Technical analysis deciphered: Five tools to enhance your trading

BEARISH SIGNAL:
A death cross is when the 50-day simple moving average curve crosses below a falling 200-day moving average. This is a sign of a bearish market, which could indicate it is time to sell. In this chart, the 50-day average crossed below the 200-day line (in red) indicating a longer downward trend throughout the year. 

Trend lines

Knowing when to buy or sell can be difficult. Setting up trend lines is a way of developing indications on when to buy, and when to cut your losses. Trend lines are made by making a line from between two or more price points - either high points or low points - to draw the resistance and support line.

BULLISH SIGNAL:
The upper trend line is the resistance trend line. When the price breaks the resistance line, it could indicate a positive trend for that given instrument and signals a buy signal. In this example it would mean the NASDAQ 100 index would have to break through 8100.

BEARISH SIGNAL:
The lower price points form the support trend line. It is to set stop-losses or identify short opportunities. If an instrument suddenly breaks the support line, it is often a bearish signal and indicates a price where the investor would typically benefit from cutting the loss rather than holding onto a falling knife. In this example it would mean the NASDAQ 100 index crossing below 7600.

Relative Strength Index (RSI)

RSI is a momentum indicator ranging from 0-100 showing the relations between the latest movement in the market. This can help to indicate whether an asset is being overbought or oversold.

BULLISH SIGNAL: 
When the indicator is between 0-30, it means the asset is being oversold, meaning it might be time to buy up before the trend is turning. In the case of Tesla, which happened in May, when the RSI dipped below 30 before bouncing back up in the coming months.

BEARISH SIGNAL:
If the indicator is placed between 70-100, it shows the asset is being overbought. This means it might be the right time to withdraw before the trend turns. In the Tesla example, that is exemplified in July when the RSI went above 70, which marked a turn in trend.

Bollinger bands

Bollinger bands are used to follow market volatility and provide indicators on when to sell or buy. Bollinger bands consist of a simple moving average with one band above and one band below showing the standard deviation, indicating how prices are dispersed around an average value. As volatility either increases or decreases, the bands move along. If the volatility is high, the bands expand – and if the volatility is low the bands contract.

BULLISH SIGNAL:
A sharp move penetrating the upper band is usually a bullish signal. In this example the Tesla stock penetrated the upper band in October, marking the start of a bullish trend throughout the next month.

BEARISH SIGNAL:
If there is a sharp move towards the lower band, it is a bearish signal. In December, the Tesla stock penetrated the lower band. This indicated a bearish trend in the following months.

Volume

Keeping an eye on the trading volumes can indicate when the market is about to go up or down – giving insights on when to buy or sell. The volume increases when investors buy or sell a certain asset and decreases when it is not being traded. Price and volume always go hand in hand since there is no market without price movement, and there is no price movement without volume. Volume represents balance of supply and demand that moves prices up and down.

BULLISH SIGNAL:
When price and volume is rising, it is an uptrend confirmation and a bullish signal. 

Technical analysis made easy

For many traders, chart analysis is a time-consuming task. However, because it is purely based on data points, it can be completely automated. Trade Signals by Autochartist is one of the leading software in the market, and it is seamlessly integrated in SaxoTraderGO.

Ideal for all types of traders, Trade Signals identifies both emerging and completed Support & Resistance, Chart and Fibonacci patterns across hundreds of instruments. Traders can use it for trade inspiration or simply to supplement their own technical analysis. It also helps them identify key levels for stop loss and take profit orders, providing a potential entry or exit strategy across various asset classes. Trade Signals is free for Saxo clients and readily available in SaxoTraderGO.