5 Of Today’s Best Technical Analysis Tools
So, you’re looking to improvre your TA skills and want some good tools for technical analysis? Well keep reading, in this article we’ll go over soem of the most used tools by professionals who trade for a living.
How does technical analysis work?
If you’re wondering how technical analysis works, no fear, you’re not alone. When I first started learning I had SO many questions. How does it work? Why does it work? How do I do it? What’s the best way?
Technical analysis works by looking for patterns in a stock market chart. One simple example can be: when there are three green candles in a row, price tends to keep going up. Or, when the current price crosses above the SMA (simple moving average) of the last 20 days, price tends to keep going up. Or, when RSI is in its overbought zone, it might be a good time to start a long position.
There are MANY if not infinite ways you could do technical analysis. Googling technical analysis will bring up results such as moving averages, volume, RSI, MACD, triangles, wedges, head and shoulders, EMAs, fibonacci, XABCD patterns or harmonics, just to name a few. Not to mention you can write your own indicaotrs to do custom math, so the possibilities are virtually endless.
How does technical analysis differ from fundamental analysis?
So technical analysis is all about the charts. “What are the patterns that price is showing? Another bullish head-and-shoulders?” Some technical traders say “the chart drives the price”. In contrast, a fundamental trader would say “the news drives the price.”
Fundamental analysis is all about researching the underlying company/asset, not only its stock price, and making decisions on the asset’s worth based on that. So instead of asking how high gold’s price is going to go based on a bullish signal from one of your indicators, you’d ask how many people are going to start investing in gold in fear of a recession. Or XYZ company just fired its CEO…maybe price is going to go down.
See the difference?
Which one you choose to use is up to you. In today’s world, more and more people are learning technical analysis. And not just that, but big-money hedge funds are using algorithms to manage their very large sums of money, and its all technical.
As with many other industries, tech is coming in, and you get to choose to join in or not.
So if you choose to join them, what tools are best to get started? Here’s my recommendations:
1. TradingView.com
First and foremost, you’re going to need somewhere to do you technical analysis. TradingView.com is where you want to be. It has become the defacto standard site for online traders to view charts. Most of the online exchanges embed TradingView charts in their websites.
What’s great about TradingView?
- Its FREE
- They make it super simple to share images of charts with anyone. Just click the camera button and you’re given a link to an image of the chart you’re looking at.
- Their chat-groups are pretty active and likely have one for your interest, whether its crypto, forex, commodities, whatever. The UI could use some work, but the community is there.
- Its not just chart-viewing, but a platform where you can post ideas and scripts and share them with others, on or off the platform. This allows you to create your own edge by writing your own indicators.
- You can view other traders’ ideas, scripts, and even add them to your own chart. This is a great way to learn from more experienced traders and even use the same tools that they do when they trade!
If you don’t already have an account, head over to TradingView and create one. Then you can follow along the rest of this article on your chart.
2. TradingView’s Line Tool
Two of the most basic concepts in TA are support and resistance. They’re essentially trying to answer the question: “what’s the current bottom price traders will buy at?”, this is called support. And: “what’s the highest price traders are willing to pay?”, also called resistance.
But how do you see this on a chart? No chart comes with drawn-in support and resistence lines. You have to do it yourself.
So open up TradingView, pick your favorite asset and time frame, and grab your handy line tool and see if you can “connect the dots”, where the “dots” are the swing-low points that are around the same price level.
This is called “support”. Extend that line beyond where price is now and you now have something to make price estimates with.
Even though going into a full-blown how-to on TA with the line tool is beyond the scope of this article, you’re going to want to play with it and get comfortable with it! Even professional traders use this tool!
Triangles and wedges are another example of simple yet powerful TA you can do with the line tool.
3. Alerts
Its over 9000!!! Well at the time I’m writing this, Bitcoin is just over $8000, but what if you wanted to buy when BTC crossed $8k? Or $9k?
Unless you’re staring at your charts 24/7, you’d want to set an alert. AGain, TradingView makes this super easy to do, and you can get notified by text, in the TradingView app, email, or even by webhook.
To set a simple price alert, hover your mouse over the price you want to be alerted at, and click the + to the right of the dotted line from your cursor.
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And just like that you’ve created an alert. Alerts can also be made for when price crosses a specific indicator you have on your chart, or when one indicator crosses over another. These can be very useful for creating your own “signals” on when to buy or sell.
The pros use these, as well as simple price alerts to keep on top of what their current asset is doing.
4. Indicators
You’ve heard me mention indicators a few times already, because that’s just how powerful they are. Indicators are game changers because they give you insight into the market that would otherwise be invisible and impractical to do by hand, as well as allows you to create your own unique edge if you write your own. A big part of being a successful trader is having a unique and consistent edge.
What are indicators? Indicators are just lines on a chart drawn by code. It can be as simple as: plot a line of the average closing price over the last 30 days. This will draw a monthly moving average on your chart which you can then use in estimations of support and resistance.
There are some well-loved top indicators, but keep in mind that the more people that use an indicator, the weakeer its edge becomes. Popular well-known indicators like the RSI might have millions of people using it in very similar ways.
5. A Community
You don’t want to trade alone. Going alone may be a fun challenge, but in the world of trading its lonely, slow, and costly. Multiply your learnings and your earnings by joining a well-respected community with quality traders. It doesn’t have to be a big one, just a quality one.
Most trading communities are typically led by expert professional traders. Learning from them will be like learning any new skill, confusing at first, but gets easier and easier as time passes.
Another good thing about trading communities are there are other people to chat with and share charts with. With trading, you’re all in it together, and having other opinions can be very helpful. There are maaany ways to view and analyze a chart. Sometimes you may be right, and sometimes you may be wrong. Having others to collaberate with at the end of the day will help you more than harm you. Don’t worry, there’s plenty of profits to go around for everyone.
Closing
Professionals do Technical Analysis every day multiple times a day, so you want it to be frictionless. The tools mentioned above make it frictionless once mastered.
To get better at trading as quickly as possible, sign up for TradingView, join a community, (like our partners Coin Observatory) see what indicators they like to use and start learning how they use them and how they manage their positions.
Many people trade for a living. If that’s what you want, you can, too.
Happy trading.
