REGISTER
PRACTICE TRADING
LOGIN
Technical and fundamental analysis are the two primary forms of analysis used in trading. Technical analysis can be further classified into two categories, namely price action and technical indicators.
In this article, we will explore both types of technical analysis, discuss the similarities and differences between the two, and lastly their feasibility.
What is Price Action?
Price action is a type of technical analysis that involves using only candlestick charts. Price action traders rely on candlestick formations to identify support and resistance levels, supply and demand zones, Fibonacci retracements, and other technical patterns.
Traders who use price action prefer clean charts without indicators and focus solely on the formation of candlesticks on selective timeframes. They believe that each candlestick tells a story and provides sufficient information to generate trade ideas.
What Are Technical Indicators?
Technical indicators are tools that traders use to showcase financial instruments in a different light. The information produced by technical indicators is based on candlestick formations. Since a candlestick must close before an indicator can register the information, technical indicators are naturally lagging.
Technical indicators can be used to identify trends, overbought and oversold conditions, and potential reversals in price. They can also be used to generate trading signals, either on their own or in combination with other indicators.
Trend, oscillators, and volume are the three major categories of technical indicators. In addition, there are custom indicators that traders can use that produce a unique set of information.
Read more about technical indicators here.
So, which is better? Price Action or Technical Indicators?
The answer to this question depends on the trader’s preferences and trading style, each coming with its own set of strength and weaknesses.
Using price action to conduct technical analysis provides a clear picture of price movement and can help traders identify trends and levels of support and resistance. This also allows for the smooth assimilation of other forms of analysis such as fundamental analysis to provide a more complete picture of on-going market conditions.
However, it would take significant amount of time and effort to learn before traders can become proficient at identifying price patterns and interpreting price movement.
For technical indicators, it provides objective, mathematical data that removes some of the ambiguity from trading. An effective combination of certain indicators can aoften generate trading signals automatically, saving time and effort for traders.
The limitations of some technical indicators include, as previously mentioned, lagging as they rely on past price data to generate signals. Due to the ease of using indicators, it can also be over-relied upon, leading to “analysis paralysis” and missed opportunities.
Ultimately, the decision between price action or technical indicators boils down to a trader’s personal preferences and trading style. Certain traders enjoy the simplicity and clarity of price action, while others may appreciate the objectivity of technical indicators.
Looking for access to Vantage’s custom indicators? Sign up for a live account here.
The information has been prepared as of 2 May 2023 and is subject to change thereafter. The information is provided for educational purposes only and doesn’t take into account your personal objectives, financial circumstances, or needs. It does not constitute investment advice. We encourage you to seek independent advice if necessary. The information has not been prepared in accordance with legal requirements designed to promote the independence of investment research. No representation or warranty is given as to the accuracy or completeness of any information contained within. This material may contain historical or past performance figures and should not be relied on. Furthermore estimates, forward-looking statements, and forecasts cannot be guaranteed. The information on this site and the products and services offered are not intended for distribution to any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
The information has been prepared as of the date published and is subject to change thereafter. The information is provided for educational purposes only and doesn't take into account your personal objectives, financial circumstances, or needs. It does not constitute investment advice. We encourage you to seek independent advice if necessary. The information has not been prepared in accordance with legal requirements designed to promote the independence of investment research. No representation or warranty is given as to the accuracy or completeness of any information contained within. This material may contain historical or past performance figures and should not be relied on. Furthermore estimates, forward-looking statements, and forecasts cannot be guaranteed. The information on this site and the products and services offered are not intended for distribution to any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
