Classical technical analysis provides many tools that are useful to the trader. For example, technicians can identify trend lines and look for prices to "break". The same is true for support and resistance levels. Certain configurations, such as the head-and-shoulders formations, double tops, double bottoms, and triangles may also signify forthcoming events and lead to profitable trades for the accomplished technician.
Included in the domain of technical analysis is the use of moving averages, oscillators, and other so-called indicators. Here we enter the world of the stochastic and the MACD (moving average convergence-divergence) oscillator, of the commodity channel index (CCI), the random walk index (RWI), and much more.
Indicators attempt to highlight or make more visible certain aspects of market behavior, such as momentum, strength of trend, and overextended conditions from which the market is likely to snap back to a more normal state. Moving average are one popular indicator often depicted on stock and future charts. They make evident the overall trend or direction in the prices of a given stock, option, or future. Sometimes moving average lines behave as levels of support or resistance, with prices bouncing off them.
Much of the time technical analysis will be used not on its own but in support of one of the trading strategies mentioned earlier. For example, momentum traders should be highly attentive to the slopes, and changes in the slopes, of moving averages. They also should attend to momentum-revealing oscillators, trend lines, and levels of support and resistance when planning trades. Support and resistance points may be used to determine the placements of stops and profit targets, and to decide when momentum may stall.
