Daily Archives: October 29, 2015

What are the main technical models to analyse a share or fund? (Part 1)

Investors have usually two options about how to analyse an asset. These are fundamental and technical analysis. The first one focuses on the company, its balance, its sales and benefits or the market share in its business. The second just look at the share price and its movements, which are organised in patters for them.

The technicians or chartists have developed several measures to take into account when they analyse an asset. These are some of the most important:

Moving average

It is the most usual to analyse a chart. A moving average is the average price of a security over a set amount of time. It removes the effect of the day-to-day fluctuations and allows investors to find the real trend and react to get it or go out from a share. There are several types: simple, linear and exponential, but the SMA or Simple Moving Average is the most common. It can have different periods: 7 days, 50 days, 200 days… For instance, the 200-day-SMA is commonly used to find deep trends and the 7-day-SMA is extended for short-term trends. In T-Advisor, we use a composed SMA by a short-term and a long-term simple averages.

Chart with moving average in T-Advisor

Bollinger bands

These bands developed by John Bollinger place volatility lines above and below a moving average (usually a 20-day-SMA). The more volatility the asset has, the wider are the bands. The usefulness of them is about the signals, when the daily movements cross the upper or lower limits. Investors have to check different patterns to find if the next movement will be upwards or downwards. There are 16 different patterns as the lines cross the upper line as they cross the bottom line. Let’s see an example in T-Advisor.

Chart with Bollinger Bands in T-Advisor

These are some of the technical references that investors use to find out the trend of a security and take their next decisions. You can see more details in all the T-Reports in our database.