Technical trading
| A technical trader is an investor who looks back in history to predict the price of the instrument in the future. These investors use several indicators and patterns. They usually use a few of these indicators together, because there is no only indicator, which is going to predict the price of the instrument in the future. In this section we are going to introduce a few technical trading patterns. |
The Moving Average
Technical investors use the moving average to identify area of possible support and resistance. A typical signal is, when for example the 15 day moving average (MA 15, blue line) crosses the 50 day moving average (MA 50, green line). When the short term moving average is over the long term moving average, it is a buying signal and when the short term moving average (MA 15) is under the long term moving average (MA 50) it is a selling signal.
The Relative Strength Index
The relative strength index is a momentum oscillator, which has been developed by J. Welles Wilder. This index shows the strength of the actual price of the instrument. It turns the price movements into numbers between 0 and 100. To calculate this index, only one parameter is needed, the number of time periods. J. Welles Wider recommends to use a 14 day time period. Over 70 (the red line) the instrument is overbought, which is a sell signal and under 30 (the green line) the instrument is oversold, which is a buy signal.
The Keltner Channel
This indicator has been founded by Chester W. Keltner, who published this technical analyses tool in his book How to Make Money in Commodities. Technical investors use the Keltner channel to predict the price of the instrument in the future. The central line is a moving average and the lines above and below the central line are moving averages of the past 10 days trading ranges. Investing signal is when then closing point of the chart is”outside the channel”. A buy signal is when the candlesticks closing price is over the upper line (red) and a selling signal is when the closing price of the candlestick is under the lower line (green).
