While investors have gotten used to scaremongering in the wake of Brexit, the economy continues to struggle in the face of sustained volatility. This shows no sign of abating earlier, with corporate sentiment in the UK plummeting and the country thought to be on the verge of a recession.
British stocks and the pound sterling are also continuing to fluctuate, as while they remain higher than during the initial post-Brexit slump there is still considerable room for improvement. This demands that investors take a technical approach to the markets, as they seek to minimise risk and profit in a depreciating economy.
3 Key Tools and Strategies for Analysing the Markets
The need for a technical and analytical approach to the markets is also exacerbated by the rise of diversified portfolios, which include a host of derivatives such as futures, currency, and energy. There are also multiple ways of profiting from these products, from CFD trading to spread betting and similar practicies. With these facts in mind, let’s take a look at the key tools and strategies for market analysis in the modern age: –
- Volume Trading and the OBV Indicator
The OBV (On-balance volume) indicator is a popular analytical tool in the current market, and one that is used to measure the positive and negative flow of volume within a specific security. The results produced are relative to the price of the security over time, and it provides an insight into the performance of a specific asset class and its price movements when volume fluctuates.
This is a solid analytical tool as volume tends to proceed price movement, whether it is increasing as prices soar or in a depreciating market. This can inform your strategy over time and help you to profit regardless of the wider economic climate.
- Investing based on the momentum of an existing trend
On a similar note, there is another analytical tool that is based on prevailing trends. Rather than focusing on the direction of a trend, however, it delivers results based on momentum and this allows traders to profit from both prosperous and depreciating markets.
The average directional index (ADX) uses a benchmark of 40 and above to indicate robust directional strength, whether it is moving up or down. Conversely, when the indicator is below 20 the trend is considered to be weak, and this allows investors to make informed decisions rather than being swept away on market sentiment.
- Driving Strong Technical analysis with the Stochastic Oscillator
The tried-and-tested stochastic oscillator is another momentum indicator, but one that also considers the direction of the prevailing trend. This is an exceptionally technical tool that can be used to highlight both overbought and oversold conditions, helping traders to execute increasingly informed and strategic decisions.
The stochastic oscillator is plotted within a range of zero to 100, with prices towards the upper echelons of the trading range indicative of an upward trend. Conversely, prices located towards the bottom of the trading range indicate a downward trend, while it is also possible to determine the strength and momentum of these movements.
These tools and strategies can help you to execute informed decisions in a volatile market, while also offering in-depth and invaluable insight. In short, they can make the difference between good and bad trades and help you to operate as a successful financial trader.