There are two main types of technical analysis: classical and computerized. Classical technical analysis is based solely on the study of charts, without using anything more complex than a pencil and ruler. Classical technicians look for uptrends and downtrends, support and resistance zones, as well as repetitive patterns, such as triangles and rectangles. It is an easy field to enter, but is main drawback is subjectivity. When a classical technician feels bullish, his ruler tends to inch up, and when he feels bearish, that ruler tends to slide down.
Modern technical analysis relies on computerized indicators whose signals are much more objective. The two main types are trend-following indicators and oscillators. Trend-following indicators, such as moving averages, Directional System, and MACD (moving average convergence-divergence), help identify trends. Oscillators, such as Stochastic, Force Index, and Relative Strength Index (RSI) help identify reversals. It is important to select several indicators from both groups, set their parameters, and stay with them. Amateurs often misuse technical analysis by looking for indicators that show them what they want to see. Trading option
