Advanced technical analysis techniques are a valuable toolkit for professional traders in financial trading. These traders rely on various indicators and strategies to gain insights into market trends, identify potential trading opportunities, and make informed decisions. By mastering advanced technical analysis, professional traders can navigate the complexities of the market with greater precision and improve their overall trading performance.
This article will explore some essential indicators and strategies professional traders commonly use. If you are looking to gain market access to the world’s most popular stock exchanges, you can visit Saxo Singapore to open a live account.
Relative Strength Index (RSI)
Professional traders often use the Relative Strength Index (RSI) to assess whether an asset is overbought or oversold. The RSI uses a scale of 0 to 100 to rate the speed and magnitude of price changes. An RSI reading above 70 signals an overbought asset that may experience a price correction or reversal, while a reading below 30 suggests an oversold asset that may see an increase or upward trend in value.
The RSI is frequently used by professional traders along with other technical indicators or chart patterns to confirm trading signals. Bearish divergence, where the price reaches higher highs and the RSI lower, can indicate a weakening trend. On the other hand, a bullish divergence is when the price reaches lower lows and the RSI higher, signalling potential strength in the trend. Professional traders combine the RSI with other indicators to increase their trading signals’ reliability and improve their decision-making process.
Ichimoku Cloud
The Ichimoku Cloud, which is also called Ichimoku Kinko Hyo, is a tool used for technical analysis that provides a complete view of the market. It has various parts such as the cloud (Kumo), conversion line (Tenkan-sen), baseline (Kijun-sen), lagging line (Chikou Span), and leading span lines (Senkou Span A and B). These parts help in determining trend direction, support and resistance levels, and possible trading signals.
Professional traders appreciate the versatility of the Ichimoku Cloud and its ability to provide comprehensive market analysis. The Kumo, or cloud, represents an area of support or resistance and can indicate potential trend reversals. When the price is above the cloud, it signals a bullish trend, while a price below the cloud suggests a bearish trend. Moreover, the intersection of the Tenkan-sen and Kijun-sen lines can generate buy or sell signals, known as the TK cross.
The Chikou Span acts as a lagging line, reflecting the current price about historical price action. When the Chikou Span crosses above or below the price, it can confirm a potential trend reversal. The Senkou Span A and B lines form the edges of the cloud and can serve as support or resistance levels.
Volume analysis
Volume analysis is a powerful tool that allows professional traders to assess the strength and validity of price movements when trading stocks. By analysing the volume of traded shares or contracts, traders can gain insights into the market participation level and the intensity of buying or selling pressure.
One standard volume indicator used by professional traders is the Volume Weighted Average Price (VWAP). The VWAP calculates the average price weighted by trading volume throughout the day. It provides an objective reference point for assessing the value of a particular asset and can be used to identify potential buy or sell zones.
Professional traders also pay attention to volume spikes or divergences. A volume spike occurs when there is an unusually high volume of trading activity, which can indicate a significant shift in market sentiment or the presence of institutional investors. The divergence between price and volume occurs when the price makes a new high or low, but the volume fails to confirm the move. This can be a warning sign of a potential trend reversal or weakness in the current trend.
To that end
Advanced technical analysis is a crucial skill set for professional traders seeking an edge in the market. With indicators such as the RSI, Ichimoku Cloud, volume analysis, and Fibonacci retracements, traders can analyse price trends, identify potential entry and exit points, and make informed trading decisions. It is essential for professional traders to continuously refine their technical analysis skills, adapt to market conditions, and combine multiple tools to develop a robust trading strategy.
With dedication, practice, and a deep understanding of advanced technical analysis, professional traders can increase their chances of success in the dynamic and ever-changing world of financial markets.