Technical analysis software is a way of automating the functions associated with technical analysis. Features that are most commonly associated with the use of this type of software are charting, back testing, optimisation, market scanning, alerts, custom indicators, data feed and the ability to interface directly with broker platforms.

Any good software package will have the ability to create charts. A chart is basically just a way to present movements in the price or trading volumes of a stock/currency/commodity in a graphical manner. There are various different types of charts. The simplest one is the line chart. Another very poplar type is the candlestick chart and many traders still have a preference for the bar chart.

The main advantage of using charting software is that it makes it very easy to see when a specific technical indicator generates a trade signal. A basic example is when the price of a commodity rises above the three week moving average. If you are connected to live price feeds these charts can be generated automatically by the software ‘ setting you free to simply react to certain trading signals.

Back testing is another important feature that helps traders to assess the potential profitability of a trading system. With back testing you can test a new trading system you have developed against historical data to see how it would have done under different real life scenarios.

If you find a system that works well on back testing, you can use optimisation to fine tune it further to get the best possible results. There is a danger involved here: the past very seldom repeats itself in exactly the same way, so your system might work 100% on historical data, but somehow never make money for you. That is called over-optimisation.

The ability to connect to a live data feed is also quite important for technical analysis software. Most of these data providers don’t only provide live prices, but they also send you lots of market news, trading tips etc. If you are working form home this will be very useful since it might be the only way for you to be stay on top of vital market information.

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