Technical analysis is a methodology through which traders can forecast the upcoming movement of a stock based on observations about how the price and trading volumes of the instrument have behaved historically.
Performing technical analysis on a stock can lead to conclusions about the direction that the price could be taken – up or down – or about the expected relevancy of the upcoming movements.
The eToro trading platform allows users to perform this kind of analysis through its charting tool, which features more than 70 different technical indicators along with multiple chart displays and time frames.
In the following article, we will demonstrate how you can use eToro’s trading interface to perform technical analysis on a popular stock – in this case, Apple (AAPL).
How to access eToro’s charting tool?
The first step to perform technical analysis on a stock is to find its price chart.
With eToro, charts can be found by clicking on the ticker symbol of the stock that we will be analyzing or by searching the stock using the search tool located in the upper area of the trading interface.
After that, a separate page for the stock will be displayed with four different tabs that investors can click on to find useful information about the instrument including what the eToro community is saying about the stock – using the social trading features of the platform – along with valuable stats such as the stock’s price-to-earnings ratio, dividend yield, 1-year return, etc.
One of those tabs is the “Chart” tab and we have to click there to get to the charting tool.
Now that you have entered the charting section, the only way you can start drawing things on the chart is to expand it by clicking the two opposing arrows located in the upper right corner of the chart.
Once you click there, the chart will be fully displayed and you’ll be able to see all of the tools that will be at your disposal to perform technical analysis on a stock.
How to use eToro’s technical analysis tools?
Performing technical analysis on a stock requires knowledge and expertise in the financial field, which means that, for the purpose of this article, we will not be addressing how to analyze the stock. Instead, we will show you how to use the different tools available for those who already know how to perform such an analysis.
eToro’s charting tools allow users to analyze the price action of a stock in 9 different time frames going from minute-to-minute activity to 1-hour price fluctuations – for day traders – to 4-hour to 1-week time frames – often employed by swing traders.
Additionally, the chart’s display can be modified to a line chart, bar chart, or Japanese candles chart and the color of the chart can also be customized depending on the user’s preference (white or dark theme).
Moreover, the chart can display prices either traditionally or on a logarithmic scale depending on the trader’s preferences.
Finally, there is a “Settings” button that traders can click on to have access to eToro’s 70 technical indicators – known as Studies – along with 13 drawing tools used to identify potential trends, areas of support/resistance, and other similar technical setups.
These studies include the most widely used indicators such as the accumulation/distribution chart, Bollinger bands, Ichimoku clouds, the Relative Strength Index (RSI) chart, and the MACD chart.
The example above shows how you can perform technical analysis on a stock by using eToro’s trading platform, using multiple drawings and indicators to assess the situation of the stock price to possibly draft a forecast based on those observations.
It is important to note that volume information is only available for instruments that are traded directly – not for CFDs.
Moreover, it is important to note that, similar to other forms of analysis applied to stocks and other financial instruments, technical analysis is not a perfect science – in fact, it is not even a science at all – which means that forecasts made using these analytical tools just aim to assign a probability to different potential scenarios based on the price action of the stock.
To illustrate this, the chart above shows how Apple’s recent downtrend has just bounced off the 0.5 Fibonacci retracement level, which means that the downtrend might have found a floor – at least for now.
If the price were to move below this level, there is a high probability that the stock price could keep moving lower, possibly to retest the support area shown in the chart as the negative momentum would accelerate.
This negative momentum is indicated in both the RSI and the MACD, both of which have already sent a ‘negative momentum’ signal.
Now that you know how to use eToro’s charts to perform technical analysis, you should train yourself to make the most out of this tool by learning how this kind of analysis work and how you can apply it to find opportunities within the market.