First let’s starts by nailing down the concept of technical analysis in terms of price and volume in charting. Technical analysis involves the study of stock prices based on the past, present and future data. An example of a company that had an apparent trend is AOL.
The apparent trend was between Nov 2011 up-to August 2002 that’s 9 months. Most stock traders entered the market and sold their shares for big profits and this was due to market technical analysis. Let’s discuss how to have fun with chart pictures
The four main Charts types:
- Point and figure chart: It involves the employment of numerical filters values in reference to time and sometimes ignores time entirely in its construction.
- Open high-Close High chart: Its known as a bar chart, its normally span between the high and low prices of a trading period as a vertical line segment at the trading time and the open and close prices with horizontal tick moves on the range time usually a tick to the left for the open price and a tick to the right for the closing price.
- Line chart: It joins the line segment and closing price values
- Candlestick: The word candlestick originated from Japanese culture. The chart involves widening and filling the gap between the closing price and opening price. Sometime it is represented by colors for example in the west Black or Red represent closing price low and white, green or blue represent a close high.
- CLOSE PRICE LOW: RED BLACK
- CLOSE PRICE HIGH: BLUE GREEN
Some people claim that by recognizing chart patterns they are able to predict future stock prices and profit by this prediction; other people respond by quoting "past performance is no guarantee of future results" and argue that chart patterns are merely illusions created by people's subconscious.
Certain theories of economics hold that if there were a way to predict future stock prices and profit by it then when enough people used these techniques they would become ineffective and cease to be profitable. On the other hand, predicting what others will predict the market will do would be valuable information.
The Darvas Box: Accumulation in action
The darvas box is a popular trading strategy that was created by Nicolas Darvas in 1956. It involves buying stocks that were trading at new 52-week high with high volumes. In 1956 Nicolas Darvas was able to turn up his initial investment of $10000 into $2 Million over a period of 1 year and 6 months. The reason why Nicolas Darvas was successful in stock trading was because he was trading in a very Bullish Market.
The Top-off: Head and Shoulders
Head and shoulder is a technical stock market analysis in which stock price rises to a peak and subsequently declines, then the price rises above the former peak and again declines and finally rises again but not to the second peak and decline once more.
The cup and handle: Stick around your coffee with your signal
On the bar chart, the pattern resembles a cup with a handle. The handle has a downward drift while the cup is in the shape of ‘’U’’. The right-hand side of the pattern has low trading volume. It can be as short as 7 weeks and as long as 65 weeks.
As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks... then it takes off. Below is an example of a cup and handle chart pattern:
Triangles: A fiscal tug of war
It suggests a trend is exhibiting a temporary diversion in behavior and will eventually continue on its existing trend. As you can see below the symmetrical triangle charts are both exhibiting a continuation pattern.Check how the chart extends above its existing pattern.
Your swing trading crystal ball: GAP
A GAP is a break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between. GAPS can be created by factors such as regular buying or selling pressure, earning announcement or news release.
An example of two different gaps can be seen in the chart above. Notice how the stock closes the trading session before the first gap at $50 and opens the next trading day near $46 with no trading occurring between the two prices. Gaps are a regular occurrence in all financial markets. However, they are rarely seen in the forex market since it is highly liquid and trades 24 hours a day.
Trend changes based on Candlestick
Candlestick charts are primarily used by technical traders because of how quick a day's price movement is conveyed. There are many formations which can be used as a buy, sell or hold indicator. Below are formations of candlestick:
- Hammer time
- The hanging man
- Bullish and Bearish engulfing patterns
- The triple threat of Morning and evening stars
Majority of charting technical analysis software will allow you to change the colors of these candles. Even though white is the common color for this type of candlestick, any color can and is used by traders.
Measuring the strength of trends with trend lines
Uptrend lines: Support for the stubborn bulls
The uptrend lines involve the price movement of a financial asset when the overall direction is upward. A formal uptrend is when each successive peak and trough is higher than the ones found earlier in the trend.
Notice how each successive peak and trough is located above the previous ones. For example, the peak at Point 4 is higher than the peak at Point 2. The uptrend will be deemed broken if the next low on the chart falls below Point5.
The big objective of financial stock traders is to identify the uptrend lines that will make profitable trades until the trend reverse back to normalcy. Another secret of traders is that they mostly use technical analysis software to draw lines that will help them to identify profitable trade.
Falling resistance based on Downtrend lines
A formal downtrend occurs when each successive peak and trough is lower than the ones found earlier in the trend.Describes the price movement of a financial asset when the overall direction is downward.
Most traders seek to avoid downtrends because they can drastically affect the value of any investment. A downtrend can last for minutes, days, weeks, months or even years so identifying a downtrend early is very important. Once a downtrend has been established (series of lower peaks) a trader should be very cautious about entering into any new long positions.
Working to both support and resist based on Horizontal lines
Price is framed out in a trading range by the pivot highs (resistance) and pivot lows (support). Trendlines drawn on pivots give a visual picture of price action. A new high in price above the horizontal channel is a technical buy signal. A new low in price below the horizontal channel (or rectangle pattern) is a technical sell signal.
Using trendlines to connect variable pivot highs and lows shows price contained between the upper line of resistance and lower line of support. This is price range or sideways trend. This horizontal channel or sideways trend is also a rectangle pattern (dotted lines show the pattern).
Buying and selling pressure is equal and the prevailing direction of price sideways. This happens in periods of price consolidation.
From the above technical analysis stock market, you can easily enter and exit the market without any much loss. If you want to find stock charts for technical analysis, you can employ the above strategy either manually or with a help of technical analysis software.
If you understand the benefits and limitations of technical analysis, I can really assure you that this web content will enable you to be a better trader or investor.
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