How to Apply Technical Indicators to Mutual Funds: A Guide for Informed Investors

How technical analysis is useful to investors

Mutual funds are favored investment vehicles for many since they provide instant diversification and professional management to even small investors. While many focus on the fundamental attributes of a fund, applying technical analysis concepts can bring further insights into a mutual fund’s behavior.

Understanding Technical Analysis

Technical analysis is a method of forecasting price or value movements within financial markets using historical price and volume data. Unlike fundamental analysis, which uses a company’s financial health as a guide, technical analysis looks at chart patterns and statistical trends.

What are the top 5 technical analysis indicators

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Why Use Technical Indicators on Mutual Funds?

While mutual funds might seem different from stocks, the concepts of technical analysis can still be adapted. Here’s why it’s worth considering:

  • Identifying Trends: Technical indicators help determine the overall direction of a mutual fund’s price based on past performance, revealing if it’s in an uptrend, downtrend, or moving sideways.
  • Spotting Potential Reversals: Many technical indicators signal potential changes in direction, helping investors anticipate when a trend might weaken or reverse.
  • Gauging Momentum: Momentum indicators show how fast a mutual fund’s price is changing, which can be a sign of strength or weakness in the current trend.

Key Technical Indicators for Mutual Funds

Let’s delve into some of the most useful technical indicators for analyzing mutual funds:

  • Moving Averages: These are trend-following indicators that smooth out price fluctuations to provide a clearer picture of the fund’s direction. Popular ones include the Simple Moving Average (SMA) and Exponential Moving Average (EMA).
  • Relative Strength Index (RSI): The RSI is a momentum oscillator ranging between 0 and 100. Readings above 70 suggest a fund may be overbought and due for a correction, while readings below 30 suggest oversold conditions and a potential rebound.
  • Bollinger Bands: These volatility bands plot standard deviations above and below a moving average. The bands widen when volatility increases and narrow when it decreases. Prices touching upper bands might indicate overbought conditions, while touching lower bands could suggest oversold scenarios.
  • Moving Average Convergence Divergence (MACD): The MACD helps identify trend changes by measuring the relationship between two moving averages. Crossovers of the MACD and signal lines can act as potential buy or sell signals.

How to Use Technical Indicators Effectively

Here are some crucial points to consider for best results:

  • No Single Perfect Indicator: No tool is infallible; rather, use a combination of indicators to confirm signals and increase your confidence level.
  • Focus on NAV: Look at a mutual fund’s Net Asset Value (NAV) for technical analysis, as it best represents the underlying value.
  • Adjust Timeframes: Experiment with different timeframes, such as daily, weekly, or monthly charts depending on your investment horizon.
  • Don’t Rely Solely on Technical Analysis: Always combine technical analysis with an understanding of the fund’s fundamentals, holdings, and overall market conditions.

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A Note on Limitations

It’s important to be aware that:

  • Past Performance Isn’t a Guarantee: Technical analysis uses past data, which isn’t always a perfect predictor of future behavior.
  • Mutual Fund Specifics: Some indicators are inherently designed for stocks with open, high, low, and close prices. Mutual fund charts only have close prices (the NAV), which may affect the effectiveness of certain indicators.

Where to Find Mutual Fund Charts and Indicators

Many financial websites and trading platforms provide charting capabilities and technical indicators for mutual funds. Popular resources include:


Technical indicators can be helpful tools to complement your mutual fund investment decisions. By understanding the core concepts, choosing appropriate indicators, and combining them with a strong understanding of fundamentals, you’ll be well-equipped to gain deeper insights into the potential behavior of your mutual fund investments.

Disclaimer: This article is for informational purposes only and shouldn’t be construed as professional financial advice. Before making any investment decisions, always do your own research and consult with a financial advisor.

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Author: Niru Taylor

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