly, IQ Chart offers education on chart patterns such as trendlines, cup and handle, and head and shoulders. Familiarizing yourself with chart patterns may help you forecast the direction of the market.
Candlestick charting is one of the most basic, but popular, forms of technical analysis. The sites listed here focus directly on candlestick charting, without providing much information on other forms of technical analysis. However, these websites discuss candlestick charting in great detail.
Candlesticker.com focuses exclusively on candlestick charting resources. The main page provides a quick overview on the history of candlestick charting and how to read the “candlestick.”
Candlestick charting is based primarily on patterns. Candlesticker.com offers articles on bullish, bearish and neutral patterns. The categories are listed at the top of the main page, and clicking on each will lead you to indicators for that type of pattern.
The bullish, bearish and neutral pattern sections are divided into reversal and continuation patterns. In addition, patterns are grouped by their reliability: high, medium or low. As the name implies, the group a pattern is listed under is determined by how often the indicator correctly identifies a reversal or continuation. Clicking on each indicator opens up a page that tells you the type, relevance, prior trend, reliability, confirmation and number of sticks of the indicator. In addition, the definition, recognition criteria, explanation and other important factors are also displayed.
HotCandlestick.com specializes in identifying candlestick chart patterns, but the site assumes you already have a certain level of expertise regarding candlestick charting. The site offers candlestick charts on indexes, sectors, exchange-traded fundsand currencies. Furthermore, you are provided with charts if you enter a security’s symbol at the top of the page.
An interesting feature of the website is the flashcard game provided. The candlestick flashcard game helps train you to identify common candlestick patterns.
The website also includes a members-only section. Paying members are offered historical data and can backtest candlestick formations. In addition, users can set up daily candlestick email alerts. A portfolio manager is also included with a paid membership. Subscription fees are $18 per month, $45.90 per quarter or $151.20 per year.