Optimize Your Stock Portfolio with Technical Analysis

As you build your portfolio, you’ll hear about various strategies and analyses of traders. Different techniques help identify specific stocks to add to your investment portfolio and the optimal time to buy and sell stocks. 

One of the strategies used by many professional traders is technical analysis, which helps define specific entry and exit points prior to making any changes to their portfolio. This stock-trading strategy uses stock market charts and data insights to help make informed decisions. 

In this article, we will discuss: 

· Basic technical analysis trading strategies

· How to interpret technical analysis data

· Free tools to incorporate technical analysis in your trading strategies

What is stock technical analysis?

With a stock technical analysis, traders try to predict what stock prices might look like in the future. Traders look for patterns and closely examine what happened with the stock in the past to improve their predictions. 

This type of technical analysis provides considerable value. Often, investors and traders use a stock analysis to help them better understand the difference between the intrinsic value of a stock — its innate value — and the market price. 

However, new traders may find this strategy a little overwhelming because there are many different technical features to look at closely. Building your understanding of technical analysis and its value can help improve your ability to predict future returns and make investment decisions based on data and concrete facts, rather than emotion. 

Many traders are often motivated by the desire to try and get rich quickly when buying and fear when selling. Without data, traders can only rely on the news and may make emotional decisions, rather than informed selections. Using an analysis that offers data-driven reasons for investing can help you improve your investment strategy.

Consider incorporating these analyses into your investment strategy to better understand how the system works. 

What are some basic technical analysis strategies?

Traders and investors use technical analysis in various ways, and some will even develop indicators to better predict stock performance according to the patterns and the insights they find. The key lies in examining patterns in past data to try and predict what the stock will do moving forward.

Two Main Approaches to Technical Analysis

Top-down

The top-down approach looks at the overall economy first. Traders determine how that economy impacts local markets, business sectors, and individual stocks. Typically, this type of analysis will work best for short-term traders.  Bottom-up 

The bottom-up approach is the opposite and is often used for long-term investments. With this strategy, traders look at a specific stock for indicators that show if it is potentially undervalued. They also do analyses to see the best times to trade this particular stock. 

Looking at the data for technical analysis

When interpreting data through technical analysis, traders have various features to evaluate. Trend lines, volume indicators, and chart patterns can help traders visualize the data and draw conclusions. 

These charts and graphs present the data from various technical analysis tools and indicators. While many different indicators exist, we will review some of the most common and most popular.

Stochastic Oscillators 

Oscillators live on a plotted chart between 0 and 100 and compare the current price with the stock's price ranges. Traders can use this chart to see if something is overbought or oversold.

On-balance Volume and Divergence 

The on-balance volume and divergence, also known as the OBV, buying and selling pressure using the overall volume as an indicator. Specifically, it looks at the volume of stock sold when the price was the highest and then subtracts the volume of stock sold when the price fell. This metric measures the flow of the stock. If investors notice a change from the expected pattern, it can indicate an impending shift in the trend called a divergence.

Accumulation and Distribution Line 

Known as the A/D line, this line works similarly to the OBV. However, the critical difference lies in the actual price used. The OBV will use the closing price, while the A/D line will look at the range of the stock price over a given period and where the closing price falls within that range. In other words, if a stock closes near its highest price, it will carry more weight when indicating the likely direction of the stock. If the stock prices generally finish in the upper half of the range, that typically indicates that the stock is moving upward. Similar deductions are often made based on the opposite: if the stock generally finishes near the bottom of its range, it is on a downward trend.

Relative Strength Index (RSI) 

The RSI plots the price gains from the stock against the price losses. With the RSI, the chart again moves between 0 and 100. Traders can use the chart to better understand the stock’s momentum and its overall strength. Typically, if the RSI of the stock surpasses 70, it is viewed as ‘overbought’ and may soon fall. If the RSI drops below 30, it may be a potential indication it is oversold or overvalued.

Moving Average Convergence Divergence (MACD)

You can use this line to track the momentum of a stock trend. You will see two lines on this chart, a MACD line and a signal line. When the MACD line is above 0, it indicates that this stock is moving upwards as a trend. If the MACD line crosses above the signal line, that also suggests that prices are rising. However, if it crosses below the signal line, prices tend to be falling.

Moving Averages

Moving averages look at the average price of the investment over a specific time, such as 50 or 200 days. You can then chart these lines to look for a moving average crossover. If the short-term moving average line, such as the 50-day line, goes above the long-term moving average line, such as the 200-day line, then that indicates that this might be a good time to buy some of this stock. 

It is important to note that you will likely want to try out a few different tracking and data strategies to help you begin to use technical analysis effectively. Evaluate the options based on your risk tolerance and consider which specific factors help you produce the most precise picture for your investments.

How to get a free technical analysis tool?

If you are interested in gaining access to data and insights, the moomoo app can help you maximize your portfolio. The app simplifies the trading experience by allowing users to trade, screen, analyze, and monitor stocks all in one place.  

How to access the technical analysis tools on moomoo 

Download the moomoo app and sign up. Select a stock then go to the Detailed Quotes page for that stock. Scrolling down will allow you to click the indicators you wish to see for this stock.

Moomoo offers you access to charts and indicators such as:

· Moving average

· Volume and volume-weighted average price

· RSI

· MACD

If you have not used technical analysis before, you can practice your skills before trading with real stocks. Our paper trading allows you to practice your different strategies until you feel more comfortable and confident. You can also add specific stocks to a watch list that will enable you to monitor the stock over time and see how its behavior aligns with your expectations based on technical analysis.

Get started with moomoo

Start using the moomoo trading app today. With in-depth data and access to over 62 technical analysis indicators and 37 drawing tools, moomoo gives you the data you need to make informed decisions.