tag:blogger.com,1999:blog-49348635454159777922024-03-20T14:44:13.568+05:30TECHNICAL ANALYSIS OF STOCKS - A STUDY AND RESEARCHUsually innumerable websites are found for Technical Analysis of Stocks a Laymen effort alone will be better for one and all, which i tried here to explain.Hope it may be useful for all. Anonymoushttp://www.blogger.com/profile/18267831001256007310noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-4934863545415977792.post-11320630127525122312014-01-19T12:55:00.000+05:302014-05-15T20:32:53.619+05:30Stock Charts, Trends, Volume, Patterns & Indicators, Moving average, Support & Resistance <div dir="ltr" style="text-align: left;" trbidi="on">
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<b><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">New to
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<b><span style="font-family: Verdana; font-size: 11.0pt;"></span><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">What are Stock Charts? </span></span></b></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br />Quite simply, they are graphs that show us the price of a stock over time. The study of stock charts, known as TECHNICAL ANALYSIS, believes that the past action of the market itself will determine the future course of prices. <br /><br />A stock chart is a simple two-axis (x-y) plotted graph of price and time. Each individual equity, market and index listed on a public exchange has a chart that illustrates this movement of price over time. Time is shown on the horizontal axis of the graph and the price is shown on the vertical axis. <br /><br />Individual data plots for charts can be made using the CLOSING price for each day. The plots are connected together in a single line, creating the graph. Also, a combination of the OPENING, CLOSING, HIGH and/or LOW prices for that market session can be used for the data plots. <br /><br /> This second type of data is called a PRICE BAR. Individual price bars are then overlaid onto the graph, creating a dense visual display of stock movement. <br /><br /> Stock charts can be created in many different time frames. Mutual fund holders use monthly charts in which each individual data plot consists of a single month of activity. Day traders use 1 minute and 5 minute stock charts to make quick buy and sell decisions. The most common type of stock chart is the daily plot, showing a single complete market session for each unit. <br /><br /> Stock charts can be drawn in two different ways. An ARITHMETIC chart has equal vertical distances between each unit of price. A LOGARITHMIC chart is a percentage growth chart. It has equal vertical distances between the same percentages of price growth. For example, a price movement from 10 to 20 is a 100% move. A move from 20 to 40 is also a 100% move. For this reason, the vertical distance from 10 to 20 and the vertical distance from 20 to 40 will be identical on a logarithmic chart. <br /><br /> Stock chart analysis can be applied equally to individual stocks and major indices. Analysts use their technical research on index charts to decide whether the current market is a BULL MARKET or a BEAR MARKET. On individual charts, investors and traders can learn the same thing about their favorite companies. <br /><br /> Here is an example of a simple chart for Google Inc. </span></span><br />
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Use the stock chart to identify the current trend. A trend reflects the average rate of change in a stock's price over time. Trends exist in all time frames and all markets. Day traders can establish the trend of their stocks to within minutes. Long term investors watch trends that persist for many years. <br /><br /> Trends can be classified in three ways: UP, DOWN or RANGEBOUND. <br /><br /> In an uptrend, a stock rallies often with intermediate periods of consolidation or movement against the trend. In doing so, it draws a series of higher highs and higher lows on the stock chart. In an uptrend, there will be a POSITIVE rate of price change over time. <br /><br /> In a downtrend, a stock declines often with intermediate periods of consolidation or movement against the trend. In doing so, it draws a series of lower highs and lower lows on the stock chart. In a downtrend, there will be a NEGATIVE rate of price change over time. <br /><br /> Range bound price swings back and forth for long periods between easily seen upper and lower limits. There is no apparent direction to the price movement on the stock chart and there will be LITTLE or NO rate of price change. <br /><br />Trends tend to persist over time. A stock in an uptrend will continue to rise until some change in value or conditions occurs. Declining stocks will continue to fall until some change in value or conditions occurs. Chart readers try to locate TOPS and BOTTOMS, which are those points where a rally or a decline ends. Taking a position near a top or a bottom can be very profitable. <br /><br /> Trends can be measured using TRENDLINES. Very often a straight line can be drawn UNDER three or more pullbacks from rallies or OVER pullbacks from declines. When price bars then return to that trendline, they tend to find SUPPORT or RESISTANCE and bounce off the line in the opposite direction. <br /><br /> A famous quote about trends advises that "The trend is your friend". For traders and investors, this wisdom teaches that you will have more success taking stock positions in the direction of the prevailing trend than against it. <br /><br /> <b>Volume </b><br /><br /> </span></span><br />
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</xml><![endif]--></span><span style="font-family: Arial,Helvetica,sans-serif;">Volume is one of the most important technical analysis tools to learn and understand how to apply to price movements. Volume is simply the total number of buyers and sellers exchanging shares over a given period of time, usually a day. Volume measures the participation of the crowd. <br /><br />Volume increases every time a buyer and seller transact their stock or futures contract. If a buyer buys one share of stock from a seller, then that one share is added to the total volume of that particular stock. <br /><br />Higher the volume, more active the share. The data regarding volume of a share will be readily available on your online trading screen. Most financial sites carry data about volume. <br /><br />Stock charts display volume through individual HISTOGRAMS below the price pane. Often these will show green bars for up days and red bars for down days. Investors and traders can measure buying and selling interest by watching how many up or down days in a row occur and how their volume compares with days in which price moves in the opposite direction. </span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"></span></span><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">For example if the Stocks volume for the day was 1,500,000 shares that means 1,500,000 shares were sold by someone and bought by someone on that day. <br /><br />Volume as such may not be an attractive piece of information. But try to combine the volume data with support and resistance levels – you‘ll get the real picture. <br /><br />For example – Say stock A ltd broke a ‘resistance level’ and went up further. Also since it broke through a critical level we would expect it to go up even more in the near future. <br /><br />Now, let us also consider the volume traded on that day – say 3 lakh shares were exchanged. On a normal day 10 lakh shares are traded. That means, Volume was way below average for that day. So, all the big investors were not trading. They could come in the very next day and decide they are bearish on the stock. They sell and cause a panic. So the stock goes down the next day. <br /><br />This is the importance of ‘volume’. Most traders will not buy a stock when it breaks a critical level unless volume is high. The reverse is also true. If a stock goes down with little volume it could mean the same thing. The majority of investors were not trading. When they come back they could see this stock and decide it is too low. So they buy it and the price goes up. <br /><br />Volume has two major premises: <br /><br />a) When prices rise or fall, an increase in volume is strong confirmation that the rise or fall in price is real and that the price movement had strength. <br /><br />b) When prices rise or fall and there is a decrease in volume, then this is interpreted as being a weak price move, because the price move had very little strength and interest from traders. </span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Stocks that are bought with greater interest than sold are said to be under ACCUMULATION. </span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Stocks that are sold with great interest than bought are said to be under DISTRIBUTION. </span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Accumulation and distribution often LEAD price movement. In other words, stocks under accumulation often will rise some time after the buying begins. Alternatively, stocks under distribution will often fall some time after selling begins. </span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">It takes volume for a stock to rise but it can fall of its own weight. Rallies require the enthusiastic participation of the crowd. When a rally runs out of new participants, a stock can easily fall. Investors and traders use indicators such as ON BALANCE VOLUME to see whether participation is lagging (behind) or leading (ahead) the price action. </span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Stocks trade daily with an average volume that determines their LIQUIDITY. Liquid stocks are very easy for traders to buy and sell. Illiquid stocks require very high SPREADS (transaction costs) to buy or sell and often cannot be eliminated quickly from a portfolio. Stock chart analysis does not work well on illiquid stocks. </span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Breakouts accompanied by volume much higher than the average for that stock are healthy for the continuation of the price movement in that direction. But after long rallies or declines, stocks often have a day of very high volume known as a CLIMAX. During these days, the last of the buyers or sellers take positions. The stock then reverses as there are no longer enough participants to cause price to move in that direction. </span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">In short, Volume is a critical factor in technical analysis. Any support and resistance level is not valid unless it is backed by adequate volume. Volume should move with the trend. If prices are moving in an upward trend, volume should increase (and vice versa). If the previous relationship between volume and price movements starts to deteriorate, it is usually a sign of weakness in the trend. For example, if the stock is in an uptrend but the up trading days are marked with lower volume, it is a sign that the trend is starting to lose its legs and may soon end. </span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>Patterns and Indicators </b><br /><br /> </span></span><br />
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">How can you organize the endless stream of stock chart data into a logical format that doesn't require rocket science to interpret? Charts allow investors and traders to look at past and present price action in order to make reasonable predictions and wise choices. It is a highly visual medium. This one fact separates it from the colder world of value-based analysis. <br /><br /> The stock chart activates both left-brain and right-brain functions of logic and creativity. So it's no surprise that over the last century two forms of analysis have developed that focus along these lines of critical examination. <br /><br /> The oldest form of interpreting charts is PATTERN ANALYSIS. This method gained popularity through both the writings of Charles Dow andTechnical Analysis of Stock Trends, a classic book written on the subject just after World War II. The newer form of interpretation is INDICATOR ANALYSIS, a math-oriented examination in which the basic elements of price and volume are run through a series of calculations in order to predict where price will go next. <br /><br /> Pattern analysis gains its power from the tendency of charts to repeat the same bar formations over and over again. These patterns have been categorized over the years as having a bullish or bearish bias. Some well-known ones include HEAD and SHOULDERS, TRIANGLES, RECTANGLES, DOUBLE TOPS, DOUBLE BOTTOMS and FLAGS. Also, chart landscape features such as GAPS and TRENDLINES are said to have great significance on the future course of price action. <br /><br /> Indicator analysis uses math calculations to measure the relationship of current price to past price action. Almost all indicators can be categorized as TREND-FOLLOWING or OSCILLATORS. Popular trend-following indicators include MOVING AVERAGES, ON BALANCE VOLUME and MACD. Common oscillators include STOCHASTICS, RSI and RATE OF CHANGE. Trend-following indicators react much more slowly than oscillators. They look deeply into the rear view mirror to locate the future. Oscillators react very quickly to short-term changes in price, flipping back and forth between OVERBOUGHT and OVERSOLD levels. <br /><br />Both patterns and indicators measure market psychology. The core of investors and traders that make up the market each day tend to act with a herd mentality as price rises and falls. This "crowd" tends to develop known characteristics that repeat themselves over and over again. Chart interpretation using these two important analysis tools uncovers growing stress within the crowd that should eventually translate into price change. <br /><br /> <b>Moving Averages </b></span></span><br />
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<![endif]--><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">The most popular technical indicator for studying stock charts is the MOVING AVERAGE. This versatile tool has many important uses for investors and traders. <br /><br />Take the sum of any number of previous CLOSE prices and then divide it by that same number. This creates an average price for that stock in that period of time. A moving average can be displayed by recomputing this result daily and plotting it in the same graphic pane as the price bars. Moving averages LAG price. In other words, if price starts to move sharply upward or downward, it will take some time for the moving average to "catch up". </span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> </span></span><br />
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Plotting moving averages in stock charts reveals how well current price is behaving as compared to the past. The power of the moving average line comes from its direct interaction with the price bars. Current price will always be above or below any moving average computation. When it is above, conditions are "bullish". When below, conditions are "bearish". Additionally, moving averages will slope upward or downward over time. This adds another visual dimension to a stock analysis. </span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Moving averages define STOCK TRENDS. They can be computed for any period of time. Investors and traders find them most helpful when they provide input about the SHORT-TERM, INTERMEDIATE and LONG-TERM trends. For this reason, using multiple moving averages that reflect these characteristics assist important decision making. Common moving average settings for daily stock charts are: 20 days for short-term, 50 days for intermediate and 200 days for long-term. </span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">One of the most common buy or sell signals in all chart analysis is the MOVING AVERAGE CROSSOVER. These occur when two moving averages representing different trends criss-cross. For example, when a short-term average crosses BELOW a long-term one, a SELL signal is generated. Conversely, when a short-term crosses ABOVE the long-term, a BUY signal is generated. </span></span><br />
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Moving averages can be "speeded up" through the application of further math calculations. Common averages are known as SIMPLE or SMA. These tend to be very slow. By giving more weight to the current changes in price rather than those many bars ago, a faster EXPONENTIAL or EMA moving average can be created. Many technicians favor the EMA over the SMA. Fortunately all common stock chart programs, online and offline, do the difficult moving average calculations for you and plot price perfectly.</span></span><span style="font-family: Arial,Helvetica,sans-serif; margin-left: 1em; margin-right: 1em;"> </span></div>
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<span style="font-family: Arial,Helvetica,sans-serif; margin-left: 1em; margin-right: 1em;">Below is an example of an uptrending stock. We buy breakouts only when the 50 day MA (Green Line) is above the 200 day MA (Red Line) </span></div>
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<span style="font-family: Arial,Helvetica,sans-serif; margin-left: 1em; margin-right: 1em;"><br /><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOCAH9dJJudqPgowO-PqMVzZsr5UxoFpn-nwwZq_Uj_Zrs1X-jshI3tpVB6ZyedTK4dB4EX5-A7-D0-7n9px65wscjPwRAF7sd8q12MJzcZVJ-vbyIVD3m9aOWH-8tkf8c6FKvVDKX6_ZK/s1600/Google+moving+average.gif" width="400" /></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><br /></span></span> <span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"></span></span><span style="font-size: small;"></span><br />
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">We also want to make sure that the market index in which the stock is trading to be bullish. We know that Google (GOOG) is traded on the NASDAQ Below is a chart of the NASDAQ index. We can see that the 50 day MA is above the 200 day moving average. </span></span><br />
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>Support and Resistance </b></span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><b> </b><br /> </span></span><br />
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<span style="font-family: Arial,Helvetica,sans-serif; margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcjLYbLMZbcvaAe81AXqmQlsu1O1U_atB8yRGMCdXZeqP4ZIqcQ-cAF1zdg83s-LQAFsGWCIRQ7mubwBI_JVqWv-kIY0UaFOdTVZDlZeG3XfsqwwFUkgtnFhTj_B-0zN2CF10EX2d4w-5h/s1600/Google-stock-chart-analysis-December-2012.png" height="361" width="400" /></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-size: small;"></span> <br /><br /> The concept of SUPPORT AND RESISTANCE is essential to understanding and interpreting stock charts. Just as a ball bounces when it hits the floor or drops after being thrown to the ceiling, support and resistance define natural boundaries for rising and falling prices. <br /><br /> Buyers and sellers are constantly in battle mode. Support defines that level where buyers are strong enough to keep price from falling further. Resistance defines that level where sellers are too strong to allow price to rise further. Support and resistance play different roles in uptrends and downtrends. In an uptrend, support is where a pullback from a rally should end. In a downtrend, resistance is where a pullback from a decline should end. <br /><br /> Support and resistance are created because price has memory.Those prices where significant buyers or sellers entered the market in the past will tend to generate a similar mix of participants when price again returns to that level. <br /><br /> When price pushes above resistance, it becomes a new support level. When price falls below support, that level becomes resistance. When a level of support or resistance is penetrated, price tends to thrust forward sharply as the crowd notices the BREAKOUT and jumps in to buy or sell. When a level is penetrated but does not attract a crowd of buyers or sellers, it often falls back below the old support or resistance. This failure is known as a FALSE BREAKOUT. <br /><br /> Support and resistance come in all varieties and strengths. They most often manifest as horizontal price levels. But trendlines at various angles represent support and resistance as well. The length of time that a support or resistance level exists determines the strength or weakness of that level. The strength or weakness determines how much buying or selling interest will be required to break the level. Also, the greater volume traded at any level, the stronger that level will be. <br /><br /> Support and resistance exist in all time frames and all markets. Levels in longer time frames are stronger than those in shorter time frames. </span></span></div>
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<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>The First Step</b><br /><br /><b>Technical Analysis Step 1: Learn to read the charts</b><br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">The first step to technical analysis is to learn how to read charts. There are many types of charts but they are generally similar. The most basic and commonly used one is the candlestick chart.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">As shown below, each candlestick represents a specific time frame. If you have chosen a 30-minute time frame, then each candlestick will depict the trading activities within a 30-minute period. If you have chosen a day as the base time frame, then each candlestick will represent the transactions within the day.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">As a technical analyst you need to study the following data:<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">· Price – Present & Historical<br />· Volume – Present & Historical<br />· Market Breadth – Present & Historical<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">If you don’t know where to start from then take help of an advisor or friend who practices this art. A lot of material is available online and a lot of good books are available too. It’s worth investing few bucks and hours in learning this art.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">A black candle refers to a drop in price, meaning that the closing price is lower than the opening price. A white or unfilled candle refers to a rise in price, meaning that the closing price is higher than the opening price.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">The horizontal lines at the top and bottom of the candlestick represent the opening or closing price, while the vertical lines that extend from above and below the real body are the highest and lowest traded prices within the set time frame respectively.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">The candlestick patterns can be used to indicate when a market trend starts to reverse. If we can predict in advance when an upward trend will reverse, we can profit by going short in the market as early as possible. Similarly, if we can forecast that a downward trend is about to stabilize and rebound, we can grab this great opportunity to go long in the market. Candlestick patterns can also be used to determine whether the current trends will continue. Once you are able to master these patterns, you will be able to trade according to the trends. This will give you a lot of confidence to hold your positions or even add positions to earn bigger profits.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>Technical Analysis Step 2: Learn to spot trends</b><br /><b> </b></span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>Spotting the trend</b><br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">The second step in technical analysis is to learn how to draw trend lines, as well as resistance and support positions. Using technical analysis it’s easy to find what’s the general trend of the market? It’s always beneficial to know if the market is in uptrend or downtrend. <br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Support position is the price position which is supported by buyers. When price falls and approaches the support position, it will tend to rebound. Resistance position is the price position where there will be tremendous selling pressure. When price rises and approaches the resistance position, it will tend to retrace. The support and resistance positions are usually determined using trend lines. Alternatively, you can also use other technical indicators such as Fibonacci lines, moving averages and Bollinger bands.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>Drawing Trend Lines</b><br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">In an upward trend, choose two ascending low points and join them to make an upward trend line. In a downward trend, choose two descending high points and join them to create a downward trend line. In order to improve the accuracy of the trend lines in predicting future market movements, we will filter away those trend lines that are not good enough, leaving behind those that will be useful for our analysis.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">A trend line must undergo a series of tests before it can be considered useful and effective. Those that fail to meet these stringent criteria should be discarded.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">First, the existence of a trend must be verified. An upward trend must have two consecutive ascending lows while a downward trend must have two consecutive descending highs. Only then a trend can be considered real and the straight line that joins the two points can be called a trend line.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Next, after the trend line is drawn, a third point must be identified to verify that the line is an effective one. In general, the more points a trend line touches, the more effective it is and the more accurate it will be in predicting future movement.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">In addition, we must continue to adjust a trend line based on subsequent market situations. For example, when an exchange rate breaks below an upward trend line but then quickly rebounds to move above it, the analyst must redraw the trend line from the first low point to the new low point or try to produce a more effective line using the second low point and the new low point.<br /><b> </b></span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>Finding support and resistance</b><br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Once you are sure of the trend of market, the next step is to find out the right entry and exit point with respect to specific stocks. Let’s say, you like a particular stock A and you want to buy it. Technical analysis suggests that you should not blindly invest in the stock. You should first try to find out what’s the best price at which you can get it. If you are ready to make your hands dirty, you can very easily find out the support price of the stock. In a volatile market, it’s very common for stocks to test their support prices. Just wait for few sessions and you will get a chance to enter the stock round its support price. Similarly, you can find the best price at which you should get out of a position which is the resistance of a stock. You can buy at support and sell at resistance to keep things simple. Ride this sine wave of support and resistance to reap great rewards.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Buy and hold policy will play for you if you are in up trending market. Keep on sniffing for the start of the downtrend as that’s the right time you book profit and be cash rich. Once the downtrend is over, you can again enter the market and ride it till the top. As the market is very volatile these days, you will get many chances of entry and exit. So, be patient and enjoy the capital appreciation.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>Conclusion</b><br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Using technical analysis one can find answers to the following questions<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">1. When to enter the market.<br />2. Which stock to buy and at what price.<br />3. When to book profit .<br />4. Which stock to get out from so as to minimize loss.<br /> </span></span></span><br />
<span style="color: #444444;"><span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">Answers to above questions are a sure shot way of being successful in stock market. So, it’s better to roll our sleeves up and be ready to learn the art of Technical Analysis and mind you, it’s not as tough and confusing as it sounds.</span></span></span></div>
Anonymoushttp://www.blogger.com/profile/18267831001256007310noreply@blogger.com0tag:blogger.com,1999:blog-4934863545415977792.post-42010963016066671572013-10-14T20:41:00.000+05:302014-05-15T20:01:20.917+05:30Types of Stock Charts<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: Verdana, sans-serif;">Stock
charts for investors are like the horses for the cowboy. The cowboy
couldn't do without his horse,. The investor can't do without his/her
chart. <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">Stock
charts are the foundation of technical analysis to the extent that
technical analysts use charts almost exclusively. Stock charts provide a
graphical representation that depicts price action and market data of the
underlying security in a structured format. To the skilled chart reader, it
provides an insight to the psychology of traders and balance of buying and
selling pressure at that point in time and makes the recognition of <a href="http://www.chart-formations.com/chart-patterns/trendlines.aspx">trend
lines</a> and <a href="http://www.chart-formations.com/chart-patterns/default.aspx">chart patterns</a> possible.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">Modern
software have made charting a very simple practice and allowed technical
analysts to quickly shift between time frames and to quickly apply a range
of <a href="http://www.chart-formations.com/indicators/default.aspx">indicators</a>to
a price chart. However, there are different types of charts that can be used in
technical analysis. <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">On this
page you'll learn about the three most common types of price charts and how to
read them.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">We're
going to look at four different stock charts. They are identical in that
they all represent the price history for the same stock over the same time
period. Notice how different they look.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">There are
four main types of charts that are used by investors and traders in order to
determine the Trend of the Stocks.. The chart types are: <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">1.the
line chart, <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">2.the bar
chart, <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">3.the
candlestick chart and <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">4.the
point and figure chart. <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">In this
section we have introduced how these charts are formed.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">With the
exception of point and figure charts, which only plots a price change when a
new high or low is made, all charts plot price action for a specific duration
of time, which is called the <a href="http://www.chart-formations.com/stock-charts/time-frames.aspx">time-frame</a> on
a graph with the time on the horizontal axis and the price levels on the
vertical axis. However, each type of chart plots price action differently, and
displays different information about the price action in a given time-frame.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;"><a href="http://www.chart-formations.com/stock-charts/bar-charts.aspx">Bar charts</a> and <a href="http://www.chart-formations.com/stock-charts/candlestick-charts.aspx">candlestick
charts</a> are widely used, followed by <a href="http://www.chart-formations.com/stock-charts/line-charts.aspx">line
charts</a>. However,<a href="http://www.chart-formations.com/stock-charts/point-and-figure-charts.aspx">Point
and Figure charts</a> are not as widely used as they do not plot price
action over a given time-frame. They also do not keep track of volume levels.
For these reasons, oscillators and moving averages that are dependent on a
fixed time-frame cannot be used on Point and Figure charts.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;"><b>1. Line
Charts </b><o:p></o:p></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzAW-PHOh5vJWZCsMa_YzsnEW60qUnjVOZUT2-gMM5sL7SreZp3eNoG7_mWfSuYDWswmFoKXQSFBlTW0bvs1c6zWEDcsWWt41jyyK9kI3B0mB-cjXhm_R7y-7lyuu6ewIQmUUxn0upOHwu/s1600/New+Picture+(3).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzAW-PHOh5vJWZCsMa_YzsnEW60qUnjVOZUT2-gMM5sL7SreZp3eNoG7_mWfSuYDWswmFoKXQSFBlTW0bvs1c6zWEDcsWWt41jyyK9kI3B0mB-cjXhm_R7y-7lyuu6ewIQmUUxn0upOHwu/s1600/New+Picture+(3).png" height="243" width="320" /></a></div>
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<span style="font-family: Verdana, sans-serif;">The Line
Chart (above) shows a line interconnecting dots representing the closing price
for each time period. In this case the time period is 13 days.<o:p></o:p></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYAskpEuD5fygJb2Py3PcRCOiGsqkFkAtU-bpYMTbQCJlEcKZOH0_yYK1plHYslYHJTTxELHiZpRmUBHwL0g-asH3VkXH_cmt6mjwNYVpUSjSYDYocngLgjlj4i3-JMxSMvP46mV0FfQ4H/s1600/New+Picture+(7).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYAskpEuD5fygJb2Py3PcRCOiGsqkFkAtU-bpYMTbQCJlEcKZOH0_yYK1plHYslYHJTTxELHiZpRmUBHwL0g-asH3VkXH_cmt6mjwNYVpUSjSYDYocngLgjlj4i3-JMxSMvP46mV0FfQ4H/s1600/New+Picture+(7).png" height="179" width="320" /></a></div>
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<span style="font-family: Verdana, sans-serif;"><br />
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type="#_x0000_t75" alt="Line Charts" style='width:266.25pt;height:149.25pt'>
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o:href="http://www.chart-formations.com/stock-charts/_images/lineChart.gif"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span style="font-family: Verdana, sans-serif;">A line
chart is the most basic and simplest type of stock charts that are used in
technical analysis, because it represents only the closing prices over a set
period of time. The line is formed by connecting the closing prices over the
time frame. Line charts do not provide visual information of the trading range
for the individual points such as the high, low and opening prices. However,
the closing price is often considered to be the most important price in stock
data compared to the high and low for the day and this is why it is the only
value used in line charts.</span></div>
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<span style="font-family: Verdana, sans-serif;">The line
chart is also called a close-only chart as it plots the closing price
of the underlying security, with a line connecting the dots formed by the close
price. In a line chart the price data for the underlying security is plotted on
a graph with the time plotted from left to right along the horizontal axis, or
the x-axis and price levels plotted from the bottom up along the vertical axis,
or the y-axis. The price data used in line charts is usually the close price of
the underlying security. <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">The
uncluttered simplicity of the line chart is its greatest strength as it
provides a clean, easily recognizable, visual display of the price movement.
This makes it an ideal tool for use in identifying the dominant <a href="http://www.chart-formations.com/chart-patterns/support-and-resistance.aspx">support
and resistance levels</a>, <a href="http://www.chart-formations.com/chart-patterns/trendlines.aspx">trend
lines</a>, and certain <a href="http://www.chart-formations.com/chart-patterns/default.aspx">chart
patterns</a>.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">However,
the line chart does not indicate the highs and lows and, hence, they do not
indicate the price range for the session. Despite this, line charts were the
charting technique favored by Charles Dow who was only interested in
the level at which the price closed. This, Dow felt, is the most important
price data of the session or trading period as it determined that period's
unrealized profit or loss.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">Line
charts or close-only charts are still favored by numerous traders who agree the
closing price is the most important data and are not concerned with the noise
created price spikes and minor price movements, or the speculation that
characterizes the start of the trading session.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><b>2. Bar
Charts ( OHLC and HLC )</b></span></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiCq8l4ynaAkcKbFcJNYRkDQsND9Q3FX65p-ov1N5r9CY9MDTrXrDKfl9Z0mTuuHhJ4brK2V3C-8yQ1CmjryJsiOnNMNqG7LVi3cxR0aFlECFtVuR23d56PmsO3ddI4YYmCwt99nZzjtFH4/s1600/New+Picture+(4).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiCq8l4ynaAkcKbFcJNYRkDQsND9Q3FX65p-ov1N5r9CY9MDTrXrDKfl9Z0mTuuHhJ4brK2V3C-8yQ1CmjryJsiOnNMNqG7LVi3cxR0aFlECFtVuR23d56PmsO3ddI4YYmCwt99nZzjtFH4/s1600/New+Picture+(4).png" height="320" width="315" /></a></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><!--[if gte vml 1]><v:shape
id="_x0000_i1027" type="#_x0000_t75" alt="" style='width:270pt;height:273.75pt'>
<v:imagedata src="file:///C:\DOCUME~1\RAMALI~1\LOCALS~1\Temp\msohtml1\01\clip_image003.jpg"
o:href="http://www.winning-stock-trading-fundamentals.com/images/barchart.jpg"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The
conventional bar chart (above) with the green and red full length vertical bars
is seldom used, so we won't talk anymore about that one.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The OHLC
Bar Chart.<o:p></o:p></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5m-2-RsJEwVHO-TLOzpJMEueH2A18cyniqbJP_ghI_P8Cn6UgIx01juaCzAjnnA7nmk6gAXeLosBJLh9lEQtYi1xvx8SNYLUSpz7lkCUKMRFh4tBpzTuJRDSLbq6oiPETj6b3bQObsw9F/s1600/New+Picture+(5).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5m-2-RsJEwVHO-TLOzpJMEueH2A18cyniqbJP_ghI_P8Cn6UgIx01juaCzAjnnA7nmk6gAXeLosBJLh9lEQtYi1xvx8SNYLUSpz7lkCUKMRFh4tBpzTuJRDSLbq6oiPETj6b3bQObsw9F/s1600/New+Picture+(5).png" height="234" width="320" /></a></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><!--[if gte vml 1]><v:shape
id="_x0000_i1028" type="#_x0000_t75" alt="" style='width:270pt;height:198pt'>
<v:imagedata src="file:///C:\DOCUME~1\RAMALI~1\LOCALS~1\Temp\msohtml1\01\clip_image004.jpg"
o:href="http://www.winning-stock-trading-fundamentals.com/images/OHLC_barchart.jpg"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The OHLC
Chart (above) shows vertical lines, one for each day. The little line
protruding from the left side of each bar is the opening price for that day.
The little line protruding from the right side of each bar is the closing price
for that day. The top of the bar represents the high price for that day. The
bottom of the bar represents the low price for that day. In this case, you'll also
notice that the vertical bars are either green or red dependent on whether it
was an up day or a down day. This color feature is often not present with OHLC
bar charts.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4DkbuwPp7HqkPo-Q-AWwKnUA8rVmPMk5II4CM1QfGs7KwPNCYpoZMtdffIPlcgS3h2Df-Je7DbxKsbIBRl1cIdujVj-6M5rHquAkr7C-ywxDLV5UF4D4D0n8c6ZGoAeJkADM0Tkkp1pLN/s1600/New+Picture+(9).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4DkbuwPp7HqkPo-Q-AWwKnUA8rVmPMk5II4CM1QfGs7KwPNCYpoZMtdffIPlcgS3h2Df-Je7DbxKsbIBRl1cIdujVj-6M5rHquAkr7C-ywxDLV5UF4D4D0n8c6ZGoAeJkADM0Tkkp1pLN/s1600/New+Picture+(9).png" height="179" width="320" /></a></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><br />
<!--[if gte vml 1]><v:shape id="_x0000_i1029" type="#_x0000_t75" alt="OHLC Bar Charts"
style='width:266.25pt;height:149.25pt'>
<v:imagedata src="file:///C:\DOCUME~1\RAMALI~1\LOCALS~1\Temp\msohtml1\01\clip_image005.gif"
o:href="http://www.chart-formations.com/stock-charts/_images/barChart.gif"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span style="font-family: Verdana, sans-serif;">Bar
charts are one of the most popular forms of stock charts and are probably
the most widely used charts. Bar charts are drawn on a graph that plots time on
the horizontal axis and price levels on the vertical axis.</span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><br />
The bar chart expands on the line chart by adding several more key pieces of
information to each data point. The chart is made up of a series of vertical
lines that represent each data point. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The chart
consists of a series of vertical bars that indicate various price data for each
time-frame on the chart. The close and open are represented on the vertical
line by a horizontal dash. This data can be either the open price, the high
price, the low price and the close price, making it an OHLC bar chart, or
the high price, the low price and the close price, making it an HLC bar
chart. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The
opening price on a bar chart is illustrated by the dash that is located on the
left side of the vertical bar. Conversely, the close is represented by the dash
on the right. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">Generally,
if the left dash (open) is lower than the right dash (close) then the bar will
be shaded black, representing an up period for the stock, which means it has
gained value. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">A bar
that is colored red signals that the stock has gone down in value over that
period. When this is the case, the dash on the right (close) is lower than the
dash on the left (open). <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The
height of each OHLC and HLC bar indicates the price range for that period with
the high at the top of the bar and the low at the bottom of the bar. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The extra
information is one of the reasons why the OHLC charts are more popular than HLC
charts. In addition, some charting applications use colors to indicate bullish
or bearishness of a bar in relation to the close of the previous bar. This makes
the OHLC bar chart quite similar to the candlestick chart, except that the OHLC
chart does not indicate bullishness or bearishness of the period of one bar as
clearly as the candlestick chart (the color of an OHLC bar is always in
relation to the close of the pervious bar rather than the open and close of the
current bar).<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqJ3q5yk0c24FAOOljIinkLx_w7hxYeIAABLVom7yxr4pUtKptIlgzw1YIu7LQjbc5OSL7dGuS_vo2tp_7JNZ_5tfW1zOxg3oZ9yoB2uIinSG4Depb6EAtN3m7UR16apRevIcniLA1E6ho/s1600/New+Picture+(10).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqJ3q5yk0c24FAOOljIinkLx_w7hxYeIAABLVom7yxr4pUtKptIlgzw1YIu7LQjbc5OSL7dGuS_vo2tp_7JNZ_5tfW1zOxg3oZ9yoB2uIinSG4Depb6EAtN3m7UR16apRevIcniLA1E6ho/s1600/New+Picture+(10).png" /></a></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><!--[if gte vml 1]><v:shape
id="_x0000_i1030" type="#_x0000_t75" alt="OHLC Bars" style='width:141pt;
height:82.5pt'>
<v:imagedata src="file:///C:\DOCUME~1\RAMALI~1\LOCALS~1\Temp\msohtml1\01\clip_image006.gif"
o:href="http://www.chart-formations.com/stock-charts/_images/ohlcBars.gif"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><br /></span><span style="font-family: Verdana, sans-serif;">Most bar
charts contain a lower pane that plots the total volume traded during a
particular period. This part of the chart has a separate scale on the vertical
axis to illustrate volume levels. It too consists of typical vertical bars.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><b>3.
Candlestick Charts</b></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The next
chart we'll look at is the Candlestick Chart.<o:p></o:p></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrVgA_c_ywvyRCnT8yOmnL3lK_wi6l7DGKixUqEFS84UIfCiXUnhHnishn7vXuYDdDmXx3w8Qqj7bvh7DS_U3w3kGneBz0gTbmg2EWKDpunBytAxR__AppBpMEBMdZpRPyYm5mwqmP6HEf/s1600/New+Picture+(6).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrVgA_c_ywvyRCnT8yOmnL3lK_wi6l7DGKixUqEFS84UIfCiXUnhHnishn7vXuYDdDmXx3w8Qqj7bvh7DS_U3w3kGneBz0gTbmg2EWKDpunBytAxR__AppBpMEBMdZpRPyYm5mwqmP6HEf/s1600/New+Picture+(6).png" height="230" width="320" /></a></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><!--[if gte vml 1]><v:shape
id="_x0000_i1031" type="#_x0000_t75" alt="" style='width:270pt;height:194.25pt'>
<v:imagedata src="file:///C:\DOCUME~1\RAMALI~1\LOCALS~1\Temp\msohtml1\01\clip_image007.jpg"
o:href="http://www.winning-stock-trading-fundamentals.com/images/candlestickchart.jpg"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The
Candlestick Chart provides more of a graphic image for that period of time, in
this case one day per candlestick. Candlesticks with green bodies represent
days in which the price moved up (i.e. the closing price was higher than the
opening price).<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The next
chart is the same Candlestick Chart with labels identifying the various
elements of the candlestick symbol.<o:p></o:p></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicMB2e8EYVqwj2t_EYxL4kpVjuMbMDfTY0X-u4UMAtACEJStUo0Tv8bSsygAihUDVju-9tAdDC6FQjJxIdVTBJQ0-z_zYCU2CLNc6zzSzn_ITrrwY-2QgOT7SwcisGpJ08PXSCEh8h9P0X/s1600/New+Picture+(11).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicMB2e8EYVqwj2t_EYxL4kpVjuMbMDfTY0X-u4UMAtACEJStUo0Tv8bSsygAihUDVju-9tAdDC6FQjJxIdVTBJQ0-z_zYCU2CLNc6zzSzn_ITrrwY-2QgOT7SwcisGpJ08PXSCEh8h9P0X/s1600/New+Picture+(11).png" height="217" width="320" /></a></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><!--[if gte vml 1]><v:shape
id="_x0000_i1032" type="#_x0000_t75" alt="" style='width:5in;height:244.5pt'>
<v:imagedata src="file:///C:\DOCUME~1\RAMALI~1\LOCALS~1\Temp\msohtml1\01\clip_image008.jpg"
o:href="http://www.winning-stock-trading-fundamentals.com/images/candlestick_elements.jpg"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">On an day
in which the price moved up, the top of the body is the closing price and the
bottom of the body is the opening price. The top of the wick is the high price
for the day. The bottom of the wick is the low price for the day. If there is
no wick, then the closing price is the same as the high price for the day. If
there is no tail, then the opening price is the same as the low price for the
day.<br /><br />
</span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">Candles with red bodies represent days in which the price moved down (i.e. the
closing price was lower than the opening price). On top of the candlestick is a
wick.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">Candlestick
charts are probably the most widely used of the stock charts by
experienced investors. Even though these charts might look a little strange to
the beginner, they more readily communicate trading action for the experienced
investor.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">Note:
Different stock charting services use different color coding schemes for up
days and down days. They may also use different terms than wick and tail.
Regardless, they all represent the same thing. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDMk-yx9enXCGSCC2GrnRWR2bq91z3IAeSlxE4heK75a4qF1Mj0v2kTj4baIVibuyYtU5E5bFqyvfqJVK82VWpYk30tSG-KjM4dr9WiDElyvH3ZF-Py_j6QqFeTGU3Mr-xsJ70AEZhS0_L/s1600/New+Picture+(18).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDMk-yx9enXCGSCC2GrnRWR2bq91z3IAeSlxE4heK75a4qF1Mj0v2kTj4baIVibuyYtU5E5bFqyvfqJVK82VWpYk30tSG-KjM4dr9WiDElyvH3ZF-Py_j6QqFeTGU3Mr-xsJ70AEZhS0_L/s1600/New+Picture+(18).png" height="179" width="320" /></a></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">Candlesticks
patterns are based on </span><a href="http://www.chart-formations.com/stock-charts/candlestick-charts.aspx" style="font-family: Verdana, sans-serif;">candlestick
charts</a><span style="font-family: Verdana, sans-serif;"> and are recurring chart patterns that consist of only a few
candlestick, usually in the region of one to four candlesticks. Because
candlesticks give an indication of strength and weakness of the current price
movement, the candlestick patterns tend provide clearer indications of the
probability of a possible trend reversals than any of the other chart types.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The
candlestick chart is similar to a bar chart, but it differs in the way that it
is visually constructed. Similar to the bar chart, the candlestick also has a
thin vertical line showing the period’s trading range. The difference comes in
the formation of a wide bar on the vertical line, which illustrates the
difference between the open and close. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">And, like
bar charts, candlesticks also rely heavily on the use of colors to explain what
has happened during the trading period. A major problem with the candlestick
color configuration, however, is that different sites use different standards;
therefore, it is important to understand the candlestick configuration used at
the chart site you are working with. There are two color constructs for days up
and one for days that the price falls. When the price of the stock is up and
closes above the opening trade, the candlestick will usually be white or clear.
<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">If the
stock has traded down for the period, then the candlestick will usually be red
or black, depending on the site. If the stock’s price has closed above the
previous day’s close but below the day’s open, the candlestick will be black or
filled with the color that is used to indicate an up day.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">Candlestick
patterns can be both bullish and bearish, depending on where they occur on the
chart and where they occur within an existing trend. They can also be trend
reversal or continuation patterns. The reliability of a candlestick pattern
depends on the location of the pattern within the price chart, in terms of
where it appears in an existing trend, and in relation to possible <a href="http://www.chart-formations.com/chart-patterns/support-and-resistance.aspx">support
and resistance lines</a>, or other <a href="http://www.chart-formations.com/chart-patterns/trendlines.aspx">trend
lines</a> or <a href="http://www.chart-formations.com/chart-patterns/pivot-points.aspx">pivot
points</a>. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The
time-frame of the chart is also of importance as candlestick patterns on short
time-frame, intraday charts tend to be less reliable than patterns on charts of
a longer time-frame. Another possible consideration in determining the
reliability of a candlestick pattern is the volume traded when the candlestick
pattern is formed. If the pattern is formed on low volume, the pattern tends to
be less reliable.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">There are
literally hundreds of candlestick patterns but not all of them appear with
great regularity, and not all of them have a high degree of reliability and
profitability. The more commonly occurring candlestick patterns include the a) engulfing
pattern, <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">b) the
harami, <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">c) hanging
man and <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">d) hammer
patterns, <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">e) doji
or star patterns, and <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">f) the
tweezers pattern. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">We will
focus more on the commonly occurring and high probability candlestick patterns
than the more obscure patterns.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;">The
Candlestick chart patterns, tends to increase the profitability of trading and
is one of the key reasons why candlestick charts have become rather popular in
recent years, especially among short-term traders.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Verdana, sans-serif;"><b>4. Point
and Figure Charts </b><o:p></o:p></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg40VRdhqX3oo1wIOZvayTkSDItkN_xPyaZ5UCBAhFAprN4vVJcSRwJnhiJXvmvyRpq3WuNAe1lwVI9LGjQIwV2fUyfg_4fFgUsA9_rYizlV8Yta8gqC00wzwcl0tcMHEwfRRZ0TM0Tq5uP/s1600/New+Picture+(19).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg40VRdhqX3oo1wIOZvayTkSDItkN_xPyaZ5UCBAhFAprN4vVJcSRwJnhiJXvmvyRpq3WuNAe1lwVI9LGjQIwV2fUyfg_4fFgUsA9_rYizlV8Yta8gqC00wzwcl0tcMHEwfRRZ0TM0Tq5uP/s1600/New+Picture+(19).png" height="179" width="320" /></a></div>
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<span style="font-family: Verdana, sans-serif;"><br />
<!--[if gte vml 1]><v:shape id="_x0000_i1034" type="#_x0000_t75" alt="A P&F Chart"
style='width:266.25pt;height:149.25pt'>
<v:imagedata src="file:///C:\DOCUME~1\RAMALI~1\LOCALS~1\Temp\msohtml1\01\clip_image010.gif"
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</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span style="font-family: Verdana, sans-serif;">Point and
Figure (P&F) charts date back to at least 1880's and differ from other
stock charts as it does not plot price movement from left to right within fixed
time intervals.</span></div>
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<span style="font-family: Verdana, sans-serif;">The point
and figure chart is not well known or used by the average investor but it has
had a long history of use dating back to the first technical traders. This type
of chart reflects price movements and is not as concerned about time and volume
in the formulation of the points. <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">The point
and figure chart removes the noise, or insignificant price movements, in the
stock, which can distort traders’ views of the price trends. These types of
charts also try to neutralize the skewing effect that time has on chart
analysis.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">When
first looking at a point and figure chart, you will notice a series of Xs and
Os. It represent increases in price by plotting X's in the column and decreases in price by plotting O's. The Xs
represent upward price trends and the Os represent downward price trends. Each
X and O represents a box of a set size or price amount. <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">There are
also numbers and letters in the chart; these represent months, and give
investors an idea of the date. Each box on the chart represents the price
scale, which adjusts depending on the price of the stock: the higher the
stock’s price the more each box represents. <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">This box
size determines how far the price must move before another X or O is added
to the chart, depending on the direction of the price movement. Thus if the box
size is set at 15, the price must move 15 points above the previous box before
the next X or O is plotted. Any movement below 15 is ignored. <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">It also
does not plot the volume traded. Instead it plots unidirectional price
movements in one vertical column and moves to the next column when the price
changes direction. <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">On most
charts where the price is between $20 and $100, a box represents $1, or 1 point
for the stock. The chart also has a box reversal amount that
determines how many boxes must occur in the opposite direction before it is
seen as a reversal. <o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">Only once
the price is seen as having reversed is a new column started. In a 3 box
reversal requires the price to move three boxes (of 45 points if each box
represents 15 points) against the current direction before it is seen as a
reversal.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">This is
usually set at three but it can also be set according to the chartist’s
discretion. The reversal criteria set how much the price has to move away from
the high or low in the price trend to create a new trend or, in other words,
how much the price has to move in order for a column of Xs to become a column
of Os, or vice versa. When the price trend has moved from one trend to another,
it shifts to the right, signaling a trend change.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">For this
reason, very little plotting occurs during stagnant market conditions while a
considerable amount of plotting may occur during volatile market conditions.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">Some
traders argue that P & F charts are one of the best charting techniques for
accurately determining entry and exit signals as they present a clear
indication of <a href="http://www.chart-formations.com/chart-patterns/support-and-resistance.aspx">support
and resistance lines</a>, as well as clear <a href="http://www.chart-formations.com/chart-patterns/trendlines.aspx">trend
lines</a>. P&F charts also trace its own set of price patterns, such as the
fulcrum, the saucer, and the V base.<o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;"><b>Conclusion</b><o:p></o:p></span></div>
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<span style="font-family: Verdana, sans-serif;">Charts
are one of the most fundamental aspects of technical analysis. It is important
that you clearly understand what is being shown on a chart and the information
that it provides. Now that we have an idea of how charts are constructed, we
can move on to the different types of chart patterns. Most of the traders are
using Candlestick Patterns to predict the market movements but it’s all about
depend on your comfortable level.<o:p></o:p></span></div>
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Anonymoushttp://www.blogger.com/profile/18267831001256007310noreply@blogger.com0tag:blogger.com,1999:blog-4934863545415977792.post-69217962502196261732013-10-14T19:45:00.002+05:302014-05-15T19:58:41.817+05:30Types of Charts<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> <b>CANDLESTICK CHART :</b><br /> <br />Although <a href="http://en.wikipedia.org/wiki/Candlestick_chart">Candlestick chart</a>s were created in Japan are on record as being the oldest type of charts, dating back to the 1700's, when they were used for predicting rice prices, that are still used today in modern trading. <br /> <br />More significantly, candlesticks are fairly easy to read with a little practice and offer a wealth of information in a chart. Each plot point on a candlestick chart consists of a rectangular shaped body (think of it as the candle) with a vertical line (the wick) extending from both the top and bottom parts. <br /> <br /> The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close. <br />And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. A major problem with the candlestick color configuration, however, is that different sites use different standards; therefore, it is important to understand the candlestick configuration used at the chart site you are working with. <br /> <br /> There are two color constructs for days up and one for days that the price falls. Candlesticks are colored and typically a dark candle indicates a downward movement while a light one shows that the stock moved upwards. <br /> <br /> When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear. If the stock has traded down for the period, then the candlestick will usually be red or black, depending on the site. If the stock's price has closed above the previous day's close but below the day's open, the candlestick will be black or filled with the color that is used to indicate an up day. <br /> <br />Each candlestick can be read to learn about the stock’s highest and lowest prices as well as its opening and closing prices. <br /> <br />The candlestick charts have become very popular among traders as they compress all important information such as the session's open, high, low, and close into a space-efficient symbol called candlestick. <br /> <br />In the West, often black or red candle bodies represent a close lower than the open, while white, green or blue candles represent a close higher than the open price. <br /> <b> </b></span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>LINE CHART :</b> <br /><br />Of all the available chart types, the <a href="http://en.wikipedia.org/wiki/Line_chart">Line chart</a> is the simplest one. It is plotted by obtaining the opening and closing price of the stock for each segment of the time frame. The line is formed by connecting the closing prices over the time frame. <br /><br />The closing price is especially important to many traders who use line charts since it helps to keep out the distractions of minor fluctuations that occurred during the time segment. <br /><br />This is the simplest form of chart available to the technical analyst with time presented along the X-axis and price on the Y-axis. The actual time function that you plot will depend on your position in the market - a market maker will be interested in price fluctuations on a minute-by-minute basis, whilst the average investor will only be interested in a price on a daily or even weekly basis. Any price may be plotted on a line chart, but the most common is the closing, mid-price. <br /><br />The largest benefit to the analyst of drawing line charts are their simplicity. They present an uncluttered picture of price movements and are very easy to understand. <br /><br />Line charts are also used when there is not enough data provided for a certain stock. This lack of data can also make it difficult for traders to predict the stock’s future movements. <br /><br /> Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. <br /><br />However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts. <br /><br /> <b>OHLC CHART :</b><br /><br />The <a href="http://en.wikipedia.org/wiki/Open-high-low-close_chart">Open-high-low-close chart</a> (OHLC charts, also known as bar charts) expands on the line chart by adding several more key pieces of information to each data point. Unlike line charts, bar charts plot price data by using a series of vertical bars with a horizontal line intersecting each one on the graph. Each vertical bar corresponds to the price changes during the chosen time period. <br /><br />The chart is made up of a series of vertical bars that represent each data point. This vertical bar represents the high and low for the trading period, along with the closing price. <br /><br />The close and open are represented on the vertical bar by a horizontal dash. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar. Conversely, the close is represented by the dash on the right. <br /><br />Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the stock, which means it has gained value. <br /><br />A bar that is colored red signals that the stock has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open). <br /><br />This style of displaying data offers a little more information to traders than line charts, which can be far more helpful when predicting future trends. <br /><br />Many analysts look for patterns in bar charts to make an educated guess as to how the market is going to move. <br /><br />A bar chart shows at least three pieces of information: the high, the low and the closing price for each time interval. Some bar charts also contain a fourth piece of price information, the opening price. Each time interval (that is, day, week, or five-minutes) is represented by one bar. <br /><br />Each bar represents one day's price action. Just as with the line chart, price data is placed on the vertical axis, and time is measured on the horizontal axis. A vertical line shows the trading range for that day. A longer line denotes a wider trading range during the day. Likewise, a short bar means that the spread between the highest price during the day and the lowest price during the day was small. A small tick mark on the right side of the bar indicates the closing price for the day. If the opening price for the day is recorded on the bar chart, it is represented by a small tick mark to the left side of the bar. <br /><br /> <b>POINT AND FIGURE CHART :</b><br /> </span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"><a href="http://en.wikipedia.org/wiki/Point_and_figure_chart">Point and figure chart</a>s are one of the great secrets of the Technical Analysis world. Highly sophisticated and with a thoroughbred pedigree, they can, however, be overlooked by traders today. <br /><br /> The point and figure chart is not well known or used by the average investor but it has had a long history of use dating back to the first technical traders. This type of chart reflects price movements and is not as concerned about time and volume in the formulation of the points. <br /><br />Charting the price action by Point & Figure charts (P&F charts) is a very effective method to know the true picture of the market trend by avoiding the market noises or insignificant moves in the stock, which can distort traders' views of the price trends. These types of charts also try to neutralize the <a href="http://www.investopedia.com/terms/s/skewness.asp">skewing</a> effect that time has on chart analysis. <br /> </span></span><br />
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs represent upward price trends and the Os represent downward price trends. There are also numbers and letters in the chart; these represent months, and give investors an idea of the date. Each box on the chart represents the price scale, which adjusts depending on the price of the stock: the higher the stock's price the more each box represents. <br /><br />On most charts where the price is between $20 and $100, a box represents $1, or 1 point for the stock. The other critical point of a point and figure chart is the reversal criteria. This is usually set at three but it can also be set according to the chartist's discretion. The reversal criteria set how much the price has to move away from the high or low in the price trend to create a new trend or, in other words, how much the price has to move in order for a column of Xs to become a column of Os, or vice versa. When the price trend has moved from one trend to another, it shifts to the right, signaling a trend change. <br /><br /> In today’s world the information availability is very easy. Be it the fundamental factors which affect the financial market or the actual ongoing price data at every moment. Getting hold of the information is not an issue, what is important is how do we organize the various bits and pieces and process those to analyze the same in a meaningful way. <br /><br />In speculative trading markets the prices change every moment but every move of the price is not important. here is a lot of movement and insignificant spike in the price-action which can be ignored simply ignored as meaningless. Point & Figure charting helps us in doing that in a very effective way. <br /><br /> <b>KAGI CHART : </b><br /><br />Kagi charts are price charts with thick and thin vertical lines connected by short horizontal lines. Just like P&F charts, Kagi charts only add a new vertical line when prices have reversed enough to cancel the current uptrend or downtrend. Until such a reversal occurs, a Kagi chart will only move up (or down) in its current column. Kagi charts do not have constantly spaced time axes. Here is an example of a Kagi chart: <br /><br />The word "Kagi" comes from the Japanese art of <a href="http://www.imcclains.com/newsletters/August2005.html">woodblock printing</a>. A kagi or "key" is the L-shaped guide in a woodblock that a printer used to line up the paper for printing. Because of this, Kagi charts are sometimes referred to as "Key charts." Kagi charts were popularized by Steve Nison in his book <a href="http://store.stockcharts.com/products/beyond-candlesticks">Beyond Candlesticks</a>. <br /><br />The thickness of the Kagi line changes depending on price action. The thick line is called the yang line and the thin line is called the yin line. The locations where the line changed from moving higher to moving lower are called "shoulders" and the locations where the line changed from moving lower to moving higher are called "waists". Whenever a yin (thin) line moves above the previous shoulder, it turns into a yang (thick) line. Similarly, whenever a yang line moves below the previous waist, it turns into a yin line. <br /><br />The Kagi line will continue to move up (or down) until prices reverse by a specified amount. When that happens, a short horizontal line is added as well as a new vertical line which extends to the new closing price. There are several ways to specify the reversal amount - in absolute points, as a percentage, or by using the Average True Range of recent prices. <br /> </span></span></div>
Anonymoushttp://www.blogger.com/profile/18267831001256007310noreply@blogger.com0tag:blogger.com,1999:blog-4934863545415977792.post-12459710215663723612013-09-22T18:43:00.000+05:302014-05-15T20:04:23.429+05:30Concepts of Technical Analysis<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: Verdana, sans-serif;"><b>Resistance </b></span><span style="font-family: Verdana, sans-serif;"><b><br /></b></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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. </span><br />
<span style="font-family: Verdana, sans-serif;"><br /></span>
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">This means the price is more likely to "bounce" off this level rather than break through it. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><b>Support </b></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><b>Trend Line</b></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">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. </span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<a href="http://stockcharts.com/school/doku.php?id=chart_school:glossary_t#trendlines"><span style="font-family: Verdana, sans-serif;">Overall Trend</span></a><span style="font-family: Verdana, sans-serif;">: The first step is to identify the overall trend. This can be accomplished with trend lines, </span><a href="http://stockcharts.com/school/doku.php?id=chart_school:glossary_m#movingaverage" style="font-family: Verdana, sans-serif;">moving averages</a><span style="font-family: Verdana, sans-serif;"> 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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Trend lines are a simple and widely used </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;"> 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. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><a href="http://en.wikipedia.org/wiki/Trend_line_(technical_analysis)#cite_note-1" style="font-family: Verdana, sans-serif;">[1]</a><span style="font-family: Verdana, sans-serif;"> It can also be referred to as a dutch line as it was first used in Holland.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">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 </span><a href="http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:support_and_resistan" style="font-family: Verdana, sans-serif;">Support and Resistance article</a><span style="font-family: Verdana, sans-serif;"> before you continue. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Trend lines are typically used with price charts, however they can also be used with a range of </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;"> charts such as </span><a href="http://en.wikipedia.org/wiki/MACD" style="font-family: Verdana, sans-serif;">MACD</a><span style="font-family: Verdana, sans-serif;"> and </span><a href="http://en.wikipedia.org/wiki/Relative_strength_index" style="font-family: Verdana, sans-serif;">RSI</a><span style="font-family: Verdana, sans-serif;">. 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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;"><br /></b><br />
<b style="font-family: Verdana, sans-serif;">Breakout</b><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">A breakout is when </span><a href="http://en.wikipedia.org/wiki/Prices" style="font-family: Verdana, sans-serif;">prices</a><span style="font-family: Verdana, sans-serif;"> pass through and stay through an area of </span><a href="http://en.wikipedia.org/wiki/Support_(technical_analysis)" style="font-family: Verdana, sans-serif;">support</a><span style="font-family: Verdana, sans-serif;"> or </span><a href="http://en.wikipedia.org/wiki/Resistance_(technical_analysis)" style="font-family: Verdana, sans-serif;">resistance</a><span style="font-family: Verdana, sans-serif;">. On the technical analysis chart a break out occurs when price of a stock or commodity exits an area pattern. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Traders will buy the underlying asset when the price breaks above a level of resistance and sell when it breaks below support. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"> </span><span style="font-family: Verdana, sans-serif;"><b><br /></b></span><br />
<span style="font-family: Verdana, sans-serif;"><b>Market Trend </b></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /><br />"Look at the trend. Look at news related to the stock," says Chouhan. </span><span style="font-family: Verdana, sans-serif;">For example, if the rupee is falling against the US dollar, it's common knowledge that technology companies will gain.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">A market trend is a tendency of a </span><a href="http://en.wikipedia.org/wiki/Financial_market" style="font-family: Verdana, sans-serif;">financial market</a><span style="font-family: Verdana, sans-serif;"> to move in a particular direction over time.</span><a href="http://en.wikipedia.org/wiki/Market_trend#cite_note-1" style="font-family: Verdana, sans-serif;">[1]</a><span style="font-family: Verdana, sans-serif;"> These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames.</span><a href="http://en.wikipedia.org/wiki/Market_trend#cite_note-Edwards-2" style="font-family: Verdana, sans-serif;">[2]</a><span style="font-family: Verdana, sans-serif;"> Traders identify market trends using </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;">, a framework which characterizes market trends as predictable price tendencies within the market when price reaches support and resistance levels, varying over time.</span><span style="font-family: Verdana, sans-serif;"><br /><br />The terms <a href="http://en.wikipedia.org/wiki/Market_trend#Bull_market">bull market</a> and <a href="http://en.wikipedia.org/wiki/Market_trend#Bear_market">bear market</a> describe upward and downward market trends, respectively,<a href="http://en.wikipedia.org/wiki/Market_trend#cite_note-3">[3]</a> and can be used to describe either the market as a whole or specific sectors and securities.<a href="http://en.wikipedia.org/wiki/Market_trend#cite_note-Edwards-2">[2]</a></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">You've seen movies in which frantic </span><a href="http://money.howstuffworks.com/day-trading.htm" style="font-family: Verdana, sans-serif;">stock traders</a><span style="font-family: Verdana, sans-serif;"> 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 </span><a href="http://money.howstuffworks.com/personal-finance/financial-planning/stocks.htm" style="font-family: Verdana, sans-serif;">stock market</a><span style="font-family: Verdana, sans-serif;">.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><b><br /></b></span><br />
<span style="font-family: Verdana, sans-serif;"><b>How do these traders and firms predict which shares will hit big? How do they know when to sell?</b></span><span style="font-family: Verdana, sans-serif;"><b><br /></b></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Many factors affect prices in the stock market, including </span><a href="http://money.howstuffworks.com/question737.htm" style="font-family: Verdana, sans-serif;">inflation</a><span style="font-family: Verdana, sans-serif;">, </span><a href="http://money.howstuffworks.com/interest-rate.htm" style="font-family: Verdana, sans-serif;">interest rates</a><span style="font-family: Verdana, sans-serif;">, energy prices, </span><a href="http://auto.howstuffworks.com/fuel-efficiency/fuel-consumption/gas-price.htm" style="font-family: Verdana, sans-serif;">oil prices</a><span style="font-family: Verdana, sans-serif;"> and international issues, such as war, crime, fraud and political unrest.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;"><br /></b><br />
<b style="font-family: Verdana, sans-serif;">Dead Cat Bounce</b><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">In </span><a href="http://en.wikipedia.org/wiki/Finance" style="font-family: Verdana, sans-serif;">finance</a><span style="font-family: Verdana, sans-serif;">, a dead cat bounce is a small, brief recovery in the price of a declining </span><a href="http://en.wikipedia.org/wiki/Stock" style="font-family: Verdana, sans-serif;">stock</a><span style="font-family: Verdana, sans-serif;">.</span><a href="http://en.wikipedia.org/wiki/Dead_cat_bounce#cite_note-1" style="font-family: Verdana, sans-serif;">[1]</a><span style="font-family: Verdana, sans-serif;"> Derived from the idea that "even a dead cat will bounce if it falls from a great height", the phrase, which originated on </span><a href="http://en.wikipedia.org/wiki/Wall_Street" style="font-family: Verdana, sans-serif;">Wall Street</a><span style="font-family: Verdana, sans-serif;">, is also popularly applied to any case where a subject experiences a brief resurgence during or following a severe decline.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /><br />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.</span><span style="font-family: Verdana, sans-serif;"><b><br /></b></span><br />
<span style="font-family: Verdana, sans-serif;"><b>Elliot Wave Principle</b></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">The Elliott wave principle is a form of </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;"> that some traders use to analyze financial market cycles and forecast </span><a href="http://en.wikipedia.org/wiki/Market_trends" style="font-family: Verdana, sans-serif;">market trends</a><span style="font-family: Verdana, sans-serif;"> by identifying extremes in investor psychology, highs and lows in prices, and other collective factors. </span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<a href="http://en.wikipedia.org/wiki/Ralph_Nelson_Elliott"><span style="font-family: Verdana, sans-serif;">Ralph Nelson Elliott</span></a><span style="font-family: Verdana, sans-serif;"> (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. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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." </span><a href="http://en.wikipedia.org/wiki/Elliott_wave_principle#cite_note-Masterworks-1" style="font-family: Verdana, sans-serif;">[1]</a><span style="font-family: Verdana, sans-serif;"> The empirical validity of the Elliott Wave Principle remains the subject of debate.</span><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;"><br /></b><br />
<b style="font-family: Verdana, sans-serif;">Fibonacci Retracements</b><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">In </span><a href="http://en.wikipedia.org/wiki/Finance" style="font-family: Verdana, sans-serif;">finance</a><span style="font-family: Verdana, sans-serif;">, Fibonacci retracements is a method of </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;"> for determining </span><a href="http://en.wikipedia.org/wiki/Support_and_resistance" style="font-family: Verdana, sans-serif;">support and resistance</a><span style="font-family: Verdana, sans-serif;"> levels. They are named after their use of the </span><a href="http://en.wikipedia.org/wiki/Fibonacci_sequence" style="font-family: Verdana, sans-serif;">Fibonacci sequence</a><span style="font-family: Verdana, sans-serif;">. 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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">The appearance of retracement can be ascribed to ordinary </span><a href="http://en.wikipedia.org/wiki/Volatility_(finance)" style="font-family: Verdana, sans-serif;">price volatility</a><span style="font-family: Verdana, sans-serif;"> as described by </span><a href="http://en.wikipedia.org/wiki/Burton_Malkiel" style="font-family: Verdana, sans-serif;">Burton Malkiel</a><span style="font-family: Verdana, sans-serif;">, a </span><a href="http://en.wikipedia.org/wiki/Princeton_University" style="font-family: Verdana, sans-serif;">Princeton</a><span style="font-family: Verdana, sans-serif;"> </span><a href="http://en.wikipedia.org/wiki/Economics" style="font-family: Verdana, sans-serif;">economist</a><span style="font-family: Verdana, sans-serif;"> in his book </span><a href="http://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street" style="font-family: Verdana, sans-serif;">A Random Walk Down Wall Street</a><span style="font-family: Verdana, sans-serif;">, who found no reliable predictions in technical analysis methods taken as a whole. Malkiel argues that asset prices typically exhibit signs of </span><a href="http://en.wikipedia.org/wiki/Random_walk" style="font-family: Verdana, sans-serif;">random walk</a><span style="font-family: Verdana, sans-serif;"> and that one cannot consistently </span><a href="http://en.wikipedia.org/wiki/Alpha_(investment)" style="font-family: Verdana, sans-serif;">outperform market averages</a><span style="font-family: Verdana, sans-serif;">. 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 </span><a href="http://en.wikipedia.org/wiki/Support_and_resistance" style="font-family: Verdana, sans-serif;">support and resistance</a><span style="font-family: Verdana, sans-serif;"> levels.</span><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;"><br /></b><br />
<b style="font-family: Verdana, sans-serif;">Pivot point</b><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">A pivot point is a price level of significance in </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;"> of a </span><a href="http://en.wikipedia.org/wiki/Financial_market" style="font-family: Verdana, sans-serif;">financial market</a><span style="font-family: Verdana, sans-serif;"> that is used by </span><a href="http://en.wikipedia.org/wiki/Trader_(finance)" style="font-family: Verdana, sans-serif;">traders</a><span style="font-family: Verdana, sans-serif;"> as a predictive indicator of market movement. </span><br />
<span style="font-family: Verdana, sans-serif;"><br /></span>
<span style="font-family: Verdana, sans-serif;">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 </span><a href="http://en.wikipedia.org/wiki/Bullish" style="font-family: Verdana, sans-serif;">bullish</a><span style="font-family: Verdana, sans-serif;"> sentiment, whereas trading below the pivot point is seen as </span><a href="http://en.wikipedia.org/wiki/Bearish" style="font-family: Verdana, sans-serif;">bearish</a><span style="font-family: Verdana, sans-serif;">.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Monthly pivot point chart of the </span><a href="http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average" style="font-family: Verdana, sans-serif;">Dow Jones Industrial Average</a><span style="font-family: Verdana, sans-serif;"> 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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span><a href="http://en.wikipedia.org/wiki/Pivot_point#cite_note-1" style="font-family: Verdana, sans-serif;">[1]</a><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;"><br /></b><br />
<b style="font-family: Verdana, sans-serif;">Dow Theory</b><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">The Dow theory on stock price movement is a form of </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;"> that includes some aspects of </span><a href="http://en.wikipedia.org/wiki/Sector_rotation" style="font-family: Verdana, sans-serif;">sector rotation</a><span style="font-family: Verdana, sans-serif;">. The theory was derived from 255 </span><a href="http://en.wikipedia.org/wiki/Wall_Street_Journal" style="font-family: Verdana, sans-serif;">Wall Street Journal</a><span style="font-family: Verdana, sans-serif;"> editorials written by </span><a href="http://en.wikipedia.org/wiki/Charles_H._Dow" style="font-family: Verdana, sans-serif;">Charles H. Dow</a><span style="font-family: Verdana, sans-serif;"> (1851–1902), journalist, founder and first editor of the </span><a href="http://en.wikipedia.org/wiki/Wall_Street_Journal" style="font-family: Verdana, sans-serif;">Wall Street Journal</a><span style="font-family: Verdana, sans-serif;"> and co-founder of </span><a href="http://en.wikipedia.org/wiki/Dow_Jones_and_Company" style="font-family: Verdana, sans-serif;">Dow Jones and Company</a><span style="font-family: Verdana, sans-serif;">. Following Dow's death, </span><a href="http://en.wikipedia.org/wiki/William_Peter_Hamilton" style="font-family: Verdana, sans-serif;">William Peter Hamilton</a><span style="font-family: Verdana, sans-serif;">, </span><a href="http://en.wikipedia.org/w/index.php?title=Robert_Rhea&action=edit&redlink=1" style="font-family: Verdana, sans-serif;">Robert Rhea</a><span style="font-family: Verdana, sans-serif;"> and </span><a href="http://en.wikipedia.org/w/index.php?title=E._George_Schaefer&action=edit&redlink=1" style="font-family: Verdana, sans-serif;">E. George Schaefer</a><span style="font-family: Verdana, sans-serif;"> 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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;"><br /></b><br />
<b style="font-family: Verdana, sans-serif;">Average true range</b><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Average true range (ATR) is a </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;"> </span><a href="http://en.wikipedia.org/wiki/Volatility_(finance)" style="font-family: Verdana, sans-serif;">volatility</a><span style="font-family: Verdana, sans-serif;"> indicator originally developed by </span><a href="http://en.wikipedia.org/wiki/J._Welles_Wilder,_Jr." style="font-family: Verdana, sans-serif;">J. Welles Wilder, Jr.</a><span style="font-family: Verdana, sans-serif;"> for </span><a href="http://en.wikipedia.org/wiki/Commodities" style="font-family: Verdana, sans-serif;">commodities</a><span style="font-family: Verdana, sans-serif;">.</span><a href="http://en.wikipedia.org/wiki/Average_true_range#cite_note-1" style="font-family: Verdana, sans-serif;">[1]</a><span style="font-family: Verdana, sans-serif;"> The indicator does not provide an indication of price </span><a href="http://en.wikipedia.org/wiki/Market_trend" style="font-family: Verdana, sans-serif;">trend</a><span style="font-family: Verdana, sans-serif;">, simply the degree of price volatility.</span><a href="http://en.wikipedia.org/wiki/Average_true_range#cite_note-investopedia-2" style="font-family: Verdana, sans-serif;">[2]</a><a href="http://en.wikipedia.org/wiki/Average_true_range#cite_note-3" style="font-family: Verdana, sans-serif;">[3]</a><span style="font-family: Verdana, sans-serif;"> The average true range is an N-day </span><a href="http://en.wikipedia.org/wiki/Moving_average_(finance)#Exponential_moving_average" style="font-family: Verdana, sans-serif;">exponential moving average</a><span style="font-family: Verdana, sans-serif;"> of the true range values. Wilder recommended a 14-period smoothing.</span><a href="http://en.wikipedia.org/wiki/Average_true_range#cite_note-4" style="font-family: Verdana, sans-serif;">[4]</a><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;"><br /></b><br />
<b style="font-family: Verdana, sans-serif;">Chart pattern</b><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">A Price pattern is a </span><a href="http://en.wikipedia.org/wiki/Pattern" style="font-family: Verdana, sans-serif;">pattern</a><span style="font-family: Verdana, sans-serif;"> that is formed within a </span><a href="http://en.wikipedia.org/wiki/Chart" style="font-family: Verdana, sans-serif;">chart</a><span style="font-family: Verdana, sans-serif;"> when prices are graphed. In stock and </span><a href="http://en.wikipedia.org/wiki/Commodity_market" style="font-family: Verdana, sans-serif;">commodity markets</a><span style="font-family: Verdana, sans-serif;"> trading, chart pattern studies play a large role during </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;">. When </span><a href="http://en.wikipedia.org/wiki/Data" style="font-family: Verdana, sans-serif;">data</a><span style="font-family: Verdana, sans-serif;"> 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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Some people[</span><a href="http://en.wikipedia.org/wiki/Wikipedia:Avoid_weasel_words" style="font-family: Verdana, sans-serif;">who?</a><span style="font-family: Verdana, sans-serif;">] 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 </span><a href="http://en.wikipedia.org/wiki/Illusion" style="font-family: Verdana, sans-serif;">illusions</a><span style="font-family: Verdana, sans-serif;"> created by people's </span><a href="http://en.wikipedia.org/wiki/Subconscious" style="font-family: Verdana, sans-serif;">subconscious</a><span style="font-family: Verdana, sans-serif;">. Certain theories of </span><a href="http://en.wikipedia.org/wiki/Economics" style="font-family: Verdana, sans-serif;">economics</a><span style="font-family: Verdana, sans-serif;"> 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.</span><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;"><br /></b><br />
<b style="font-family: Verdana, sans-serif;">Cycles</b><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
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<span style="font-family: Verdana, sans-serif;">Stock market cycles are the long-term price patterns of the stock market.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><b><br /></b></span><br />
<span style="font-family: Verdana, sans-serif;"><b>Momentum</b></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<a href="http://stockcharts.com/school/doku.php?id=chart_school:glossary_m#momentum"><span style="font-family: Verdana, sans-serif;">Momentum</span></a><span style="font-family: Verdana, sans-serif;">: Momentum is usually measured with an oscillator such as MACD. If MACD is above its 9-day EMA (exponential </span><a href="http://stockcharts.com/school/doku.php?id=chart_school:glossary_m#movingaverage" style="font-family: Verdana, sans-serif;">moving average</a><span style="font-family: Verdana, sans-serif;">) or positive, then momentum will be considered bullish, or at least improving.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Momentum and rate of change (ROC) are simple </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;"> indicators showing the difference between today's closing price and the close N days ago. Momentum is the absolute difference in stock, commodity:</span><span style="font-family: Verdana, sans-serif;"><br /><br /><img border="0" src="file:///C:/DOCUME~1/RAMALI~1/LOCALS~1/Temp/msohtml1/01/clip_image001.gif" /></span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEja0DWayHy7r3B2GWUObUi2M8MZ6ZOGB-KjhqUen5qccGxX7G7Dvd4P_D0HcpIVfqaIxZAuL76hyM5cVP-THgIquqvqZeh8-kqU9F8RgvBR19sqfMyD8skLUd1V3OU5-P4Ilt_KQgK4-cZc/s1600/New+Picture+%252815%2529.png" imageanchor="1" style="clear: left; display: inline !important; margin-bottom: 1em; margin-right: 1em; text-align: center;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEja0DWayHy7r3B2GWUObUi2M8MZ6ZOGB-KjhqUen5qccGxX7G7Dvd4P_D0HcpIVfqaIxZAuL76hyM5cVP-THgIquqvqZeh8-kqU9F8RgvBR19sqfMyD8skLUd1V3OU5-P4Ilt_KQgK4-cZc/s320/New+Picture+%252815%2529.png" height="20" width="320" /></a></div>
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<span style="font-family: Verdana, sans-serif;">Rate of change scales by the old close, so as to represent the increase as a fraction,</span></div>
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<span style="font-family: Verdana, sans-serif;"><br /><img border="0" src="file:///C:/DOCUME~1/RAMALI~1/LOCALS~1/Temp/msohtml1/01/clip_image002.gif" /></span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKONASFxKxSKKY1GgLdsO0Sb4cYuw45P7-2rTUhazSL8AnSrkhVOh1Znl73z8zva0P3VdJWToT77vWzeGSj8eaFNqFIx3YTgdRK8Aux15HkSkZkDawhW57efi26W-y8yaMDK8kxJUrgqNT/s1600/New+Picture+(16).png" imageanchor="1" style="clear: left; display: inline !important; margin-bottom: 1em; margin-right: 1em; text-align: center;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKONASFxKxSKKY1GgLdsO0Sb4cYuw45P7-2rTUhazSL8AnSrkhVOh1Znl73z8zva0P3VdJWToT77vWzeGSj8eaFNqFIx3YTgdRK8Aux15HkSkZkDawhW57efi26W-y8yaMDK8kxJUrgqNT/s320/New+Picture+(16).png" height="42" width="320" /></a></div>
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<span style="font-family: Verdana, sans-serif;">"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.</span></div>
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<span style="font-family: Verdana, sans-serif;"><br />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.<br /><br />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.<br /><br />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.<a href="http://en.wikipedia.org/wiki/Momentum_(technical_analysis)#cite_note-1">[1]</a></span><b style="font-family: Verdana, sans-serif;"><br /></b><br />
<b style="font-family: Verdana, sans-serif;">Point and Figure Analysis </b><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">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 </span><a href="http://en.wikipedia.org/wiki/Technical_analysis" style="font-family: Verdana, sans-serif;">technical analysis</a><span style="font-family: Verdana, sans-serif;">. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.[</span><a href="http://en.wikipedia.org/wiki/Wikipedia:Citation_needed" style="font-family: Verdana, sans-serif;">citation needed</a><span style="font-family: Verdana, sans-serif;">]</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">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.</span></div>
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Anonymoushttp://www.blogger.com/profile/18267831001256007310noreply@blogger.com0tag:blogger.com,1999:blog-4934863545415977792.post-63977499523971586702013-09-08T22:46:00.001+05:302014-05-15T20:03:51.186+05:30Basics of Technical Analysis<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: Verdana, sans-serif;"><b>Technical Analysis Stock Trading</b></span><span style="font-family: Verdana, sans-serif;"><b><br /> What is technical analysis in stock trading?</b></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">If you find yourself asking – what do I need to be successful in the stock market – the answer is technical analysis. It doesn’t matter if you’re a long-term investor or a short-term trader. Technical analysis will make you a better trader.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Technical analysis is the study of how the price of a share of stock or index is moving on a </span><a href="http://www.stock-trading-warrior.com/Stock-Market-Charts.html" style="font-family: Verdana, sans-serif;">stock market chart.</a><span style="font-family: Verdana, sans-serif;"> It usually involves the use of an indicator or oscillator to measure various aspects of price, including trends, price ranges, price and volume combinations, rate of change, etc. The idea for using technical analysis is that prices are not completely random, but rather, they follow price patterns.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">If you look at a chart you'll see that daily prices for the most part, connect from day to day. The daily price of a stock has a relationship with the prior day’s action and so on. Even stocks with volatile price movements have a day-to-day relationship and subsequently, create a pattern of movement.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><b>Every stock move is driven by one of three emotions:</b></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;">Fear </b><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;">Greed </b><span style="font-family: Verdana, sans-serif;"><b><br /></b></span><b style="font-family: Verdana, sans-serif;">Uncertainty</b><span style="font-family: Verdana, sans-serif;"><b><br /></b></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Uncertainty is the pit stop between fear and greed, the two most dominate emotions.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">When the most dominant group of stock traders in a stock are being driven by greed, the stock will rise.....when the most dominant group of stock traders in a stock are being driven by fear, the stock will sink.....and when the most dominant group is uncertain, the stock will stabilize and the stock price will remain flat.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">If we go a little deeper, technical analysis is also a way to read true trader sentiment about a stock because what makes the price of a stock go up or down is whether the majority of traders want to buy it or sell it. And so, price patterns are created when buyers and sellers react/respond to price action. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /> </span><br />
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<span style="font-family: Verdana, sans-serif;"><b>Technical Analysis Stock Trading - Why? </b></span><span style="font-family: Verdana, sans-serif;"><b>Know Where Price Is</b></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">A reason to use technical analysis stock trading is you should want to have, at least, some basic knowledge of what any stock’s price is doing before you buy it. Otherwise, if you have absolutely no knowledge of what price is doing – you’re basically buying in a vacuum. Most stock traders want the price to be moving in the right direction to capture a gain and that’s why technical analysis is so important.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><b>Fundamentals Aren’t Enough</b></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">To put it in perspective, traditionally, there are two general ways to pick stocks. One is to use fundamentals or the financial numbers of a company. The idea in using fundamentals is to look for numbers based on </span><a href="http://www.stock-trading-warrior.com/Best-Stocks-to-Invest-In.html" style="font-family: Verdana, sans-serif;">growth</a><span style="font-family: Verdana, sans-serif;"> or </span><a href="http://www.stock-trading-warrior.com/True-Stock-Value.html" style="font-family: Verdana, sans-serif;">value</a><span style="font-family: Verdana, sans-serif;"> that appear to tell a story of how the price of a share of stock would be expected to move.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">To assume that a stock price must go up because of earnings, low valuation, etc. isn’t enough information to make really good trades. There’s example after example of stocks that have good fundamentals and aren’t increasing in price.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">The way to be successful as an investor is to combine fundamental study with some kind of technical analysis stock trading. Using technical analysis, a stock trader is reading what the price is currently doing and making trading decisions based on more information than just fundamentals.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><b>Human Psychology</b></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">As mentioned above, the way price is moving describes what the majority of people interested in the stock really think about it and where they think it’s going to go. If you really think about why the price of a stock goes up –it’s because people are buying it. So why do people buy a stock? There are a lot of reasons why, but does that truly matter? At the end of the day, what really matters is how the price is moving and that's how technical analysis stock trading comes into play.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">And, the interesting thing is that human psychology repeats itself. If a stock is popular – like the popular kid in school – and people are buying it that will make its price go up.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">If You Knew of A Way to Read Price Would You Use It to Your Advantage?</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">If you had a way to clearly understand that the price of stock was moving upward before making a decision to enter into a position wouldn’t you use it?</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">On the flip side, if you had a way to read that many people were exiting the position in the stock and driving the price down wouldn’t you want the opportunity to exit before you felt like you were the last shareholder?</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">By examining price action to determine which force is prevailing, stock technical analysis focuses directly on the bottom lines:</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><b><span style="font-family: Verdana, sans-serif;">What is the price?</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Where has it been?</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Where is it going?</span></b><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Stock analysis is more an art form than a science. As an art form, it is open to interpretation and each stock trader should use only that which suits their style and personality.</span><span style="font-family: Verdana, sans-serif;">Developing a technical style takes time, effort and dedication, and the rewards can be great! </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Additionally, many traders and investors use financial news stations to gather information to influence trading activity when price movement will tell you what it’s actually doing. Why not use an unbiased tool that offers the information you need at a glance using what is rather than what might be. </span><span style="font-family: Verdana, sans-serif;"><br /><br /> </span></div>
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<span style="font-family: Verdana, sans-serif;"><b>Technical Analysis Stock Trading - How? <br /><br />Basics Factors</b><br /><br />Technical analysis is a method of analyzing a stock or company solely on statistics generated by market activity. This can include volume, historical prices, etc. Using these charts and patterns many can suggest and predict future activity. However, plain and simple, technical analysis is only based on three assumptions.<br /><br /><b>1. The market discounts everything.</b></span><b style="font-family: Verdana, sans-serif;">2. Prices move in trends</b><span style="font-family: Verdana, sans-serif;"><b><br /></b></span><b style="font-family: Verdana, sans-serif;">3. History always tends to repeat itself.</b><span style="font-family: Verdana, sans-serif;"><b><br /></b><b><br /></b></span><br />
<span style="font-family: Verdana, sans-serif;"><b>The Market Discounts Everything - </b></span></div>
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<span style="font-family: Verdana, sans-serif;">One major critic about technical analysis is the fact it only takes into consideration price movement. Analysts looking for technical indicators ignore fundamental factors. The way they get around is by the theory that at any given time, a stocks share price will reflect everything that could possibly affect a company. This includes the effects brought on by fundamental factors. Since these factors are already priced into the stock, they believe all that matters is the analysis of price movement, which basically is the supply and demand of a stock.</span></div>
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<span style="font-family: Verdana, sans-serif;"><b>Prices Move in Trends - </b></span></div>
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<span style="font-family: Verdana, sans-serif;">This basically means that the price movements will follow similar patterns. It all comes down to assumption and the analyst assumes that the trends will follow on a similar pattern.</span></div>
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<span style="font-family: Verdana, sans-serif;"><b>History Always Tend to Repeat Itself - </b></span></div>
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<span style="font-family: Verdana, sans-serif;">The market repeats itself in its patterns of price movements. Analyzing charts for the past 100 years you can see everything follows a similar pattern so a could technical analyst will be able to read when the next trend is coming.<br />Here are some easy ways to use technical analysis in your trading with one or two applicable indicators:<br /><br /><b>Trend - </b>Look to see if the stock price is in a trend? Is it going up or down? Is it a newly established trend or a stale one? (Indicators:<a href="http://www.stock-trading-warrior.com/Moving-Average.html">Moving Average</a> [MA], <a href="http://www.stock-trading-warrior.com/Average-Directional-Index.html">Average Directional Index</a> [ADX], MACD)<br /><br />There are three types of trends: Long-Term Trends, Medium-Term Trends, and Short-Term Trends.<br /> </span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">The Long-term trend is over a year, </span><span style="font-family: Verdana, sans-serif;">the Medium-term trend is one to three months, and </span><span style="font-family: Verdana, sans-serif;">short-term is less than a month. If you are a long-term investor all you should worry about is the Long-term trend. If you look its a recipocal cycle for the stock to fluctuate with ups and downs, however long-term companies usually all go up as seen by the chart to the right. In this case the Super Trend is the Long Trend, the Dot com Bust is the medium trend and the small falls and gains in between are the small trend. Thats why long-term investors don’t look at their investments on a daily basis as due to fluctuations it doesn’t make sense. On the contrary if you trade regularly the Medium-term trend might be more critical. Remember the two most important sayings on trends: “the trend is your friend” and “don’t buck the trend.”</span><br />
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<span style="font-family: Verdana, sans-serif;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgU8dJMwClFfM_5HNLlZhVu9XHiNfdAXIQeHPbvXG3X0gxvs0Q8PVV6iD_aRYWAK5q7WxZ2Gf6ga0CMhoOP5TAupQAWrEbzq7xTSuTpbgKfF1ArD3AhJIc_oeHHGOTrjDAnML7OlMQMtTrY/s1600/New+Picture+(12).png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgU8dJMwClFfM_5HNLlZhVu9XHiNfdAXIQeHPbvXG3X0gxvs0Q8PVV6iD_aRYWAK5q7WxZ2Gf6ga0CMhoOP5TAupQAWrEbzq7xTSuTpbgKfF1ArD3AhJIc_oeHHGOTrjDAnML7OlMQMtTrY/s400/New+Picture+(12).png" height="250" width="400" /></a></span></div>
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</span><span style="font-family: Verdana, sans-serif;">Support/Resistance – Look to see if the stock price headed toward a recent previous high or low in price? And how will the price act when it hits the same level as a recent high or low? Will the price move stop and reverse or break through? Or is the stock at a 52-week high or low and facing no resistance? (Indicators: </span><a href="http://www.stock-trading-warrior.com/Moving-Average.html" style="font-family: Verdana, sans-serif;">Moving Average</a><span style="font-family: Verdana, sans-serif;"> [MA], trend lines)</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Support and Resistance can often be characterized as the on-going fight between the bulls and the bears or the struggle between supply and demand. This graph will help illustrate the difference: Support is the price level for which a stock or the market in general falls. Resistance is the price level it surpasses.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
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<span style="font-family: Verdana, sans-serif;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqe0RFTluHmA-gwyJUmIRv6OZKr19PUnJfSfiB1N7LpNnUtB2CPH7tTvFRCwRu21CBNaj6cYJ_L0Buy7KzRSoTC9xa3_zlMOvZAROKjtcI8wzfbapDDmDkHeW1oVmuqk9OuG75vD0blnlm/s1600/New+Picture+(13).png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqe0RFTluHmA-gwyJUmIRv6OZKr19PUnJfSfiB1N7LpNnUtB2CPH7tTvFRCwRu21CBNaj6cYJ_L0Buy7KzRSoTC9xa3_zlMOvZAROKjtcI8wzfbapDDmDkHeW1oVmuqk9OuG75vD0blnlm/s400/New+Picture+(13).png" height="256" width="400" /></a></span></div>
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</span><span style="font-family: Verdana, sans-serif;">Are you following along? Well read carefully as support and resistance levels are crucial factors involved within the markets. Simply they are the price levels at what traders/investors will buy or sell a stock at. When analyzing support and resistance price levels, round numbers come into play throughout a large amount of charts. Round numbers represent physiological turning points for a stock and become the price levels in which a stock plays off. Often traders/investors will purchase a stock at a price level that they don’t believe it will fall under. For example, Google support level could be $400 where whenever it reaches near that price level, investors buy large quantities. On the other hand, Google could have a resistance level of $500 where investors don’t believe it will continue to go up much further therefore selling off. So now that you know about the basics of support and resistance levels, lets analyze why it’s an important factor.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Support and resistance analysis is crucial for traders as if you can identify a important level of resistance that over time has never been broken you will most likely consider profit taking when it reaches near that level the next time as you believe it is unlikely the shares will exceed that level. They go side by side with trends, as normally a trend will conform to its support and resistance levels. One key tip to know when trading near support and resistance levels is never to place your order on the exact price. Due to increased volatility, when a stock price reaches this level there tend to be a high level of trading volume therefore you will most likely miss out. Therefore place your order a couple points above or under and all will be good.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><b>Volume –</b> Relates to interest in a stock. Abnormal volume can indicate abnormal buying or selling activity. (Chaikin Money Flow, OBV, Rate of Change [ROC])</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><b>Price patterns –</b> supply & demand has the price gone up really fast with no pause? Or has the price movement “rested” and begun to continue in the trend direction? (Japanese Candlesticks, Cup with Handle)</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Personally, the technical indicator I mainly use is </span><a href="http://www.stock-trading-warrior.com/Trending-Stocks.html" style="font-family: Verdana, sans-serif;">ADX to find trending stocks</a><span style="font-family: Verdana, sans-serif;"> then price (Japanese Candlesticks). Simple, and not overly complicated.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">When deciding what technical analysis stock trading indicator you want to use think about what you are most interested in whether it be trend, support/resistance, etc. and what makes the most sense to you.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Additionally, a trader can use both fundamental and technical analysis together.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"> <br /><b> Follow The Money ! </b></span><span style="font-family: Verdana, sans-serif;"><br /></span></div>
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<span style="font-family: Verdana, sans-serif;">Technical analysis of stock market companies is also the art of following the flow of money.</span><span style="font-family: Verdana, sans-serif;">Stock market analysis is the examination of price past movements to forecast future price movements. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Technical analysts believe that the current stock price fully reflects all information. Because all information is already reflected in the price, it represents fair value and should form the basis of analysis.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">A technician believes that it is possible to identify with a trend and make money as the trend unfolds. Because stock analysis can be applied to many different time-frames, it is possible to spot both short-term and long-term trends.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Technical analysts are concerned with two things:</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;">1. What is the current price?</b><span style="font-family: Verdana, sans-serif;"><br /></span><b style="font-family: Verdana, sans-serif;">2. What is the history of the price movement?</b><span style="font-family: Verdana, sans-serif;"><b><br /></b></span><span style="font-family: Verdana, sans-serif;"><br /></span></div>
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<span style="font-family: Verdana, sans-serif;">The price is the end result of the battle between the forces of supply and demand for the company's stock. The object of technical stock analysis, is to forecast the direction of the price.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Technical analysts consider the stock market to be 80% </span><a href="http://www.stockmarket-coach.com/stock-market-trading.html" style="font-family: Verdana, sans-serif;">psychological</a><span style="font-family: Verdana, sans-serif;"> and 20% logical.</span><a href="http://www.stockmarket-coach.com/stock-valuation.html" style="font-family: Verdana, sans-serif;">Fundamental analysts</a><span style="font-family: Verdana, sans-serif;"> consider the stock market to be 20% psychological and 80% logical.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span></div>
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<span style="font-family: Verdana, sans-serif;">Psychological or logical may be open for debate, but there is no questioning the current price of a stock. The price set by the stock market reflects the sum knowledge of all participants.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span></div>
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<span style="font-family: Verdana, sans-serif;">And these participants have considered (discounted) everything under the sun and settled on a price to buy or sell. These are the forces of supply and demand at work.</span><span style="font-family: Verdana, sans-serif;"><br /><br /> </span></div>
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<span style="font-family: Verdana, sans-serif;"><b>Technical Analysis Stock Trading - Next Step?</b><br /><br />The best thing to do is pick a handful of individual indicators and read about them. Start looking at them comparing the information they provide with how the price moved on a group of stock charts. A good book to get started with technical analysis is <a href="http://www.amazon.com/gp/product/0470382058/ref=as_li_tf_tl?ie=UTF8&tag=wwwstocktra09-20&linkCode=as2&camp=217145&creative=399377&creativeASIN=0470382058">The Visual Investor: How to Spot Market Trends (Wiley Trading)</a><img border="0" src="" /> (See all <a href="http://www.amazon.com/General-Investing-Business-Books/b/ref=as_li_tf_tl?ie=UTF8&tag=wwwstocktra09-20&linkCode=as2&camp=217145&creative=399385&creativeASIN=0470382058&ie=UTF8&node=2669">Investing Books</a>)<img border="0" src="" /> .<br /><br /><b>Some of the most used technical indicators are:</b></span><span style="font-family: Verdana, sans-serif;">· </span><a href="http://www.stock-trading-warrior.com/Moving-Average.html" style="font-family: Verdana, sans-serif;">Moving average</a><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">· MACD</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">· Stochastics</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">· RSI</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">· </span><a href="http://www.stock-trading-warrior.com/Average-Directional-Index.html" style="font-family: Verdana, sans-serif;">Average Directional Index (ADX)</a><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">There are many more specialized indicators, but the ones listed above are probably the most popular ones.</span><span style="font-family: Verdana, sans-serif;">Then look at the stocks you own or ones you’re considering to buy in a chart format with the indicators. Look at your most successful trades and see how the indicator behaved. Or, look at a group of the best stock market performers with various indicators enabled.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Remember, the first thing to look for in technical analysis stock trading is to look at how price is moving. If you asked me to pick one indicator as a starting point, I’d say look at </span><a href="http://www.stock-trading-warrior.com/Moving-Average.html" style="font-family: Verdana, sans-serif;">moving averages</a><span style="font-family: Verdana, sans-serif;"> – they’re very easy to understand and to begin to get a general sense of the study of how price is moving.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span></div>
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<span style="font-family: Verdana, sans-serif;">For example, open up a chart and add a 20-day simple moving average and 50-day simple moving average. Now look at the chart and ask these questions:</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">· Where is the last price of the stock in relation to the two MA lines?</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">· Is it above both lines? Between them or below both MA lines?</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">· Is the 20-day above the 50-day? Or, below?</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">· Has there been a recent crossover between two MA lines? Or, has there been recent price move over a MA?</span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
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<span style="font-family: Verdana, sans-serif;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgF34oyP85yKTjGBItkfweEh5K324RavpmrbFqPGtI6Cd1kZx3spKTzfxCEXhcuNEXCudSwQNpZd15blMXDYw0tVJiyRSaq7p_I5RAKJa5J-_X5fBwww6uJM7mSrS_b65pzg54Qqkx9xK8r/s1600/New+Picture+(14).png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgF34oyP85yKTjGBItkfweEh5K324RavpmrbFqPGtI6Cd1kZx3spKTzfxCEXhcuNEXCudSwQNpZd15blMXDYw0tVJiyRSaq7p_I5RAKJa5J-_X5fBwww6uJM7mSrS_b65pzg54Qqkx9xK8r/s1600/New+Picture+(14).png" /></a></span></div>
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</span><span style="font-family: Verdana, sans-serif;">In the example of Morgan Stanley (MS) above you can easily see the price first moved below the blue, 20-day moving average line. The price then moved below the red, 50-day moving average line and continued for the most part to stay below that line. The 20-day moving average line then also crossed below the 50-day moving average line.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">If an investor was dollar cost averaging every month into this position, it would have been quite disappointing. One could have speculated all the way down on MS, but understanding technical analysis stock trading will put you "in the know" of what a stock's price is doing. Looking at these simple lines on any stock chart will give you immediate information about how the stock’s price is moving and the ability to make much better decisions for taking positions.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><b>Tip: </b>As you move forward you can set up a </span><a href="http://www.stock-trading-warrior.com/Stock-Market-Screener.html" style="font-family: Verdana, sans-serif;">stock market screener</a><span style="font-family: Verdana, sans-serif;"> for the stocks that present the setups you’re looking for to trade.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">There are no rules here. Except the ones you set for your trading. One can be strictly a fundamental trader, a technical trader, or a fundamental with technical trader. It’s up to what your philosophy about the things affect the price of a stock. Just know that if you use some method of technical analysis with any fundamentally appropriate stock you can take your trading to the next level.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /> </span></div>
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<span style="font-family: Verdana, sans-serif;"><b>In the end, successful stock trading stands on three pillars:</b></span><span style="font-family: Verdana, sans-serif;">1. You need to analyze the battle between the bulls and the bears.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">2. You need to practice good </span><a href="http://www.stockmarket-coach.com/stock-market-price.html" style="font-family: Verdana, sans-serif;">money mangement</a><span style="font-family: Verdana, sans-serif;">.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">3. You need </span><a href="http://www.stockmarket-coach.com/stock-market-trading.html" style="font-family: Verdana, sans-serif;">discipline</a><span style="font-family: Verdana, sans-serif;"> to follow your </span><a href="http://www.stockmarket-coach.com/stock-trading-systems.html" style="font-family: Verdana, sans-serif;">trading system</a><span style="font-family: Verdana, sans-serif;"> and avoid getting high in the markets.</span></div>
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Anonymoushttp://www.blogger.com/profile/18267831001256007310noreply@blogger.com0tag:blogger.com,1999:blog-4934863545415977792.post-14045019748437150462013-09-08T22:37:00.000+05:302014-05-15T20:03:23.241+05:30Hidden Truths of Technical Analysis<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: Verdana, sans-serif;">Technical analysis is one of the oldest market disciplines, yet the majority of the investment and academic communities consider it, at best, a minor supplement to their own work. At worst, it is disparaged as tea-leaf reading or simply a self-fulfilling prophecy. Look at these two phrases. They suggest that the technical analyst divines the market from some mystical process. This could not be further from the truth.</span><span style="font-family: Verdana, sans-serif;"><br /><br />Consider the fundamental analyst. This person relies on company reports, conversations with company insiders, and macro-economic research in relevant business sectors. All this is indispensable when determining if a company is viable and predicting how its business will fare in the future.<br /><br />Now consider the source of all the raw data. Much of it is projection and conjecture. How can you rely solely on such raw data when earnings reports and other industry wide data will be subject to revisions?<br /><br />Technical analysis looks at actual trades in which bulls and bears have put their money where their collective mouths are. There is no revision of data. There is no ambiguity. There is no mystical divining of the future. All market and stock selection is based on current, not past, price performance, the predictable behavior of market participants, and the dynamics between markets over time.<br /><br />Trends exist. Information is slowly disseminated to the public in an imperfect manner, and as the public acts on the information, the markets move. They continue to move until either the last group has acted or an outside influence, such as news, ends the trend. Sounds a lot like physics, does it not? A body in motion tends to remain in motion.<br /><br />Look at another aspect of the analysis. Behavior is a key component of the analysis. When similar market conditions occur, market participants react in similar ways. This is how the patterns and measurements within technical analysis are created.<br /><br />For example, the market holds fairly steady as buyers and sellers adjust their portfolios to meet their specific investment criteria. A stock might trade from 50 to 52 for weeks in this way. Is the stock good? Is the company good? You do not know. All you know is that bulls and bears consider the stock to be fairly valued within a small range. A body at rest tends to stay at rest—physics again.<br /><br />Now somebody comes into the market to buy a large block of stock. Why? Technical analysis does not know but more important, it does not care. All it needs to know is that money has flowed into the market and increased demand for the stock. Demand? That is straight from basic economics. If demand rises, the price must rise to induce sufficient supply (sellers) to come into the market and restore equilibrium. This does not sound very mystical, does it?<br /><br />So, now that demand has increased, market activity picks up to provide supply. It also changes in character as people try to decipher what is happening. Here are the familiar concepts of fear and greed, both key determinants of human behavior. Some participants think that something has changed and the stock is now undervalued. It could be a new product or simply a decrease in the company's raw material inputs. Perhaps it is foreign capital coming into the stock. Or a shortage of the stock itself. Whatever the reason, some market participants know something, or think they know something, about improved prospects for the company and they buy. The market breaks out of the trading range, and as it does, more market participants act. The size and scope of their actions is often similar to the size and scope of their actions at other occasions in which the market has broken out of similar ranges. It can be measured and projected.<br /><br />Technical analysis has an unfortunate name. Perhaps "price action analysis" or "supply, demand, and reaction analysis" might be better. In 1998, great strides were made between market technicians and the academic community in the emerging field of behavioral finance. Now there is a possible name to use.<br /><br />One aspect of the technical discipline is explaining the difference between valuations and actual market prices. If a stock is worth 75 on paper based on discounted cash flows, projected growth, and overall economic conditions, why is it trading at 90? The difference is in the market's perceptions of the stock. People have pushed the stock up past its theoretical value. Technical analysis is perfectly suited to handle this. Because people's perceptions can change quickly, it is also perfectly suited to reacting equally as quickly. This type of reaction speed is impossible using fundamental analysis alone.<br /><br />Do you scrap your fundamentals and rely exclusively on technicals? Absolutely not! Although there are scores of money managers and traders that are 100 percent technical and making a lot of money, you, the reader, are not interested in making technical analysis your sole investment discipline just yet. </span><span style="font-family: Verdana, sans-serif;">At this stage, charts give you a clear picture of what your fundamental research is saying. Remember that the fundamentals describe the company. Technicals describe how the stock performs. You are buying stock, not companies.</span></div>
Anonymoushttp://www.blogger.com/profile/18267831001256007310noreply@blogger.com0tag:blogger.com,1999:blog-4934863545415977792.post-54076218454554120212013-09-08T22:09:00.002+05:302014-05-15T20:02:52.767+05:30An Introduction to Technical Analysis<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: Verdana, sans-serif;">Technical Analysis is a study of mass psychology. It is partly a science and partly an art.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Individual behavior is complex, diverse, and difficult to predict. </span><a href="http://www.stockmarket-coach.com/human-psychology.html" style="font-family: Verdana, sans-serif;">Group behavior</a><span style="font-family: Verdana, sans-serif;"> is primitive.</span><a href="http://www.stockmarket-coach.com/stock-valuation.html" style="font-family: Verdana, sans-serif;">Fundamentals</a><span style="font-family: Verdana, sans-serif;">, while important, do not help the stock trader assess risk and timing issues in the present and now.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">This is where technical analysis documents, stock analysis and </span><a href="http://www.stockmarket-coach.com/stock-charts.html" style="font-family: Verdana, sans-serif;">stock market charts</a><span style="font-family: Verdana, sans-serif;"> outshine the fundamentals. However, both disciplines can be used to compliment each others strengths.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">By definition, technical analysis is a way of forecasting price movements through trend analysis of price movements. Generally, there are a lot of technical indicators that are being used by technicians to determine a stocks's next move.</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"> </span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Technical analysis, by theory, doesn't care completely about what company it is or even its earnings reports. The stock market is driven by belief and expectations of investors. So basically, price charts reflect or show the investors sentiment on a certain stock. Through charting, you will be able to determine when and how you'd get in and out of a stock base from the trends that charts show.</span><span style="font-family: Verdana, sans-serif;"><br /> <br /> Technical analysis is all about studying stock price graphs and a few momentum oscillators derived thereof. It is the forecasting of future financial price movements based on an examination of past price movements. It is a <a href="http://en.wikipedia.org/wiki/Security_analysis">security analysis</a> methodology for forecasting the direction of <a href="http://en.wikipedia.org/wiki/Prices">prices</a> through the study of past market data, primarily price and volume. <br /><br />It must be understood that technical studies are based entirely on prices and do not include balance sheets, P&L accounts (fundamental analysis), the assumption being that the markets are efficient and all possible price sensitive information is built into the price graph of a security / index. <br /><br />Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.<br /><br /><a href="http://en.wikipedia.org/wiki/Behavioral_economics">Behavioral economics</a> and <a href="http://en.wikipedia.org/wiki/Quantitative_analysis_(finance)">quantitative analysis</a> use many of the same tools of technical analysis, which, being an aspect of <a href="http://en.wikipedia.org/wiki/Active_management">active management</a>, stands in contradiction to much of <a href="http://en.wikipedia.org/wiki/Modern_portfolio_theory">modern portfolio theory</a>. The efficacy of both technical and <a href="http://en.wikipedia.org/wiki/Fundamental_analysis">fundamental analysis</a> is disputed by the <a href="http://en.wikipedia.org/wiki/Efficient-market_hypothesis">efficient-market hypothesis</a> which states that stock market prices are essentially unpredictable. <br /><br />One of the basic essential concepts of technical analysis are the support and resistance concept. Support means that based from the chart, stock prices does not go below this level. Meaning to say, there are less likely chances that a stock price would go below this level. But when it does, this is called a break below and this suggests that prices would continue to go lower until the next support.<br /><br />On the other hand, the term resistance is the opposite of the support. Resistance resembles a ceiling of a certain stock's price. Just like the support, if it breaks out its resistance line, this now suggests prices would now go up from that level; the resistance line now becomes the support.<br /> <br /> Personally, the indicators that I use are very basic like MACD, Stochastic Oscillator, RSI, and Volume. This should be enough to get you started to know when to get in and get out of a stock. </span><span style="font-family: Verdana, sans-serif;"><br /></span><br />
<span style="font-family: Verdana, sans-serif;">Therefore, technical analysis supports the efficient market theory as against the "random walk theory" which supports the belief that stocks can be bought / sold on random events like flipping a coin!!! Technical analysis is more dynamic as compared to fundamental analysis based on one simple argument - fundamental analysts depend on corporate events like quarterly results and special announcements like earnings guidance and policy changes in operations to generate a buy / sell recommendation. </span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">If fundamental analysis was the single most reliable indicator of trends, prices would predominantly fluctuate only 4 - 5 times a year - around quarterly results and special announcements like mergers and acquisitions etc!! Why would prices fluctuate almost daily? If the prices fluctuate ever so often, is there a way to forecast them? Yes according to technical analysis!!</span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;"><br /></span><span style="font-family: Verdana, sans-serif;">Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand. Price refers to any combination of the open, high, low, or close for a given security over a specific time frame. The time frame can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly price data and last a few hours or many years. In addition, some technical analysts include volume or open interest figures with their study of price action.</span><span style="font-family: Verdana, sans-serif;"><br /></span> </div>
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