When it comes to trading, there are two main approaches to understanding what the charts are telling you and assessing what the market is going to do next. The first, fundamental analysis, focuses on economic data to assess how a stock or instrument price may be affected, and the second, technical analysis, uses solely charts to look at potential future price action.
Figure 1: A look at the difference between what technical traders are looking for vs. Fundamental traders. Images from Yahoo! Finance & TrendSpider.
Technical analysis uses chart data such as volume, price movements and so on, to analyze a stock or other instrument to predict its future movement. Essentially, technical analysis functions on the basis that market movements are not random, but instead repeat certain patterns and behaviors.
For technical analysts, the chart is everything, and in conjunction with a variety of chart-based tools, allows traders to spot these behaviors recurring and then trade those signals. However, while every chart software out there will include some of the tools such as trendlines, moving averages and various momentum indicators, not all include every feature that you may need.
In this article, we are going to highlight the stock charting features that you need to look for in your technical analysis software, and then take a look at what is available today and provides the best overall experience for technical traders.
Technical Analysis Software: Data Feeds
Any analysis you do with charts is only as accurate as the data used to create the chart in the first place, so the kind of data used is important. There are two types of data, the first is real-time, which as you may expect, means charts display the market data as it is happening. The other is delayed data, which displays the same market data, but on a delay, usually around 15 minutes.
There are two aspects to choosing which is best for you, one is the cost, and the other is the type of trading that you are interested in. Real-time data is expensive, each market charges the software company for their real-time data, the more markets, the more it costs. In contrast, delayed data is very cheap, and as a result is often found with free charting options or low-cost, entry-level solutions. Does this mean delayed data has no use? Absolutely not.
For those who trade longer time frames (such as the daily, weekly or monthly charts) so that they can trade medium to long-term trends, then the delayed aspect has no noticeable effect on their analysis at all. This is also true when using the software for chart pattern recognition when you wish to start trading back-tested charts. However, for those looking to day trade, looking for the quick trades that take advantage of small movements during the day, then real-time data is essential.
Figure 2: A trader looking at the weekly candle analysis such as this, real-time data would be irrelevant as these candles form over the entire week rather than day to day.
For most of us, real-time data is great to have, and options that provide it without charging an arm and a leg are the ideal choice.
Technical Analysis Software: Creating your own trading space
The next thing to look for in your technical analysis software is the ability to customize charts so that they work the way you want them to. Trading is a very personal activity with many different trading styles around to fit each unique personality. From being able to adjust and resize the charts to show exactly what you want, to the type of chart itself, customization is really important.
When it comes to chart types, there are 6 main options that traders look for including:
1. Candle (regular)
2. Candle (hollow)
3. Bar Chart
4. Candle (Heiken Ashi)
5. Line chart
5. Renko Chart
Always make sure the technical trading software you choose fully supports the chart style you prefer. The ability to reposition, resize, adjust, and drag charts around the workspace is also a very valuable feature. Finally, a way to screenshot your charts can be good for keeping a record of trades and analyzing your own trading performance over time, which is how traders learn and grow from this mistakes.
Techincal Analysis Software: The Tools
The key thing about all technical analysis software solutions are the analysis tools that are included. No software can include everything, there are thousands of indicators and other visual trading aids that have been created over the years, all varying in usefulness.
However, there are a number of important ones that you should never be without, these fall into two types, Upper Indicators, that appear in the main chart screen, and Lower Indicators, that appear below the main chart in sperate windows. We are going to show you which ones your technical trading software should include.
Upper indicators are perhaps the most flexible when it comes to technical analysis, covering everything from moving averages, a line representing the average price of the stock or instrument over a given period, that is adjusted in real-time with the data, all the way to Fibonacci retracements, which are plotted to show support and likely support and resistance levels of the instrument. With such a variety of tools, it is also important that the charts are easy to read and show the various indicators in a visually clear way to avoid confusion. The technical chart overlay of any of these indicators should not obscure the essential market information and maintain clarity at all times.
There are a number of upper indicators that your software should include, and these are:
- Bollinger Bands (R)
- Moving Averages
- Parabolic SAR
- Candlestick Pattern Recognition
- Fibonacci Sequence Drawing Tools
- Ichimoku Clouds
Figure 3: Examples of upper indicators on a TrendSpider chart such as Bollinger Bands (R), Trendlines, Fibonacci Retracements, and Moving Averages.
There are many more possible indicators, but these cover the main trading needs most of us will have, any extras are a bonus. However, if you trade using a specific indicator, then it is crucial you make sure that indicator is supported by the technical trading software you choose.
Lower indicators appear below the main chart in their own panels, and are used for a variety of indicator styles, some simple, such as trading volume-based indicators and momentum indicators, but others more proprietary options that show market strength (amount of buyers vs. sellers and other approaches) along with trading standards such as MACD. As with upper indicators, there are a huge number of indicators available, and no software solution could include them all, but there are some that any technical analysis software you choose should include, these are:
- Relative strength Index
- MACD (Moving Average Convergence-Divergence)
- On Balance Volume
- Williams % Range
- Vortex Indicator
- Chaikin Money Flow
Figure 4: Examples of lower indicators on a TradingView chart such as the Vortex Indicator, Williams % Range, and Relative Strength Index.
It is important that the software can display these lower indicators clearly, especially if you use more than one. When trying any software, always add two or three lower indicators to a chart to see if they are still easily understood. Not everyone uses a lot of indicators, but there is always a chance you may want to at some point, so make sure to chose a software than can display it properly.
Technical Analysis Software: Annotations
Keeping things clear as you look at the charts is really important, and the ability to draw on charts to show or highlight what interests you, mark out where the trend is, or add text, can be an essential part of your trading process.
Not all software allows annotations, and some are quite limited, so be sure that your choice supports plenty of technical chart annotations, it should always allow you to:
- Draw shapes – useful for analyzing back-testing trading patterns
- Create text boxes – Notes or other text are useful when analyzing chart data over time
- Trendlines – Drawing your own trendlines is an essential component of technical analysis
Figure 5: A “manage indicators” feature within the TrendSpider platform that allows users to personalize their indicators.
Other features should include color choice, line width, and other customizations if possible. In all aspects of technical analysis software, the more options for personalizing the charts, the better. However, especially during trading, having too many options is no good if it becomes overwhelming. Easy chart annotations are essential when the pressure is on in a trading environment.
Technical Analysis Software: Other tools
While these aspects of the software mentioned above are crucial for any trading software, they are not alone. One of the biggest challenges for any trading software developer is that every one of us has a favorite collection of indicators we use. That means that in general, trading software is usually filled with indicators, but developers have to pick the ones that are most commonly used, so always check to make sure that the software you choose offers the exact indicators and tools you need to be successful.
In addition to that, there is a range of other options that technical analysis software can include, such as the ability to work in multiple timeframes of an instrument at once, something that can provide incredibly useful for all traders, but those trading intraday in particular. Another is the ability to create comprehensive back-testing, where a trading strategy is applied to historical data to see performance over a period of time. This approach requires the software to maintain historic charts going back months or even years, something not all can do but should be a feature when looking at “elite level” platforms.
Technical Analysis Software: Choosing the One for You
With all the features in mind, there are several options available, but the question you are probably asking right now is why would you want technical analysis software when your broker gives you free charts? The reality is that if you really want the best, most comprehensive and accurate technical analysis tools, then the free options are lacking. When combined with the kind of free trading education many offer these offer, they are a great way to get a start in technical analysis and charting. However, dedicated software options provide more interactive features and help you grow your trading skills beyond those limited tools on a brokerage platform. One of the best free offerings is ThinkOrSwim from TD Ameritrade or E-trade’s in-house option, but none offer the flexibility and performance of dedicated software systems out there such as the ones listed below.
With so many options for technical software trading out there, we have done the hard work for you and found 5 solutions that exceed all those requirements and have a track record of delivering a quality service. These are:
However, while all these options fulfill the feature list requirements for traders, there is another area when it comes to software choice that we have not yet discussed.
Technical Analysis Software: Usability
Having all the tools, great data, endless indicators and back-testing features is great, but they are only useful if we use them correctly. A great example of this is the trendline. Now, a trendline is an incredibly useful tool when trading which helps to identify breakouts or reversals that can be traded. However, they are also one of the most commonly misused technical analysis tools around.
Many people fail to plot trendlines correctly for a number of reasons such as confirmation bias or inexperience. Many think just connecting points on the chart together is all a trendline is. The reality is that a trendline is based on math in which strength is measured by the number of data points that are hit over a period of time. Drawing the wrong lines can undermine your trading analysis and result in bad trades. This brings us to the final aspect and currently most rare feature out there, automated trendline detection.
Technical Analysis Software: Automation
It is here that one product really does stand out among the choices available, and that is TrendSpider. This platform adds a layer of automation into the analysis that the others cannot match. Crucially, it does all this while still allowing you full manual control of everything if you want to see, so that you personalize the chart where you need and be in full control of quickly finding new trendlines. This makes TrendSpider an exceptional option for a range of traders from those just starting out, to expert-level, experienced traders as well.
The automation features are extensive on the TrendSpider platform. Trendlines are not the only thing instantly plotted on the chart, but Fibonacci retracements, support and resistance levels, candlestick pattern detection, breakout detection and several more features can be seen with one click. This level of automation can even be applied to multi-timeframe charts, which allows incredible flexibility for short-term and longer-term traders alike.
Figure 6: A look at some of the top features available on TrendSpider’s platform.
In practice, this means that as a trader, you can make full use of every tool and indicator available, and know they are being applied correctly, enhancing your trading experience. In addition, because you get to see each tool being applied to the chart, TrendSpider is also a great learning tool for gaining a better understanding of the tools you have available. With the ability to take manual control at any time, this software gives you all options when looking for manual and automated technical analysis.
When it comes to technical analysis software, traders have endless options, but only a few have all the features that you need for the complete trader’s software solution. Having the right tools and knowing how to use them correctly are two separate things though. When it comes down to it, TrendSpider is the only system that combines the tools, features and options traders need with the automation that ensures accurate and efficient use of those tools every time.
Even for experienced traders, automated pattern recognition and other tools can be invaluable in back-testing, saving valuable time when developing strategies. For that reason, for both new and experienced traders, it is TrendSpider that has the blend of tools, features and price point that traders are looking for.