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If you’re unhappy with a recent purchase or believe an unauthorized charge occurred, you may be wondering, can I dispute a charge on my credit card? You can dispute credit card charges — even a credit card charge that you willingly paid for.

Read on for more details on instances on when you may and may not consider disputing a credit card charge, as well as instructions for how to draft a letter to do so.

Disputing Credit Card Charges

Disputing a credit card charge involves filing a claim with a credit card issuer that argues that the cardholder shouldn’t be responsible for paying for a specific purchase made with their credit card.

A cardholder can’t make a dispute if they simply don’t like the item or service they received. However, they can dispute a credit card charge if the merchant is acting maliciously, such as if they don’t deliver an item the consumer ordered or don’t properly reimburse a return. A cardholder also can dispute credit card charges when certain billing issues are made or if they believe there was a fraudulent charge.

The Fair Credit Billing Act (FCBA) gives consumers the right to dispute a charge and to request an investigation into the issue. Thanks to the FCBA, consumers are also entitled to a quick response from their credit card issuer and to have their credit score protected during the course of the dispute investigation, which is critical given how credit cards work.

Recommended: Charge Cards Advantages and Disadvantages

When To Dispute a Credit Card Charge

There are a few different times when disputing a credit card charge makes sense. Let’s examine when someone can consider a dispute.

Fraudulent Charges

You can dispute a credit card charge that was the result of theft, such as if you fell victim to a credit card skimmer, or due to unauthorized use. Before you report a fraudulent charge, make sure it was not just another authorized user on the card who made the charge or that you didn’t let someone else use your card. Also keep in mind that merchants may use another name or address for billing.

If it does appear to be a fraudulent charge after review, report it immediately. By law, you can’t be held liable for more than $50 in fraudulent charges, and many credit card issuers have a $0 liability policy. This would mean you wouldn’t have to worry about the charge at all, let alone any interest that may have accrued based on the APR on a credit card.

Billing Errors

Billing errors can also occur and are a good reason to dispute a charge on your credit card. For example, if the credit card issuer sends a bill to the wrong address, which gets in the way of the cardholder paying their bill on time, they can dispute any credit card interest or late fees that have accrued.

A credit card bill can also have numerical errors if the charges were incorrectly totaled. Any bill with the wrong date or amount included on it can also count as a billing error, such as if you pay taxes with a credit card but the total reflected in your statement is different than what you actually paid.

Bad or Unrendered Services

It’s easy to see how an error can lead to a dispute, but you may also wonder: Can I dispute a credit card charge that I willingly paid for? Even if someone agreed to pay for a purchase, it is possible to dispute a credit card charge for goods or services that were not delivered or that were unsatisfactory. This can include if someone doesn’t receive an item they purchased through a merchant that accepts credit card payments, or if they didn’t receive a refund after making a return.

Per the FCBA, to take advantage of this protection, you must first make a good faith effort to resolve the issue with the merchant. Additionally, the purchase must be for more than $50, and it must be made either within your home state or within 100 miles of your billing address.

When You Should Not Dispute a Credit Card Charge

There will be times when making a dispute isn’t doable. To save time and stress in the future, let’s look at when disputing a credit card charge may not be the right step.

If a Friend or Relative Made a Purchase

For a credit charge to be considered “unauthorized use,” the purchase must be made by someone who doesn’t have a right to use the credit card.

Unauthorized use can happen if someone steals a credit card (whether the physical card or credit card information, like the CVV number on a credit card), or if they find one that doesn’t belong to them and then uses it. On the other hand, if someone gives a friend or family member official permission to use their credit card, but they use it for a purchase the cardholder didn’t approve, this is still considered authorized use.

This is why it’s important to only authorize trusted users. If a friend or family member abuses their access to a credit card, the cardholder would need to contact their credit card company and remove them as an authorized user. In the meantime, the cardholder would remain responsible for any charges the individual made when they were an authorized user — even if they push them up to their credit card limit.

You Did Not Inform the Merchant Concerning the Issue First

If it’s a complaint regarding the quality of goods and services, you must first contact the merchant about the issue before making a dispute. Credit card companies may want to see proof that you’ve tried to work with the merchant before you turned to them, though this will vary by issuer.

Recommended: When Are Credit Card Payments Due

How to Dispute a Credit Card Charge

The process for how to dispute a credit card charge depends on the credit card issuer as well as the reason for the dispute.Just like all issuers have their own process for how to apply for a credit card, they also have their own process for filing a dispute. That being said, here is the general process for each type of credit card dispute:

•   Billing error disputes: The billing error dispute process is regulated by the FCBA. To dispute a credit card charge related to a billing error, send a letter to the credit card issuer’s billing inquiries department (and make sure to keep a copy for your own records). You should use the sample letter for disputing charges provided by the Federal Trade Commission (FTC) to do this. In your letter, detail the reason for the dispute and include any supporting documentation.

•   Fraudulent charge disputes: If a dispute is related to fraudulent charges, the cardholder can contact the credit card company. The company may request proof of a police report or other documentation that proves their credit card was either lost or stolen.

•   Bad service or unrendered services disputes: When it comes to service issues, it’s best to start with the merchant. If the merchant won’t refund the purchase, the cardholder can request a credit card chargeback online, over the phone, or by mail. They should include any supporting documentation that backs up their claim and shows their attempts to work with the merchant directly first. It’s important that you do not pay for the disputed charge while the issue is still being resolved, though you’ll still want to make the credit card minimum payment to avoid late fees or other penalties.

Generally, consumers have 60 days to file a request to dispute a credit card charge. After filing a dispute with the credit card issuer, the issuer has 30 days to send a letter acknowledging the dispute, and they must settle the issue within 90 days of receiving the letter.

The Takeaway

If a consumer believes that a billing error occurred, their card was used fraudulently, or they received bad service or unrendered services, then they have a right to dispute the charge with their credit card issuer. Not all issues can be resolved with a dispute. However, it’s worth confirming what options the credit card issuer has for moving forward when you’re unhappy with a charge.

Alongside factors like a good APR for a credit card and rewards offerings, protections are important to consider when choosing a credit card. The SoFi Credit Card, for instance, offers Mastercard ID theft protection, which can help to detect potential fraud. Plus, you can get complimentary cell phone insurance coverage up to $1,000.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

How long do you have to dispute credit card charges?

In the case of a billing error or unsatisfactory charges, you must make a dispute within 60 days of receiving your statement. There are no limits on how soon you must dispute a charge related to fraud.

What happens if you dispute a charge on your credit card?

There’s no guarantees that a dispute will work out in the cardholder’s favor. The credit card issuer must resolve the investigation surrounding the dispute within 90 days of receiving it.

Does a dispute affect credit score?

Filing a dispute doesn’t necessarily impact a credit score. However, if the dispute is surrounding an inaccurate late payment or other negative event, having the issue resolved after a dispute can help to improve the account holder’s credit score.

What happens if a credit card dispute is denied?

The credit card issuer can choose to approve or deny a dispute. If the filer disagrees with the result of their investigation, they can appeal the decision by writing to the creditor within 10 days of receiving the explanation for why the dispute was denied.

Can you dispute a charge after 90 days?

Generally, consumers only have 60 days to dispute a credit card charge after receiving their bill. The only exception to this timeline is fraud, which has an unlimited window for reporting. That being said, if someone realizes a charge is inaccurate after 60 days, it’s worth consulting their credit card issuer about their options.

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It’s easy to swipe a credit card and lose track of exactly how much you’re spending. That’s why it’s critical to check your credit card balance on a regular basis. By checking your credit card balance, you’ll know how much you owe so you can make payments or adjust your spending accordingly.

As for how to check a credit card balance, you can do so online, over the phone, or on the monthly statement that comes in the mail. Keep reading to learn more about how to check a balance on a credit card and why your credit card balance matters.

What Is a Credit Card Balance?

There are two different types of balances consumers will come across when it comes to their credit cards: current balances and statement balances.

The statement balance is the total balance owed at the end of the billing cycle. If someone wants to avoid paying interest, they need to pay off their statement balance in full each month. The current balance, on the other hand, is the total amount owed plus any fees, charges, credits, and payments that have been added to the account since the billing cycle ended. Given how credit cards work, it’s not necessary to pay the entire current balance to avoid interest charges.

In addition to their current balance and statement balance, each month the cardholder will also be told what their credit card minimum payment is. This is the lowest amount of their balance that they can pay in order to remain in good standing with their credit card issuer. They’ll need to pay interest on the remaining unpaid balance.

Recommended: Charge Cards Advantages and Disadvantages

Why Is It Important to Know Your Balance?

A credit card balance represents the total amount owed to the credit card issuer. If the cardholder wants to avoid paying interest on their remaining balance, they’ll need to pay off their credit card balance in full each month. So, for budgeting purposes, it’s helpful to know what that balance is.

A credit card balance also can indicate how high or low someone’s credit utilization ratio is. This ratio compares how much credit someone is using to how much credit they have available based on their credit card limits. It’s generally advised to keep your credit utilization ratio under 30% — but the lower, the better. Paying off a credit card balance in full each month can also help keep credit utilization low.

Additionally, checking your credit card balance each month can allow you to spot any unusual or potentially fraudulent charges on your credit card. If anything is amiss, you could then quickly contact your issuer and dispute the credit card charge. This could result in a credit card chargeback, allowing you to get the money back.

Reviewing a credit card statement can also help consumers identify where to cut back their spending so they can save more or afford to pay down more credit card debt.

How to Check a Credit Card Balance

Even if you’re confident you can pay off your balance in full each month, it’s smart to stay on top of your credit card balance for the reasons mentioned above. Read on to learn how to check the balance on your credit card.

Log In to the Mobile App or Go Online

Thanks to mobile banking and credit card apps, it only takes a few seconds to check a credit card balance from a smartphone. These mobile apps are helpful for checking a credit card balance on the go. It’s also possible for consumers to check their credit card balances by logging onto their online accounts from a computer, smartphone, or tablet.

Call the Card Issuer

It’s also possible to call the credit card issuer directly to confirm what your current credit card balance is. The phone number to call is printed on the credit card and also listed on the credit card issuer’s website. Keep in mind your issuer may provide different numbers to call depending on your reason for calling.

Send a Text to Your Bank

Don’t love making phone calls? Some banks and credit card issuers also allow account holders to text them to check their account balance, which is a speedy and convenient way to get an update.

Check Paper Statements

Each month, the account holder will receive a paper credit card statement through the mail or over email. The Account Summary section of the statement will outline what the statement balance on the credit card as well as the following details, which are given what a credit card is:

•   Payments and credits

•   New purchases

•   Balance transfers

•   Cash advances

•   Past due amount

•   Fees charged

•   Interest charged

Recommended: When Are Credit Card Payments Due

The Takeaway

As you can see, making a point to regularly check your credit card balance is smart for a number of reasons. In addition to helping you stay on top of your spending and how much you owe, it can also help you to monitor your credit utilization and check charges for any fraudulent activity. Checking your credit card balance is easy to do online, over the phone, via text, or on your credit card statement.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can you transfer a balance to a new credit card?

It’s possible to transfer a balance from one credit card to a new one by using a balance transfer credit card. Typically, balance transfer cards come with a low or 0% introductory APR, which makes it possible to pay down debt without spending too much on interest for a temporary period of time. Keep in mind that balance transfer fees will typically apply.

What is a credit card balance refund?

When someone pays off their credit card balance before getting a refund for a purchase they made, that results in what is known as a negative credit card balance. To get that money back, you can either request a refund or wait for the funds to get applied to future credit card balance.

What happens if I overpay my credit card balance?

If someone overpays their credit card balance for whatever reason, they can either have that balance applied to a future purchase or they can request a credit card balance refund.

What does a negative balance on a credit card mean?

Having a negative credit card balance means that someone has a credit card balance that is below $0. For example, if someone pays off their credit card balance and then requests a refund from a merchant for $250, they would end up with a negative balance of $250. The credit card issuer would then owe that money to the account holder.

What happens if you cancel a credit card with a negative balance?

If someone chooses to close a credit card that has a negative balance, they need to request a refund before they close their account as they won’t be able to apply that negative balance to a future bill. Some credit card issuers will issue this refund automatically, but it’s best to confirm the refund is happening before closing an account.

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Photo credit: iStock/milan2099

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Using technical analysis to research stocks is a common strategy to profit from short-term movements in security prices. While some stock analysis tools are fundamental in nature, technical stock indicators typically seek patterns in past price and volume data to give investors and traders insights about how a stock might move in the future.

Naturally, every stock indicator has its pros and cons. Technical indicators can be used by traders to analyze supply and demand forces on stock price, to help investors to understand market psychology, or to manage risk. But while stock indicators and trading tools can help with buy and sell points, false signals can also occur.

For that reason, although technical indicators can assist with trend identification, it’s best to combine different indicators when conducting your stock analysis.

Learn more about the pros and cons of using the following 15 trading tools in your strategy.

How Do Stock Technical Indicators Work?

Technical analysis uses various sets of data and indicators, such as price and volume, to identify patterns and trends. It does not use fundamental analysis to look at the underlying companies, their industries, or any macroeconomic trends that might drive their success or failure.

Rather, technical analysis solely analyzes a stock’s performance. Technical indicators are often rendered as a pattern that can overlay a stock’s price chart to predict the market trend, and whether the stock would be considered “overbought” or “oversold.”

One of the basic tenets of technical analysis is that history tends to repeat itself. By examining certain patterns in light of past outcomes, analysts can make an educated guess about where stock prices might be headed. That said, past performance is never a guarantee of future stock price movements, so traders must bear this in mind.

Knowing many of the most popular trading tools might benefit your investing strategy with easier to spot buy and sell signals. You don’t have to know every single technical indicator, and there are many ways to analyze stocks, but using multiple stock indicators may improve trading results. You can also use these stock indicators to help you manage risk when you are actively trading.

Trend indicators are some of the most important technical trading tools since identifying a security price’s trend is often a first step to forming a strategy. Long positions are often initiated during uptrends, while short sale ideas can occur when prices are in an established downtrend.

Volume technical indicators are also helpful to gauge the power or conviction of an asset’s price move. Some believe that the higher the stock volume on a bullish breakout or bearish breakdown, the more confident the move is. Higher volume could signal a lengthier trend continuation.

Two Types of Technical Indicators

Technical indicators generally come in two flavors: overlay indicators and oscillators.

Overlay Indicators

An overlay indicator typically overlays one trend onto another on a stock chart, often using different colors to distinguish between the lines.

Oscillator Indicators

On a technical analysis chart, an oscillator tracks the distance between two points in order to gauge momentum. The moving average is a common oscillator; it’s considered a lagging indicator as it measures specific intervals in the past.

An oscillator indicator can help traders determine support and resistance in certain price trends, so they can decide whether to sell or buy.

Oscillator indicators can be leading or lagging:

•   A leading indicator tracks current market movements to anticipate where the trend is headed next.

•   A lagging indicator is based on recent history and seeks patterns that will indicate potential price movements.

Top 15 Stock Indicators for Technical Analysis

It’s important to remember that these trading tools were developed based on the belief that mathematically derived patterns may be valuable as predictors of stock movements. Past performance, however, is not a guarantee of future results. So while it can be useful to employ stock technical indicators, they are best used in combination before deciding on a potential trade.

Also, many of these trading tools are lagging indicators, which can lead to an inaccurate reflection of current and future market conditions.

Following are 15 of the most common technical stock indicators, along with their advantages and disadvantages.

1. Moving Averages (MA)

A moving average (MA) is the average value of a security over a given time. The MA can be Simple Moving Average (SMA), Exponential Moving Average (EMA), and Weighted Moving Average (WMA).

A moving average smooths price volatility and is taken as an indicator of the direction a price may be headed. If the price is above the moving average, it’s considered an uptrend versus when the price moves below the MA, which can signal a downtrend. Moving averages are typically used in combination with each other, or other stock indicators, to identify trends.

Pros

•   Using moving averages can filter out the noise that comes from price fluctuations and focus on the overall trend.

•   Moving average crossovers are commonly used to pinpoint trend changes.

•   You can customize moving average periods: common time frames include 20-day, 30-day, 50-day, 100-day, 200-day.

Cons

•   A simple moving average may not help some traders as much as an exponential moving average (EMA), which puts more weight on recent price changes.

•   Market turbulence can make the MA less informative.

•   Moving averages can be simple, exponential, or weighted, which might be confusing to new traders.

2. Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (MACD) also helps investors gauge whether a security’s movement is bullish or bearish, but it uses two different MAs to do so. Often, a 26-period exponential moving average is subtracted from a 12-period EMA to spot trading signals. Then a signal line, based on a shorter period EMA, is plotted on top of the MACD to help reveal buy and sell entry points.

Traders use the convergence or divergence of these lines to identify when bullish or bearish momentum is high.

Pros

•   The MACD, used in combination with the relative strength index (below) can help identify overbought or oversold conditions.

•   The MACD can be used to indicate a trend and also momentum.

•   Can help spot reversals.

Cons

•   May provide false reversal signals.

•   Responds mainly to the speed of price movements; less accurate in gauging the direction of a trend.

3. Relative Strength Index (RSI)

RSI is a tool that identifies bullish vs. bearish price momentum. The relative strength index is an oscillator — a tool that builds a trend indicator based on the price movement between two extreme values. It ranges from 0 to 100. Generally, above 70 is considered overbought and under 30 is thought to be oversold.

Pros

•   Can help investors spot buy or sell signals.

•   May also help detect bull market or bear market trends.

•   Can be combined with moving average indicators to spot breakout trends or reversals.

Cons

•   The RSI can move without exhibiting a clear trend.

•   The RSI can remain at an overbought or oversold level for a long time, making this tool less useful.

•   It does not give clues as to volume trends.

4. Stochastic Oscillator

The stochastic oscillator has two moving lines, or stochastics, that oscillate between and around two horizontal lines: The primary “fast” moving line is called the %K, while the other “slow” line is a three-period moving average of the %K line.

A signal is generated when the “fast” %K line diverges above the “slow” line or vice versa. The stochastic oscillator uses a 0 to 100 value range.The two horizontal lines are often pre-set at 30 and 70, indicating oversold and overbought levels, respectively, but can be modified.

Pros

•   Since it’s plotted on a 0 to 100 scale, it’s possible to gauge overbought and oversold levels.

•   Traders can adjust time frame and range of prices to reduce market fluctuation sensitivity.

•   Can be used by day traders.

Cons

•   A security can remain overbought or oversold for long periods as the range of oscillations is not always proportionate to a security’s price action.

•   It can be useful for implementing an overall strategy, but not for gauging the overall market sentiment or trend direction.

5. Williams %R

Similar to the stochastic oscillator, above, the Williams %R (a.k.a. the Williams Percent Range) is also a momentum indicator — but in this case it moves between 0 and -100 to identify overbought and oversold levels and find entry and exit points in the market. The Williams %R compares a stock’s closing price to the high-low range over a specific period, typically 14 days.

Readings between 0 and -20, which are in the top 20% of price during the look-back period, are considered overbought. Readings between -80 and -100, which are in the lowest 20% of price during the look-back, are considered to be oversold.

Pros

•   You can combine different short and long time periods to compare trends.

•   Identifies overbought and oversold levels.

Cons

•   False signals can happen if price strength or weakness leads to a brief movement in the Williams %R above 70% or below 30%.

•   There is no volume analysis with the Williams %R.

6. Bollinger Bands

Bollinger Bands are a set of three lines that help measure the relative high or low of a security’s price in relation to previous trades. The center line is the Simple Moving Average (SMA) of the stock price. The other two trendlines are plotted two standard deviations away from the SMA (one positively, one negatively). These can be adjusted.

The upper and lower lines show the high and low boundaries of the security’s expected price movement (90% of the time). The middle line shows real-time price action moving between those bounds as it fluctuates day-to-day.

Pros

•   Helps traders identify volatility.

•   Can help point to trading opportunities.

Cons

•   Large losses are possible when volatility surges unexpectedly.

•   Does not identify cycle turns quickly enough at times.

7. On-Balance Volume (OBV)

OBV is a little different from the other indicators mentioned. It primarily uses volume flow to gauge future price action on a security or market. When there’s a new OBV peak, it generally indicates that buyers are strong, sellers are weak, and the price of the security will likely increase. Similarly, a new OBV low is taken to mean that sellers are strong and buyers are weak, and the price is trending down.

The numerical value of the OBV isn’t important — it’s the direction that matters. Declining volume tends to indicate declining momentum and price weakness, while increasing volume tends to indicate rising momentum and price strength.

Pros

•   Volume-based indicator gauges market sentiment to predict a bullish or bearish outcome.

•   OBV can be used to confirm price action and identify divergences.

Cons

•   Hard to find definitive buy and sell price levels.

•   False signals can happen when divergences and confirmations fail.

•   Volume surges can distort the indicator for short-term traders.

8. Accumulation / Distribution Line (ADL)

The ADL is a momentum indicator that traders use to detect tops and bottoms and thus predict reversales. It does this by using volume versus price data to identify divergences and thereby show how strong a trend might be. For example: If the price rises but the ADL indicator is falling, then the accumulation volume may not actually support a true price increase and a decline could follow.

Pros

•   Traders can use the AD Line to spot divergences in price compared with volume that can confirm price trends or signal reversals.

•   The ADL can be used as an indicator of the flow of cash in the market.

Cons

•   Doesn’t capture trading gaps or factor in their impact.

•   Smaller changes in volume are hard to detect.

9. Average Directional Index (ADX)

The Average Directional Index (ADX) also helps investors spot asset price trends and to quantify the strength of those trends. ADX shows an average of price range values that indicate expansion or contraction of prices over time — typically 14 days, but it may be calculated for shorter or longer periods. Shorter periods may respond quicker to pricing movements but may also have more false signals. Longer periods tend to generate fewer false signals but may cause the indicator to lag the market.

The ADX uses positive and negative Directional Movement Indicators (DMI+ and DMI-). ADX is calculated as the sum of the differences between DMI+ and DMI- over time. These three indicators are often charted together.

Pros

•   Can help identify when price breakouts reflect a solid trend.

•   Can send signals to traders to watch the price and manage risk (e.g. thru divergences).

Cons

•   Can generate false signals if used to analyze shorter periods.

•   Can’t be used as a standalone indicator.

10. Price Relative / Relative Strength

Relative Strength should not be confused with the Relative Strength Index (above). Relative Strength is more of an investment strategy than a specific indicator. It involves comparing one asset to another or the broader market and helps traders find securities that are trending on a relative, not absolute, basis.

Pros

•   A stock indicator that helps compare one security’s price to another to find which is outperforming.

•   Can plot one stock versus a competitor or market benchmark.

Cons

•   Does not provide exact buy and sell levels.

•   False breakouts and breakdowns can happen.

•   Mean reversion can lead to losses for momentum traders.

11. Relative Volume (RVOL)

RVOL relays to traders how near-term volume compares to historical volume. The higher RVOL is, the more other traders might be paying attention to and trading the asset. Think of it as the stock being “in play.” Stocks that have a lot of volume have more liquidity and tend to trade better than stocks with low relative volume. The RVOL is displayed as a ratio.

So if it is showing 2.5 relative volume, that means it is trading at 3.5 times its normal volume for that time period.

Pros

•   Can offer clues to identify unusually powerful price moves.

•   High and low volume is easily detected by use of being above or below a value of one (1).

Cons

•   While volume is important, it does not give exact buy and sell price levels.

•   Volume surges can be fickle — like around an earnings date.

12. Rate of Change (ROC) and Momentum

ROC is just what it sounds like — the speed at which a stock is moving compared to its trend. The indicator measures a stock’s percentage price change compared to how it moved in recent periods. Like many of the tools mentioned, it can be used to spot divergences.

Pros

•   Works better in trending markets.

•   When used with other trading tools can help traders spot strong momentum.

•   A technical trading tool that can identify overbought and oversold levels.

•   Ideal for spotting divergences.

Cons

•   False signals can happen when the indicator suggests a price trend reversal will take place.

•   Does not give higher weight to more recent price action.

13. Standard Deviation

An asset’s standard deviation is a fundamental statistical tool to get a sense of volatility. It uses historical volatility to arrive at a percentage that is used to reflect how much a security moves. While volatility can indicate potential risk, it can also signal the potential for opportunity.

Pros

•   Mathematically captures the volatility of a stock’s movements, i.e. how far the prices moves from the mean.

•   Provides technicians with an estimate for expected price movements.

•   Can be used to measure expected risk and return.

Cons

•   Does not provide precise buy and sell signals.

•   Must be used in conjunction with other indicators.

14. Ichimoku Cloud

Ichimoku clouds are used to show support and resistance areas on a price chart in an extra-illustrative manner. An Ichimoku Cloud is comprised of five separate calculations that examine multiple averages, and uses the difference between two of the lines to create a shaded area (the cloud) that aims to predict support and resistance levels. It is also employed to identify momentum and trend. It is thought to provide more data than a simple candlestick chart.

Pros

•   A leading indicator of price.

•   Indicates support and resistance areas.

•   Useful for gauging the direction and intensity of a price trend.

Cons

•   Can give many false signals in trendless markets.

•   Can be confusing to traders given its complexity.

15. Fibonacci Retracements

Fibonacci Retracements are based on the golden ratio discovered by mathematician Leonardo Pisano in the 13th century. At its core, a Fibonacci retracement is a mathematical measurement of a particular pattern. The Fibonacci sequence and ratio are used to form support and resistance lines on a price chart.

Pros

•   Offers clues about where a stock might find support and resistance.

•   Helps define exit and entry levels.

•   Can be used to place stop-loss orders.

Cons

•   The use is subjective.

•   Some say Fibonacci Retracements are simply a self-fulfilling prophecy: if many traders are using these ratios, then outcomes will reflect this.

•   No logical proof of why it should work.

The Takeaway

Technical analysts use past price and volume data to help traders identify price trends and make buy and sell decisions. It’s important to know that technical analysis does not use fundamentals to assess the underlying companies, their industries, or any macroeconomic trends that might drive their success or failure. Rather, technical analysis solely analyzes a stock’s performance.

Technical indicators are often rendered as a pattern that can overlay a stock’s price chart to predict the market trend, and whether the stock would be considered “overbought” or “oversold.” There are countless stock technical indicators in existence, and it can quickly become overwhelming to learn them all. It might be more useful to focus on a handful of the most popular trading tools so you can execute a strategy that works for you.

To start trading stocks and gain a hands-on understanding of how technical indicators work, you can open a brokerage account online with SoFi Invest®. You can trade stocks, fractional shares, exchange-traded funds (ETFs), and IPO shares right from your laptop or phone. As a SoFi member, you will have access to many online resources — including financial professionals who can guide you in your financial journey. Get started now!

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