For any normal person, trade is nothing more than the give and take of products or services within an agreed fixed price. for instance if you have bought a package of candy for $ 2, that is trade. You purchased a $ 45000 four-door sedan, then thats trade . You purchased a $ 4.5 million home, and that also is trade. once you have purchased the good or product from the seller for what ever price you have set the deal, that is trade and then the deal if finished.

But for traders on various deals, trade is a priority consideration. They have invested lots of money in an attempt to generate greater profits later. In exchange for goods and different titles with different operators from various deals, they hope that they could reach an enormous profit and pursue their careers until their trading accounts either increase or dehydration.

In addition, for the various governments of the nation , trade is a blessing which everyone should feel grateful . The country’s economy is heavily dependent on how the international and local operations in the market perform . a trade is declared successful if only it can translate to an increase of GDP( gross domestic product), that’s the indicators of a nations thriving economy. Successful businesses also reflect additional jobs, help the unemployed to have to work and earn for their families.

Trade can be a blessing for the various operators (people engaged in the negotiation of stocks) and the various companies which issue securities to the people to raise extra revenue. when the stock value goes up , the owners of that bulk will get profits when they trade them then.. On the other hand, stocks of companies that is owned by common people are also guaranteed to high profits since the value of stocks on the market are now greater than it was when they were first released. both sides benefit from the trading of securities in various exchanges.

However, if a business man or any trader reaches you to offer his stocks, it does not mean that the agreement is done. when you buy a house or expensive item, you need to first look into the market and then decide base on that information whether it would be cost effective to have an agreement or not this particular time. this is defined as technical analysis.

Technical analysis is in finance and investments is the study of an asset or safety (in this case, security is the product) price action (change of prices the quantity and open interest) in the market to predict profitable price movements. It generally uses different cards from both the past and present of price fluctuations in order to arrive at a price well-established trend. Such price trends will help you decide if could take advantage when you trade a particular stock at that time or not.

Stocks trading are still profitable, he understands the risks that can endanger your investment. By using technical analysis in the business of your actions, you could eliminate the risks in your investment.



By: Abhishek Agarwal

About the Author:

Technical Analysis Indicators

Predicting future moves in the stock market has become a science. This form of prediction has become known as technical analysis. Traders who take this approach to investing in the stock market usually hold stocks for a short time period and then sell their stocks once the predicted profit has been achieved.

The foundations to technical analysis can be found in the understanding that stock price movements are predictable. All the factors affecting the value of a stock are reflected in the stock market with the greatest efficiency that can be found in any type of market. Movements in the stock value follow predictable historical trends, coupled with the efficiency of the market make it possible to predict the direction the stock is going to go.

Technical analysis is a very short term method of investing because the potential long term growth of a company is not taken into account through this method. Trades are timed to exactly reflect the upward and downward trends in the market so nothing is left to chance. Because buying and selling go through at specific times, losses can be minimized if the market does not move in the predicted manner.

Many methods of predicting the movement of the market have been developed for use in technical analysis. These methods for the most part are based on the ’support’ and ‘resistance’ concept. How this works is that, support is the level by which a downward price is predicted to increase by and resistance is the level by which an upward price is expected reach before coming down again. To put this in clearer terms prices tend to fluctuate between a support and resistance levels.

Market movements are predicted for a large part through the use of charts (mostly bar charts). The horizontal axis represent time be it a minute, hour, day or week, while the vertical axis represents the price of the stock. By looking at the chart a trend for the stock value can be traced.

A trained analyst studies the chart and can see certain patterns in the chart that they can then use to predict for future movements in the price of stocks. As is the case with most things there is no one single pattern that fits all. There are hundreds of different types of movements, indicators and patterns that can be used. By combining a number of different indicators technical analysis can make it possible for an investor to become very successful on the stock market.



By: Mike Singh

About the Author:

Technical Analysis Trading

If one takes a close look at the trading world, it revolves entirely around “predictions”. Every trader or investor would like to have an inkling of the outcome (technical analysis) for a particular security or stock, before parting with his/her hard-earned money!

In fact, seasoned veterans are able to correctly predict the ups and downs of financial securities. That is how they make oodles of money!

But this “predicting ability” is absent in most people. Even experts can go wrong at times, forget novices to this community! Therefore, a new tool called “technical analysis” has come into the market to help out in such matters. Since the results of using it have proved favorable, more and more traders and investors are going in for it.

Let us examine all the characteristics of this new tool–

(1) The correct definition of technical analysis is “the skill of being able to predict a particular security in the financial market”.

(2) This type of analysis revolves around the actual movement of the market; this is not the case with fundamental analysis. Factors related to politics or economics are pushed aside, though they do have an impact on a market’s movement.

(3) It searches for patterns or trends that can recur in the future. When this knowledge becomes available, prediction of what will happen in the future becomes easy.

(4) Despite this analysis being quite reliable, it is advisable to go in for fundamental analysis also. A comparison between the results of both will give a double edge to accuracy.

(5) How is fundamental analysis different?

If a fundamental analysis is to be done about a particular company, it includes factors like–how money is being managed by the company, how its performance has been in the past and how stable the current government is regarding trading currency. Thus, this analysis probes the reasons for the market’s movement.

Technical analysis is only bothered with how the market is actually going to move. The company’s present or past performance, how it takes care of its money–all these are irrelevant!

(6) Anything that claims to be perfect, is naturally viewed with skepticism! So also this new tool, and its claims to being efficient and accurate! People wonder how past movements of the market can aid in predicting the future?

(7) Technical analysis will have to take the help of quite a few indicators for predicting the future of financial securities, such as–volatility indicators, price change indicators, strength indicators, and so on.

(8) Just indicators are not enough, some type of software is also necessary for the purpose of monitoring the results. The software should have these features–real time data streaming, zoom features to be able to view the changes clearly and charts to base predictions on, among others.

(9) There is plenty of software available in the market, but it is advisable to choose one that studies how a particular security has performed in the past and predicts its future accurately.

(10) How are market patterns detected?

Each day, the opening price for a particular security, its highest price for the day, the lowest price for the day, and its closing price at the end of the day–have to be taken into consideration. Daily data collection leads to the setting of a pattern for the future.

(11) The most important thing to remember is tha no technical analysis can be 100% successful in its predictions, despite the best software in place. This type of tool is only meant to serve the purpose of a guide.

(12) Finally, whatever be the software, whatever be the technical analysis, the ultimate decision-maker is “the person”! Yes, this tool with its software gives very good guidelines, but instinct or a sixth sense should play a greater role if the trader or investor wants to achieve great success!



By: Abhishek Agarwal

About the Author:

Technical Analysis for Stocks

Technical analysis describes different ways of predicting the future of the market you are trading.

Technical analysis helps identifying the type of market that exists, whether it is trending or range bound.

A variety of technical tools are used to help gauge good entry points. No TA tool by itself will give you reliable buy or sell signals. Learning how to read indicators is more of an art than a science.

There is no black box that will give you the perfect, accurate signal. However, the combining of the right group of TA indicators with discipline and adequate trading capital has been the road to fortune for many traders.

An important tool for determining the strength of a trend and whether a market is range bound is the Average Directional Index or ADX.

Measured on a scale between 0 and 100, readings below 20 are used to indicate a weak trend, while readings over 40 indicate a strong trend. ADX is not used to show the direction of a particular trend, rather to measure its strength.

Stay away from trend following trades if the ADX is below 20 and trending downward. Bollinger Bands are a popular study used across all markets.

They can be useful in both generating entry and exit signals and gauging trends. The basic interpretation of Bollinger Bands is that market prices will tend to stay within the upper and lower bands.

If price moves outside the BB this would suggest a continuation of the current trend. Bollinger Bands are best used along with other indicators, such as an oscillator like the MACD (Moving Average Convergence/Divergence) An indicator developed by Gerald Appel. By comparing moving averages, MACD displays trend following characteristics, and by plotting the difference of the moving averages as an oscillator, MACD displays momentum characteristics.

It is best to use only 1 indicator that shows overbought/oversold ie: stochastic and RSI

Moving Averages are lagging indicators and can be used as a trend follower, trend-following indicators work best when markets develop strong trends.

Through careful study and analysis, expertise with the various indicators will develop over time. As this expertise develops, certain nuances, as well as favorite setups, will become clear. It is best to focus on two or three indicators and learn their intricacies inside and out.

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By: Linda Wainman

About the Author:

How to Trade with Technical Analysis

Let’s cut to the chase…

The biggest and most critical danger of technical analysis is that, after a while, it starts to show you exactly what YOU WANT to see!

In quantitative studies, there is a phenomenon where your research starts showing you what you want to see instead of what is really happening and that is known as “Data Mining”. Data Mining occurs most frequently when there is a huge benefit to you if the results are showing one way instead of another. This is the exact same phenomenon in technical analysis.

In technical analysis, charts start showing you what you want to see especially when you have made a mistake and needs the stock to go one way instead of another! Suddenly, the deeper you dig into the myriad of technical indicators, the more “evidence” you seem to find supporting your mistake, giving you the eerie confidence that your mistake is going to turn out just fine.

We all remember how that turned out, don’t we?

Technical analysis is essentially a study of the various ways to interpret historical price and volume action in order to form an opinion of future direction. Because technical analysis methods have become so complex over the years with literally THOUSANDS of technical indicators that have been developed, the average amateur investor can always find ways to make a chart look the way they want it to and point towards a non-existent future direction!

Before anyone here thinks that I am against technical analysis, I am not. In fact, my main trading system, the Star Trading System is a technical analysis based option trading system that has made me money over and over again, year after year. So, what really is the problem? The problem is the misuse of technical analysis and the misuse of incompatible technical indicators! Until you really understand the formula and logic behind every technical indicator, the purpose for which each indicator has been developed for and what other confirming indicators works with each other, you will never be able to use technical analysis to form an educated opinion! You will continue to see only whatever you want to see. Some call it “Analysis Paralysis”, I call it pure ignorance.

Sadly, it takes years of research and heaps of lost money to get technical analysis right and it will only become harder and harder to get right with ever more complex and new indicators being developed everyday. A lack of knowledge and lack of time to attain that knowledge has always been the bane of all amateur traders. That is why following a developed and proven trading system with a proven, proprietary mix of indicators is the best thing an amateur trader can do.

So, the next time you look at a technical analysis chart, remember, are you merely looking to prove what you already have in mind? Because if you are, then you are very likely to find all the evidences you need to support your own views.



By: Jason Ng

About the Author:

Technical Analysis for Stocks

Investors who study stock charts and the data they contain to predict future moves in the stock market are called technical analysts. Usually technical analysis is not used for long term investing and is not concerned with the value or even the kind of company whose stock is being traded. Rather, it is used for short-term stock trading and once the projected gains are reached the stock is sold.

Technical analysis is based on the patterns that can be seen in stock prices when they are studied over time. The assumption is that all important factors such as company performance, world events and general economic shifts, have already been factored in by the workings of the stock market and are reflected in a stocks current price. Market efficiency, therefore, produces price changes that can be tracked and used to make investment decisions.

All of the attention in technical analysis is centered on precisely tracking ups and downs of stock price movements in great detail. Because long term investment is typically not considered it is not necessary to analyze a company’s future potential or try to predict its course over any long period of time.

It is not even necessary to find a stock moving up in order to make a profit. Indeed, either up or down movements can be profitable if recognized properly. As a safeguard stop-loss orders can limit exposure if the market does not move in the direction predicted.

As might be expected, hundreds of repeated patterns of stock movements have been noted and formalized over time. These are at the heart of the art and science of technical analysis and some are based on the basics of price “resistance’ and price ’support.’ Resistance refers to the highest level a stock price can be expected to meet before it falls again. On the flip side, support is the price at which the stock can be expected to rise in value again. Prices usually will bounce either up or down once they meet the perceived barrier of support or resistance.

Charts tracking the rise and fall of stock price movements are the most fundamental tools of technical analysis. Day in and day out technical analysts most often use bar charts. In a bar chart vertical bars are entered representing each time interval desired: weeks, days or even hours or minutes. The highest price of the stock during that period is represented by the top of the bar and the lowest price by the bottom of the bar. The small bars on the right and left represent opening and closing price respectively. Obviously, a wealth of information can be gained from a trained glance at a bar chart. The side bars let you know instantly what the spread was between opening and closing price, with a long bar signaling a considerable variation in stock price during the period represented.

Candlestick charts are another type of chart, closely related to the bar chart. The candlestick shapes, solid bodies used to show differences between opening and closing prices, are colored differently to indicate a higher or lower close. The lines or shadows by the shapes show the high and low prices reached during those periods. A red or black colored shape is used for a period when the stock price fell and a green or white shape when the price rose. Short shadows accompanying a green body is a bullish sign because it shows a stock which opened low and closed high. A red body with short shadow is, on the other hand, bearish, showing a stock which closed low after a high opening. All in all more than 20 different patterns are seen on candlestick charts, each denoting a different situation to the experienced eye.



By: Reginald T. Hobbss

About the Author:

Technical Analysis for Stocks

There are two basic ways to approach the analysis of the FOREX markets: Technical analysis and Fundamental Analysis. Someone who is using a fundamental analytical approach will look at the current economic climate, political events, a variety of economic indicators, and so on to try to predict currency moves. What we will examine is technical analysis, or the use of historical price patterns in economic data to predict future moves in the FOREX. We will also look at the tools used for technical analysis.

The three major assumptions underlying technical analysis are:

1 – All market forces are taken into account in price movement. Many things can affect the price of a currency. Some of these factors would be economic conditions, political happenings, natural disasters, seasonal supply and demand and even the weather. Technical analysis, however, does not attempt to take these into account because the market has already done that. Rather, a technical analyst is concerned with the actual movements of the market, not with the reasons for the movement.

2 – There are observable trends in currency prices movements. There are known market patterns that follow predictable paths.

3 – There are historical trends in price movements. Over a century of FOREX data collection has shown that human nature interacts with events in predictable ways. Thus, when circumstances are similar in the market, the same patterns will show up.

Technical Analysis: Is It Necessary?

Day traders in the FOREX usually use technical analysis most heavily, though they may supplement it with fundamental analysis. Technical analysis has the huge advantage of being applicable to a wide range of currencies and markets simultaneously. To properly do fundamental analysis requires a good knowledge of events and conditions in a certain country so the number of markets any particular trader can analyze by the fundamental approach is necessarily limited.

Technical analysis can seem so complicated to the beginner that they may be tempted to wonder if it is really needed. The truth is that all investing requires a strategy and technical analysis is a proven way to set strategy by predicting FOREX movements. Of course, no strategy or method is always successful, which is one reason many technical traders also do some fundamental analysis as a supplement.

Using Price Charts In Technical Analysis

Charts lie at the heart of technical analysis and you will find a good selection available from any online FOREX broker. Not only are the charts updated constantly, real time, but they can be viewed in a variety of ways. You can see movement over various periods of time, broken down into different time scales, and with various analytical overlays applied. With the software provided you can see the broad picture over a long period or zoom into the most minute detail. The basic software is free from most online Forex brokers but there may be a fee for the more professional, in-depth, information.

Sometimes the charts are a built-in part of the broker’s software package. Alternately, they may be available on the broker’s website.

Practice, or demo, accounts are available from most brokers on their website. These allow you to use the charts and tools of that particular software to learn the techniques of following charts, noticing and learning about trends and studying market movements. Nothing can substitute for this valuable period of becoming intimately familiar with charts and market behavior.



By: Richard M. Davieess

About the Author:

Technical Analysis Trading

Financial Technical Analysis Using Volume

I wonder if you have realized this…

All the data you get daily from the stock exchange in financial technical analysis charts are nothing more than:

1. Price

2. Volume

That’s right. Only the price and the number of transactions are known daily and captured as charts for financial technical analysis. Even though volume is such an important element, very few technical traders make full use of it in helping them with their trade entries and exit. This is because most technical traders simply do not know how to make sense of the daily volume bars in relation to the price action. I present here a simple chart explaining what the price versus volume behavior stand for and hope it helps you in making more sense in your financial technical analysis.

Financial Technical Analysis Using Volume Defined

Rising Price + Rising Volume = Healthy Bull trend

Rising Price + Declinging volume = Bull trend drying up, hitting ceiling soon

Declining Price + Rising Volume = Healthy Bear Trend

Declining Price + Declining Volume = Bear tredn drying up, bottoming soon.

Declining Price + Sudden Volume surge = Selling Climax, short term support level reached

Price at Peak + Sudden volume surge = Buying Climax, resistance level reached

Financial Technical Analysis of Head & Shoulder Formation Using Volume

The volume pattern for a head and shoulders top formation is very distinctive.

On the left shoulder volume reaches a peak. As prices move up to the head, volume increases,

but this second volume peak should be lower than that of the left shoulder. This higher peak in price,

yet lower peak in volume, is an important signal to the trader that buying interest is far less ardent.

Finally, as prices rally and form the right shoulder, volume further diminishes.

Financial Technical Analysis Using Volume, Conclusion

I hope this simple explanation of what each movement of price versus volume means in financial technical analysis can help you, as a technical trader, attain a higher level of accuracy when reading your charts and therefore a higher level of trading consistency.

Read More About How To Use Technical Analysis Systematically at http://www.mastersoequity.com/MOE_startradingsystem.htm



By: Jason Ng

About the Author:

Technical Analysis Trading

Technical analysis has been around for as long as there have been organized exchanges, but the futures trading communities didn`t accept technical analysis as a viable tool for making money until the late `70s and early `80s. Now nearly every futures trader uses some form of technical analysis. Here`s what the early technical analysts knew that it took the mainstream market community generations to catch on to.

A finite number of futures traders participate in the markets on any given day, week, or month. Many of these futures traders do the same kinds of things over and over in their attempt to make money. These individuals develop behaviour patterns, and a group of individuals, interacting with one another on a consistent basis, form collective behaviour patterns. These behaviour patterns are observable and quantifiable, and they repeat themselves with statistical reliability. Technical analysis is a method that organizes this collective behaviour into identifiable patterns. The patterns can give indications of when there is a greater chance of the market moving in one direction or another. In a sense, technical analysis allows you to get into the mind of the market, and anticipate what`s likely to happen next, based on the kind of patterns the market generated in the past.

As a method for projecting future price movement, technical analysis has turned out to be far superior to a purely fundamental approach. It keeps the futures trader focused on what the market is doing now in relation to what it has done in the past. This is instead of focusing on what the market should be doing based solely on what is logical and reasonable as determined by a mathematical model, as would be done in fundamental analysis.

But, if technical analysis works so well, why don`t more people consistently make money? Once an investor learns to identify patterns and read the market, there are limitless opportunities to make money. But, as I`m sure you already know, there can also be a large difference between what you understand about the markets and your ability to transform that knowledge into consistent profits.

Think about the number of times you`ve looked at a price chart and said to yourself, Hmmm, it looks like the market is going up (or down), and what you thought was going to happen actually did happen. But, you didn`t actually make a trade, and in the end you moaned over all the money you could have made.

There`s a big difference between predicting that something will happen in the market, and the reality of actually getting into and out of future trades. The difference is a mental gap that can make futures trading one of the toughest fields to master.

But can futures trading be mastered? Is it possible to actually trade with the same ease and simplicity you feel when you`re only watching the market and having theoretical successes? Regardless of your ability to use technical analysis, you still need to make money. Well, it is possible. Placing trades in the futures market can become as easy, simple, and stress-free as watching the market and thinking about doing futures trading.

This may seem unlikely, and to some futures traders it may even seem impossible. But it`s not. There are people who have mastered the art of trading in futures, who have closed the gap between the possibilities available and their bottom-line performance. They have taken the opportunities given them by using technical analysis, and they`ve applied the other skills necessary to make consistent profits. With time, and discipline, you can learn to trade in futures like the most successful futures traders.



By: Jimmy Cox

About the Author:

Technical Analysis for Stocks

Technical analysis was truly an arcane art before the internet boom. Chartists perform technical analysis in their secret rooms with data that was carefully collected from professional sources. Those were the times when stock prices and data did not have a medium through which to be readily available to the public and be ran through publicly available software to produce the charts that are available today.

Today, with internet in almost every household, technical analysis became an art anyone could practice. Complex charts, technical indicators and analysis that was once the sole domain of a few highly paid wallstreet analysts are now available to anyone who wants it, often for free.

Technical analysis also became linked to short term aggressive trading instruments such as stock options and futures because of its excellent short term predictive nature.

With technical analysis this popular, I feel obligated to teach you once and for all everything you need to know about how to conduct proper technical analysis before you start looking at your first chart. A lot of amateurs fail at technical analysis simply because they didn’t have the necessary basic knowledge to understand how to interpret technical indications properly in the first place. With the knowledge in this article, you will definite experience more success at technical analysis.

Summary of Technical Analysis Basics

2 Principles of Technical Analysis: Significance, Prudence

2 Key Tools: Charts, Indicators

2 Key Components: Price, Volume

5 Key Concepts: Resistance, Support, Trend, Patterns, Setups

2 Principles of Technical Analysis: Significance, Prudence

The two principles of technical analysis are the most important foundation in understanding technical analysis and interpreting technical analysis properly. Too many amateurs misinterpret technical indications simply because they did not understand these two simple principles. This is also the only part in this tutorial that addresses the mental aspect of technical analysis and should be clearly understood before moving on. The two principles of technical analysis are Significance and Prudence.

Technical Analysis Principle #1: Significance

Significance refers to the degree that a technical indication is true. Take breakout and reversal signals for example. Does a 0.5% close above a resistance level indicate a breakout? Does a 1% reversal in a bearish stock that has fallen more than 40% indicate a reversal? No. The degree of significance for both cases is just too weak. Most technical analysis beginners who do not understand the principle of significance would take a small fake out as a breakout and then act on the wrong stocks. The judgment of significance is, however, a matter of experience. How much of a breakout represents a significant breakout? How much of a reversal represents a significant reversal and how big a candle represents a strong morning star signal? The judgment of significance is something you need to acquire and refine as you put more years behind your ears.

Technical Analysis Principle #2: Prudence

Prudence refers to the ability to say “No” when in doubt. Technical analysis is more of an art than a science. This is because even though technical indications are scientifically generated, the interpretation of technical indications is highly subjective. You are going to experience many marginal or doubtful moments in technical analysis. Technical signals that “almost made it” as well as technical signals that are “neither here nor there”. Those are the times to exercise the technical analysis principle of Prudence and to make the most conservative interpretation. When a signal is marginal, you should always exercise prudence by giving benefit of the doubt to disqualifying the signal. When a significant breakout signal is produced after a huge drawdown, you should exercise prudence by waiting for further confirmation or enter the position gradually over a few days.

2 Key Tools: Charts, Indicators

Technical Analysis Key Tool #1: Charts

Chart reading is the most fundamental tool in technical analysis and is also why technical analysis is frequently referred to as “Chartology”. Before the popularization of the internet, during the age where analysts still read tapes, technical analysts have to obtain stock quotes from “secret sources” and then plot them down on huge chart papers in their secret rooms. What then is a chart? A chart is simply a plot of the stock prices made into a curve. A chart’s basic function is to show the TREND of a stock’s price action. Without a chart, a stock closing at a price of $50 has no meaning at all. With a chart, you can clearly see the price action trend down from $100 to $50, giving investors the first indication of where the future price action of that stock might be. In the beginning, charts are plotted merely as a single line joining the prices together. Recently, with more and more powerful computers and software, more innovative and informative plotting methods like candlesticks, bar charts and point and figure charts are developed and made easily available through the internet. No matter what type of chart you look at, the only aim is to provide an indication of where the future movement of the stock might be. Another important aspect of charts is “Chart Patterns”. Different types of charting method can produce easily recognizable patterns and formations that can be associated with certain future expectations. Popular chart patterns include “morning stars” in candlestick charting, “double top breakout” in point and figure charting and “double bottom” formation.

Technical Analysis Key Tool #2: Indicators

Technical Indicators are the other key tool in technical analysis. Technical indicators are graphical representations of various mathematical formulas based on the stock price and transaction volume. The are literally thousands of technical indicators out there and more are being developed daily as new finance theories are translated into mathematical formulas every day. Technical indicators’ main function is to tell when a stock is considered oversold or overbought and when a stock is considered weak or strong relative to its past action. There are literally endless amount of formulas that can be used to provide those indications, hence the endless number of technical indicators. Because there are so many different technical indicators out there, beginners should start with a few well known and widely used ones as those tends to be used by institutional investors as well. It can be argued that the effectiveness of a technical indicator lies in its popularity. The more investors acting on the same indicator, the stronger the predictive nature of the indicator becomes. A self fulfilling prophecy? Maybe.

2 Key Components: Price, Volume

Surprisingly, so many different charting methods and technical indicators used in technical analysis all stems from the same 2 key components, Price and Volume. The price and volume of a stock are the only two publicly available information pertaining to that stock. Out of its price and volume, stock charts and technical indicators are created. Candlestick and bar charts are constructed out of the opening price, closing price as well as high and low prices. Relative Strength Index is created out of the price as well as volume of a stock compared against its historical data.

5 Key Concepts: Resistance, Support, Trend, Patterns, Setups

The 5 key concepts of technical analysis are the 5 most important analytical methods in technical analysis. Understanding all 5 are critical to the mastery of technical analysis. All 5 key concepts work together to help technical analysts predict future stock movement and know when to buy or sell a stock. Of particular importance is the ability to tell when to buy or sell a stock. This is the kind of information that fundamental analysis will not provide.

Technical Analysis Key Concept #1: Resistance Level

A resistance level is a price level at which most investors sells a particular stock at, resulting in the stock falling every time that price level is hit. It acts almost like a brick ceiling from which the stock falls down every time it hits its head on it. Resistance levels are identified from reading price charts, particularly point and figure charts. It is a level which you might want to at least take some profit off the table. Even though resistance levels make excellent selling points, a breakout of a resistance level does spur a stock strongly to upside, creating an excellent buying opportunity. When anticipating resistance level breakouts, it is important to apply the 2 key principles of technical analysis outlined above.

Technical Analysis Key Concept #2: Support Level

A support level is a price level at which most investors BUYS a particular stock at, resulting in the stock rising every time that price level is hit. Support levels are the reverse of resistance levels and acts almost like a trampoline on which the stock rebounds every time it lands on it. Support levels are also identified from reading price charts and is a level where you might consider buying a stock at, especially when a stock hits a correction. Even though support levels make excellent buying points, a breakdown of a support level does spur a stock down a lot more. This is why the 2 key principles of technical analysis are important when timing an entry using support levels.

Technical Analysis Key Concept #3: Trend

The main objective of looking at the trend of a stock through price charts is the anticipation that the trend is going to continue going in the same direction generally. It is like buying fashion that conforms to the current trend. If no other information is available, an investor looking at a price chart would always have a better feel of where a stock is going than an investor looking merely at a closing price, right? Of course, no trends go on and on forever. This is where technical indicators come in to provide an indication of how strong or weak a trend is.

Technical Analysis Key Concept #4: Patterns

Chart Patterns are shapes formed by price charts. Some popular chart patterns are “Double Bottoms” and “Head and Shoulder Formation”. They are so named based on the shape formed by a price chart. These easily recognizable patterns provide an interpretation on what investors are expecting the stock price to head towards. Double Bottoms typically indicate a reversal and head and shoulder formations typically indicate a switch to a bear trend. There are a ton of chart patterns out there and all needs to be interpreted in conjunction with the right technical indicators while applying the 2 key principles of technical analysis.

Technical Analysis Key Concept #5: Setups

Setups are specific patterns formed by using different charting methods. A morning star setup using candlesticks charting may not show up as a buying signal in a point and figure chart. This is why different charting methods need to be used to cross check buying or selling setups produced by one charting method. A setup is a lot more specific than a chart pattern. A chart patterns tells you where a stock might be heading and a setup tells you when you can buy or sell a stock. Setups need to be interpreted together with the other key concepts while applying the technical analysis principles. A buying setup occurring at support levels or a selling setup occurring at resistance levels makes the setups more convincing.

Fundamentals of Technical Analysis – Conclusion

All the fundamentals of technical analysis needs to be used together like all parts of a car, nothing can be left out if you want to be successful with technical analysis. So far, you might notice that technical analysis has the ability to precisely time entries and exits on high probability stocks. This is also what makes technical analysis so important to options trading. Trading Stock options requires the stock in question to move as expected quickly in order to reduce the effects of time decay and to maximize profits. I hope this article has been useful to you as you start your journey in trading and to your future success.



By: Jason Ng

About the Author:

Technical Analysis Indicators