CHART ANALYSIS
Here at Spreadex we realise that traders like to plan their trades via the use of technical analysis of the markets - that's why we have a fantastic charting package available for your use. Our charts were voted Best Online Charts at the MoneyAM Finance Awards 2011.
We have a full list of Charting FAQs to help you get to grips with our charts.
To help you with any technical jargon which may at first appear confusing, we have drawn up a bluffer's guide to the key terms used when trading with charts. See the explanations below.
For more advanced analysis view our guide to technical indicators in the top menu including formations such as Ascending Triangle, Descending Triangle, Symmetrical Triangle, Head and Shoulders and Triple Bottom.
If you have any further questions about using our charts, please either email fins@spreadex.com or call our financial room on 08000 526 570.
CANDLESTICK CHARTS
These are the type of bar chart most commonly used by traders. The candlesticks are composed of a body and wicks - upper and lower shadows which show the highest and lowest traded points during the time interval indicated.
A red colour to the body of the candlestick indicates a lower closing price and green indicates a higher closing price during that trading period.
Support/ Resistance
These are lines which indicate trends for a given financial product and which can help determine key points at which to buy or sell.
A support level is a point at which a product tends to find support as it is dropping in value. A resistance level is the point at which a product tends to find resistance as it goes up.
By drawing your own horizontal or diagonal trend lines through historical support and resistance levels you can try to pinpoint future support and resistance levels on which to plan your next trades or to place stop losses or orders to open.
Moving Averages
Moving Averages (MAs) create a line showing the average value of a financial instrument's price over a given period. The lines created on your chart will reveal the direction of movement of your chosen product over a certain time frame, 'smoothing' out any volatility or fluctuations.
MAs help to identify trends and form the basis of many other technical indicators and overlays. Key MA periods such as the 50 and 100 day can also form support or resistance levels.
Relative Strength Index
Relative Strength Index (RSI) - Based on an index from 0 to 100, the RSI is an indicator of the strength of the trend of the market. It works by comparing the magnitude of its recent gains to the magnitude of its recent losses over a given period.
When the RSI goes below the 30 signal line it can be an indication that the product has been oversold, and when it goes above the 70 signal line it can be an indication it is overbought. Generally, if the RSI rises from under to above 30 it is considered bullish. If it turns from above 70 to below that level it is generally seen as a bearish signal.
Stochastic Oscillator
This is a momentum indicator which shows the location of the current close relative to the high/low range set over a number of periods.
Closing levels consistently near the top of the range indicate buying pressure while those near the bottom indicate selling pressure. Stochastics are often used with the RSI to determine the strength and momentum of a trend.
Fibonacci Retracements
Patterns which can be useful for swing traders to try and identify any pullback or retracement levels that a stock may reach. These levels are often reliable support/resistance indicators of where a stock may bounce back from or accelerate to.
These levels are created by picking two extreme points in a chart's pattern and then dividing the vertical distance by the key levels predominantly used in trading of 23.6%, 38.2%, 50%, 61.8%, 78.6% and 100%. This can be done easily via our Fibonacci Retracement tool within our charts. These levels can be used to identify key support/resistance levels which can be useful for planning entry or exit points (stop loss placing for example) for your trades.
Moving Averages Convergence/ Divergence
Moving Averages Convergence Divergence (MACD) measures the difference between two Exponential Moving Averages (EMAs). EMAs are similar to simple Moving Averages but give more weight to, and therefore react faster, to more recent price changes. A positive MACD indicates positive momentum is increasing, indicating a bullish trend for the stock. If the MACD is negative then downward momentum is accelerating indicating a bearish trend.
Bollinger Bands
Plot the volatility as well as movement of a given financial product over a period of time, via three lines. The middle line is a simple moving average, then there is an upper line and lower line which are calculated via Standard Deviation from the average.
Sharp price increases or decreases away from the average will lead to wider upper and lower bands being created. Upper and lower lines can lend support or resistance to a product and help identify good entry or exit points.
