Resistance
Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up.
If the market was up on a given day, a common interpretation is there were more buyers than sellers, pushing prices higher. However, every buy has a matching sell and every sell has a matching buy. So how can we make sense of “more buyers than sellers”? It is not really the number of buyers or sellers, but rather their level of aggressiveness in reaching an acceptable price level.
If buyers aggressively bid on stocks, the price will increase, even though the number of buyers and sellers are equal. If buyers are willing to pay higher prices, prices go up. On the other hand, if sellers are more forceful in selling and will accept lower and lower prices as they sell, the forcefulness of the sellers will override the interest of the buyers, and prices will fall.
The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance.
This means the price is more likely to "bounce" off this level rather than break through it.
Support and resistance are price areas of a stock chart (or other security chart) which may indicate where a stock’s price may hesitate and continue sideways or where a price reversal may occur. Let’s look at each of these in more detail.
Support
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. Support levels are areas defined by highs and lows within a stock's trading history. The true definition is an area of congestions or recent lows below the current market price.
A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to "bounce" off this level rather than break through it.
The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.
However, once the price has passed this level, by an amount exceeding some noise, it is likely to continue dropping until it finds another support level.
Trend Line
Technical analysis is built on the assumption that prices trend. Trend Lines are an important tool in technical analysis for both trend identification and confirmation.
Overall Trend: The first step is to identify the overall trend. This can be accomplished with trend lines, moving averages or peak/trough analysis. As long as the price remains above its uptrend line, selected moving averages or previous lows, the trend will be considered bullish.
Trend lines are a simple and widely used technical analysis approach to judging entry and exit investment timing. A trend line is a bounding line for the price movement of a security. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance.
A trend line is formed when a diagonal line can be drawn between two or more price pivot points. They are commonly used to judge entry and exit investment timing when trading securities.[1] It can also be referred to as a dutch line as it was first used in Holland.
A support trend line is formed when a securities price decreases and then rebounds at a pivot point that aligns with at least two previous support pivot points. Similarly a resistance trend line is formed when a securities price increases and then rebounds at a pivot point that aligns with at least two previous resistance pivot points.
Many of the principles applicable to support and resistance levels can be applied to trend lines as well. It is important that you understand all of the concepts presented in our Support and Resistance article before you continue.
To establish a trend line historical data, typically presented in the format of a chart such as the above price chart, is required. Historically, trend lines have been drawn by hand on paper charts, but it is now more common to use charting software that enables trend lines to be drawn on computer based charts. There are some charting software that will automatically generate trend lines, however most traders prefer to draw their own trend lines.
When establishing trend lines it is important to choose a chart based on a price interval period that aligns with your trading strategy. Short term traders tend to use charts based on interval periods, such as 1 minute (i.e. the price of the security is plotted on the chart every 1 minute), with longer term traders using price charts based on hourly, daily, weekly and monthly interval periods.
Trend lines are typically used with price charts, however they can also be used with a range of technical analysis charts such as MACD and RSI. Trend lines can be used to identify positive and negative trending charts, whereby a positive trending chart forms an up sloping line when the support and the resistance pivots points are aligned, and a negative trending chart forms a down sloping line when the support and resistance pivot points are aligned.
Trend lines are used in many ways by traders. If a stock price is moving between support and resistance trend lines, then a basic investment strategy commonly used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover the short at support. The logic behind this, is that when the price returns to an existing principal trend line it may be an opportunity to open new positions in the direction of the trend, in the belief that the trend line will hold and the trend will continue further. A second way is that when price action breaks through the principal trend line of an existing trend, it is evidence that the trend may be going to fail, and a trader may consider trading in the opposite direction to the existing trend, or exiting positions in the direction of the trend.
Breakout
A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility.
A breakout is when prices pass through and stay through an area of support or resistance. On the technical analysis chart a break out occurs when price of a stock or commodity exits an area pattern.
Traders will buy the underlying asset when the price breaks above a level of resistance and sell when it breaks below support.
Market Trend
Identifying trends is important. But how do you spot a trend? It's difficult, as the market never moves in a straight line. A stock will never fall continuously on a given day and rise on another. "Generally, higher highs and higher lows indicate an uptrend, whereas lower highs and lower lows mean a downtrend," says Shrikant Chouhan, senior vice president, technical research, Kotak Securities.
"Look at the trend. Look at news related to the stock," says Chouhan. For example, if the rupee is falling against the US dollar, it's common knowledge that technology companies will gain.
A market trend is a tendency of a financial market to move in a particular direction over time.[1] These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames.[2] Traders identify market trends using technical analysis, a framework which characterizes market trends as predictable price tendencies within the market when price reaches support and resistance levels, varying over time.
The terms bull market and bear market describe upward and downward market trends, respectively,[3] and can be used to describe either the market as a whole or specific sectors and securities.[2]
Analysts and market experts take the help of various parameters to confirm if a stock is a trade pick. The most used are available in any technical analysis software. These include 200-day moving average, relative strength index, moving average convergence divergence, or MACD, Fibonacci retracement and candle stick price chart. The terms may sound daunting, but software available nowadays makes technical analysis easy.
You've seen movies in which frantic stock traders are buying a thousand shares of a hot stock or dumping shares of a plummeting stock. You've seen commercials for brokerage firms that claim to have exciting prospects and strong portfolios. And you've probably heard a hundred different ways to predict the rise and fall of the stock market.
How do these traders and firms predict which shares will hit big? How do they know when to sell?
The truth is there is no magical way to predict the stock market. Many issues affect rises and falls in share prices, whether gradual changes or sharp spikes. The best way to understand how the market fluctuates is to study trends.
In this article we will discuss stock market trends, which help investors identify what stocks to buy and when. Keeping track of upswings and downswings over the history of individual stocks, as well as being aware of market-wide trends, helps investors plan buying and selling.
Many factors affect prices in the stock market, including inflation, interest rates, energy prices, oil prices and international issues, such as war, crime, fraud and political unrest.
Sudden rises or drops in stock prices are often called spikes. Spikes are extremely difficult, if not impossible, to predict. Stock market trends are like the behavior of a person. After you study how a person reacts to different situations, you can make predictions about how that person will react to an event. Similarly, recognizing a trend in the stock market or in an individual stock will enable you to choose the best times to buy and sell.
Dead Cat Bounce
In finance, a dead cat bounce is a small, brief recovery in the price of a declining stock.[1] Derived from the idea that "even a dead cat will bounce if it falls from a great height", the phrase, which originated on Wall Street, is also popularly applied to any case where a subject experiences a brief resurgence during or following a severe decline.
Extremely volatile markets create an environment for the formation of a very specific type of technical price pattern. The “Dead Cat Bounce” pattern (DCB) may have a macabre name but it comes with very nice profit potential and is relatively easy to identify.
At its heart the DCB is a great study in investor psychology. It occurs when investors have panicked or have been caught by surprise which is why the pattern occurs most frequently in bearish and volatile markets.
Investor psychology comes into play because traders are likely to become fearful at the same price levels that they have been fearful before. We use the DCB to identify those price levels for potential breakouts.
The pattern consists of a gap during a downtrend when prices have moved between the close of one day and the open of the next trading day. The larger the gap is the more significance technicians will assign to the pattern. The gap is typically created by unexpected news appearing after or before normal market hours.
The gaps indicates that traders have “overreacted” to the data, the stock is likely to become oversold at some point and will begin to retrace back towards the gap. The top and bottom of the gap will act as resistance barriers and if the market or stock peels off of these resistance levels, the subsequent decline can be quite significant.
The rally back towards the gap is a good example of a bull trap and the final decline that completes the pattern can be larges and fast as a feedback loop of stop losses push more sellers into the market.
Elliot Wave Principle
The Elliott wave principle is a form of technical analysis that some traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors.
Ralph Nelson Elliott (1871–1948), a professional accountant, discovered the underlying social principles and developed the analytical tools in the 1930s. He proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves, or simply waves. Elliott published his theory of market behavior in the book The Wave Principle in 1938, summarized it in a series of articles in Financial World magazine in 1939, and covered it most comprehensively in his final major work, Nature’s Laws: The Secret of the Universe in 1946.
Elliott stated that "because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable." [1] The empirical validity of the Elliott Wave Principle remains the subject of debate.
Fibonacci Retracements
In finance, Fibonacci retracements is a method of technical analysis for determining support and resistance levels. They are named after their use of the Fibonacci sequence. Fibonacci retracement is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.
The appearance of retracement can be ascribed to ordinary price volatility as described by Burton Malkiel, a Princeton economist in his book A Random Walk Down Wall Street, who found no reliable predictions in technical analysis methods taken as a whole. Malkiel argues that asset prices typically exhibit signs of random walk and that one cannot consistently outperform market averages. Fibonacci retracement is created by taking two extreme points on a chart and dividing the vertical distance by the key Fibonacci ratios. 0.0% is considered to be the start of the retracement, while 100.0% is a complete reversal to the original part of the move. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.
Pivot point
A pivot point is a price level of significance in technical analysis of a financial market that is used by traders as a predictive indicator of market movement.
A pivot point is calculated as an average of significant prices (high, low, close) from the performance of a market in the prior trading period. If the market in the following period trades above the pivot point it is usually evaluated as a bullish sentiment, whereas trading below the pivot point is seen as bearish.
Monthly pivot point chart of the Dow Jones Industrial Average for the first 8 months of 2009, showing sets of first and second levels of resistance (green) and support (red). The pivot point levels are highlighted in yellow. Trading below the pivot point, particularly at the beginning of a trading period sets a bearish market sentiment and often results in further price decline, while trading above it, bullish price action may continue for some time.
It is customary to calculate additional levels of support and resistance, below and above the pivot point, respectively, by subtracting or adding price differentials calculated from previous trading ranges of the market.
A pivot point and the associated support and resistance levels are often turning points for the direction of price movement in a market. In an up-trending market, the pivot point and the resistance levels may represent a ceiling level in price above which the uptrend is no longer sustainable and a reversal may occur. In a declining market, a pivot point and the support levels may represent a low price level of stability or a resistance to further decline.[1]
Dow Theory
The Dow theory on stock price movement is a form of technical analysis that includes some aspects of sector rotation. The theory was derived from 255 Wall Street Journal editorials written by Charles H. Dow (1851–1902), journalist, founder and first editor of the Wall Street Journal and co-founder of Dow Jones and Company. Following Dow's death, William Peter Hamilton, Robert Rhea and E. George Schaefer organized and collectively represented Dow theory, based on Dow's editorials. Dow himself never used the term Dow theory nor presented it as a trading system.
Average true range
Average true range (ATR) is a technical analysis volatility indicator originally developed by J. Welles Wilder, Jr. for commodities.[1] The indicator does not provide an indication of price trend, simply the degree of price volatility.[2][3] The average true range is an N-day exponential moving average of the true range values. Wilder recommended a 14-period smoothing.[4]
Chart pattern
A Price pattern is a pattern that is formed within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. When data is plotted there is usually a pattern which naturally occurs and repeats over a period. Chart patterns are used as either reversal or continuation signals.
Some people[who?] 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.
Cycles
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A crossing up through zero may be used as a signal to buy, or a crossing down through zero as a signal to sell. How high (or how low when negative) the indicators get shows how strong the trend is.
The way momentum shows an absolute change means it shows for instance a $3 rise over 20 days, whereas ROC might show that as 0.25 for a 25% rise over the same period. One can choose between looking at a move in dollar terms, relative point terms, or proportional terms. The zero crossings are the same in each, of course, but the highs or lows showing strength are on the respective different bases.
The conventional interpretation is to use momentum as a trend-following indicator. This means that when the indicator peaks and begins to descend, it can be considered a sell signal. The opposite conditions can be interpreted when the indicator bottoms out and begins to rise.[1]
Point and Figure Analysis
Point and figure (P&F) is a charting technique which provides a simple, yet disciplined method of identifying current or emerging trends in stock prices, used in technical analysis.
Point and figure charting is unique in that it does not plot price against time as all other techniques do. Instead it plots price against changes in direction by plotting a column of Xs as the price rises and a column of Os as the price falls.[citation needed]
This brief guide aims to familiarize the investor with the basic concepts behind p&f charts and highlights some of the benefits from using them in one’s investment procedure.
Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up.
If the market was up on a given day, a common interpretation is there were more buyers than sellers, pushing prices higher. However, every buy has a matching sell and every sell has a matching buy. So how can we make sense of “more buyers than sellers”? It is not really the number of buyers or sellers, but rather their level of aggressiveness in reaching an acceptable price level.
If buyers aggressively bid on stocks, the price will increase, even though the number of buyers and sellers are equal. If buyers are willing to pay higher prices, prices go up. On the other hand, if sellers are more forceful in selling and will accept lower and lower prices as they sell, the forcefulness of the sellers will override the interest of the buyers, and prices will fall.
The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance.
This means the price is more likely to "bounce" off this level rather than break through it.
Support and resistance are price areas of a stock chart (or other security chart) which may indicate where a stock’s price may hesitate and continue sideways or where a price reversal may occur. Let’s look at each of these in more detail.
Support
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. Support levels are areas defined by highs and lows within a stock's trading history. The true definition is an area of congestions or recent lows below the current market price.
A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to "bounce" off this level rather than break through it.
The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.
However, once the price has passed this level, by an amount exceeding some noise, it is likely to continue dropping until it finds another support level.
Trend Line
Technical analysis is built on the assumption that prices trend. Trend Lines are an important tool in technical analysis for both trend identification and confirmation.
Overall Trend: The first step is to identify the overall trend. This can be accomplished with trend lines, moving averages or peak/trough analysis. As long as the price remains above its uptrend line, selected moving averages or previous lows, the trend will be considered bullish.
Trend lines are a simple and widely used technical analysis approach to judging entry and exit investment timing. A trend line is a bounding line for the price movement of a security. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance.
A trend line is formed when a diagonal line can be drawn between two or more price pivot points. They are commonly used to judge entry and exit investment timing when trading securities.[1] It can also be referred to as a dutch line as it was first used in Holland.
A support trend line is formed when a securities price decreases and then rebounds at a pivot point that aligns with at least two previous support pivot points. Similarly a resistance trend line is formed when a securities price increases and then rebounds at a pivot point that aligns with at least two previous resistance pivot points.
Many of the principles applicable to support and resistance levels can be applied to trend lines as well. It is important that you understand all of the concepts presented in our Support and Resistance article before you continue.
To establish a trend line historical data, typically presented in the format of a chart such as the above price chart, is required. Historically, trend lines have been drawn by hand on paper charts, but it is now more common to use charting software that enables trend lines to be drawn on computer based charts. There are some charting software that will automatically generate trend lines, however most traders prefer to draw their own trend lines.
When establishing trend lines it is important to choose a chart based on a price interval period that aligns with your trading strategy. Short term traders tend to use charts based on interval periods, such as 1 minute (i.e. the price of the security is plotted on the chart every 1 minute), with longer term traders using price charts based on hourly, daily, weekly and monthly interval periods.
Trend lines are typically used with price charts, however they can also be used with a range of technical analysis charts such as MACD and RSI. Trend lines can be used to identify positive and negative trending charts, whereby a positive trending chart forms an up sloping line when the support and the resistance pivots points are aligned, and a negative trending chart forms a down sloping line when the support and resistance pivot points are aligned.
Trend lines are used in many ways by traders. If a stock price is moving between support and resistance trend lines, then a basic investment strategy commonly used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover the short at support. The logic behind this, is that when the price returns to an existing principal trend line it may be an opportunity to open new positions in the direction of the trend, in the belief that the trend line will hold and the trend will continue further. A second way is that when price action breaks through the principal trend line of an existing trend, it is evidence that the trend may be going to fail, and a trader may consider trading in the opposite direction to the existing trend, or exiting positions in the direction of the trend.
Breakout
A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility.
A breakout is when prices pass through and stay through an area of support or resistance. On the technical analysis chart a break out occurs when price of a stock or commodity exits an area pattern.
Traders will buy the underlying asset when the price breaks above a level of resistance and sell when it breaks below support.
Market Trend
Identifying trends is important. But how do you spot a trend? It's difficult, as the market never moves in a straight line. A stock will never fall continuously on a given day and rise on another. "Generally, higher highs and higher lows indicate an uptrend, whereas lower highs and lower lows mean a downtrend," says Shrikant Chouhan, senior vice president, technical research, Kotak Securities.
"Look at the trend. Look at news related to the stock," says Chouhan. For example, if the rupee is falling against the US dollar, it's common knowledge that technology companies will gain.
A market trend is a tendency of a financial market to move in a particular direction over time.[1] These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames.[2] Traders identify market trends using technical analysis, a framework which characterizes market trends as predictable price tendencies within the market when price reaches support and resistance levels, varying over time.
The terms bull market and bear market describe upward and downward market trends, respectively,[3] and can be used to describe either the market as a whole or specific sectors and securities.[2]
Analysts and market experts take the help of various parameters to confirm if a stock is a trade pick. The most used are available in any technical analysis software. These include 200-day moving average, relative strength index, moving average convergence divergence, or MACD, Fibonacci retracement and candle stick price chart. The terms may sound daunting, but software available nowadays makes technical analysis easy.
You've seen movies in which frantic stock traders are buying a thousand shares of a hot stock or dumping shares of a plummeting stock. You've seen commercials for brokerage firms that claim to have exciting prospects and strong portfolios. And you've probably heard a hundred different ways to predict the rise and fall of the stock market.
How do these traders and firms predict which shares will hit big? How do they know when to sell?
The truth is there is no magical way to predict the stock market. Many issues affect rises and falls in share prices, whether gradual changes or sharp spikes. The best way to understand how the market fluctuates is to study trends.
In this article we will discuss stock market trends, which help investors identify what stocks to buy and when. Keeping track of upswings and downswings over the history of individual stocks, as well as being aware of market-wide trends, helps investors plan buying and selling.
Many factors affect prices in the stock market, including inflation, interest rates, energy prices, oil prices and international issues, such as war, crime, fraud and political unrest.
Sudden rises or drops in stock prices are often called spikes. Spikes are extremely difficult, if not impossible, to predict. Stock market trends are like the behavior of a person. After you study how a person reacts to different situations, you can make predictions about how that person will react to an event. Similarly, recognizing a trend in the stock market or in an individual stock will enable you to choose the best times to buy and sell.
Dead Cat Bounce
In finance, a dead cat bounce is a small, brief recovery in the price of a declining stock.[1] Derived from the idea that "even a dead cat will bounce if it falls from a great height", the phrase, which originated on Wall Street, is also popularly applied to any case where a subject experiences a brief resurgence during or following a severe decline.
Extremely volatile markets create an environment for the formation of a very specific type of technical price pattern. The “Dead Cat Bounce” pattern (DCB) may have a macabre name but it comes with very nice profit potential and is relatively easy to identify.
At its heart the DCB is a great study in investor psychology. It occurs when investors have panicked or have been caught by surprise which is why the pattern occurs most frequently in bearish and volatile markets.
Investor psychology comes into play because traders are likely to become fearful at the same price levels that they have been fearful before. We use the DCB to identify those price levels for potential breakouts.
The pattern consists of a gap during a downtrend when prices have moved between the close of one day and the open of the next trading day. The larger the gap is the more significance technicians will assign to the pattern. The gap is typically created by unexpected news appearing after or before normal market hours.
The gaps indicates that traders have “overreacted” to the data, the stock is likely to become oversold at some point and will begin to retrace back towards the gap. The top and bottom of the gap will act as resistance barriers and if the market or stock peels off of these resistance levels, the subsequent decline can be quite significant.
The rally back towards the gap is a good example of a bull trap and the final decline that completes the pattern can be larges and fast as a feedback loop of stop losses push more sellers into the market.
Elliot Wave Principle
The Elliott wave principle is a form of technical analysis that some traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors.
Ralph Nelson Elliott (1871–1948), a professional accountant, discovered the underlying social principles and developed the analytical tools in the 1930s. He proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves, or simply waves. Elliott published his theory of market behavior in the book The Wave Principle in 1938, summarized it in a series of articles in Financial World magazine in 1939, and covered it most comprehensively in his final major work, Nature’s Laws: The Secret of the Universe in 1946.
Elliott stated that "because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable." [1] The empirical validity of the Elliott Wave Principle remains the subject of debate.
Fibonacci Retracements
In finance, Fibonacci retracements is a method of technical analysis for determining support and resistance levels. They are named after their use of the Fibonacci sequence. Fibonacci retracement is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.
The appearance of retracement can be ascribed to ordinary price volatility as described by Burton Malkiel, a Princeton economist in his book A Random Walk Down Wall Street, who found no reliable predictions in technical analysis methods taken as a whole. Malkiel argues that asset prices typically exhibit signs of random walk and that one cannot consistently outperform market averages. Fibonacci retracement is created by taking two extreme points on a chart and dividing the vertical distance by the key Fibonacci ratios. 0.0% is considered to be the start of the retracement, while 100.0% is a complete reversal to the original part of the move. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.
Pivot point
A pivot point is a price level of significance in technical analysis of a financial market that is used by traders as a predictive indicator of market movement.
A pivot point is calculated as an average of significant prices (high, low, close) from the performance of a market in the prior trading period. If the market in the following period trades above the pivot point it is usually evaluated as a bullish sentiment, whereas trading below the pivot point is seen as bearish.
Monthly pivot point chart of the Dow Jones Industrial Average for the first 8 months of 2009, showing sets of first and second levels of resistance (green) and support (red). The pivot point levels are highlighted in yellow. Trading below the pivot point, particularly at the beginning of a trading period sets a bearish market sentiment and often results in further price decline, while trading above it, bullish price action may continue for some time.
It is customary to calculate additional levels of support and resistance, below and above the pivot point, respectively, by subtracting or adding price differentials calculated from previous trading ranges of the market.
A pivot point and the associated support and resistance levels are often turning points for the direction of price movement in a market. In an up-trending market, the pivot point and the resistance levels may represent a ceiling level in price above which the uptrend is no longer sustainable and a reversal may occur. In a declining market, a pivot point and the support levels may represent a low price level of stability or a resistance to further decline.[1]
Dow Theory
The Dow theory on stock price movement is a form of technical analysis that includes some aspects of sector rotation. The theory was derived from 255 Wall Street Journal editorials written by Charles H. Dow (1851–1902), journalist, founder and first editor of the Wall Street Journal and co-founder of Dow Jones and Company. Following Dow's death, William Peter Hamilton, Robert Rhea and E. George Schaefer organized and collectively represented Dow theory, based on Dow's editorials. Dow himself never used the term Dow theory nor presented it as a trading system.
Average true range
Average true range (ATR) is a technical analysis volatility indicator originally developed by J. Welles Wilder, Jr. for commodities.[1] The indicator does not provide an indication of price trend, simply the degree of price volatility.[2][3] The average true range is an N-day exponential moving average of the true range values. Wilder recommended a 14-period smoothing.[4]
Chart pattern
A Price pattern is a pattern that is formed within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. When data is plotted there is usually a pattern which naturally occurs and repeats over a period. Chart patterns are used as either reversal or continuation signals.
Some people[who?] 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.
Cycles
Stock market cycles are the long-term price patterns of the stock market.
Momentum
Momentum: Momentum is usually measured with an oscillator such as MACD. If MACD is above its 9-day EMA (exponential moving average) or positive, then momentum will be considered bullish, or at least improving.
Momentum and rate of change (ROC) are simple technical analysis indicators showing the difference between today's closing price and the close N days ago. Momentum is the absolute difference in stock, commodity:
Momentum
Momentum: Momentum is usually measured with an oscillator such as MACD. If MACD is above its 9-day EMA (exponential moving average) or positive, then momentum will be considered bullish, or at least improving.
Momentum and rate of change (ROC) are simple technical analysis indicators showing the difference between today's closing price and the close N days ago. Momentum is the absolute difference in stock, commodity:
Rate of change scales by the old close, so as to represent the increase as a fraction,
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"Momentum" in general refers to prices continuing to trend. The momentum and ROC indicators show trend by remaining positive while an uptrend is sustained, or negative while a downtrend is sustained.
A crossing up through zero may be used as a signal to buy, or a crossing down through zero as a signal to sell. How high (or how low when negative) the indicators get shows how strong the trend is.
The way momentum shows an absolute change means it shows for instance a $3 rise over 20 days, whereas ROC might show that as 0.25 for a 25% rise over the same period. One can choose between looking at a move in dollar terms, relative point terms, or proportional terms. The zero crossings are the same in each, of course, but the highs or lows showing strength are on the respective different bases.
The conventional interpretation is to use momentum as a trend-following indicator. This means that when the indicator peaks and begins to descend, it can be considered a sell signal. The opposite conditions can be interpreted when the indicator bottoms out and begins to rise.[1]
Point and Figure Analysis
Point and figure (P&F) is a charting technique which provides a simple, yet disciplined method of identifying current or emerging trends in stock prices, used in technical analysis.
Point and figure charting is unique in that it does not plot price against time as all other techniques do. Instead it plots price against changes in direction by plotting a column of Xs as the price rises and a column of Os as the price falls.[citation needed]
This brief guide aims to familiarize the investor with the basic concepts behind p&f charts and highlights some of the benefits from using them in one’s investment procedure.
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