Technical analysis is the most used method of analysis by stock market traders. It is based on the study of historical prices and makes it possible to predict the evolution of the price of an asset. Stock Trading strategies Graphical analysis is not an exact science, it is based on the study of probabilities. It gives buy and sell signals which can be used by the technical analyst for investing or speculating. For each of your trades, you can get a precise position entry and exit point.
Technical analysis includes several elements: chart patterns, Japanese candlesticks, technical indicators, and graphical representations. All these elements make it possible to analyse the trend, to identify consolidation or reversal phases, to identify troughs or peaks or even to anticipate rebounds or corrections.
Technical Analysis Course For Beginners
Technical analysis is a stock market analysis method based on the study of price history. It makes it possible to obtain buy/sell signals over a given time unit while determining a price target. Technical analysis is related to the study of probabilities and gives scenarios that are more or less likely to occur.
Technical analysis is very popular with retail traders. It allows trading on all time units and is particularly suitable for the short and medium term. This method of analysis is therefore opposed to fundamental analysis, which is based on the study of economic indicators to establish a long-term scenario. Technical analysis is therefore easier to use than fundamental analysis because it requires less
Chart Patterns
On a price chart, by connecting the high/low points, we see recurring shapes appear (a triangle, a channel, a bevel. This is called chart patterns. They are the basis of technical analysis. A chart pattern can be said to be a continuation or reversal.
Technical Indicators In The Stock Market
Technical indicators are mathematical formulas based on the study of prices and/or volumes allowing to take advantage of a market situation. They make it possible to visualize graphically the evolution of the speed and the quality of a movement over a given period.
Stock market indicators make it possible to predict the future evolution of prices. They are valuable decision-making tools when you know how to use them. It is important to fully understand how they work in order to then be able to optimize the settings and make the indicator efficient.
There is no miracle stock market indicator but only technical indicators that we use well or badly. Each has its qualities and its defects. Some indicators are better in a directional market while others will be to identify reversals.
Momentum Indicators
They reflect the strength and speed of the movement. They make it possible to identify a slowdown in the buying/ selling trend and warn of a possible correction/short-term reversal of the market. These indicators provide poor buy/sell signals and should therefore be used to detect divergences with the price curve.
Graphics And Graphic Representations
A chart is a method of visually representing price histories. Depending on the method used, different information is displayed on the period. Each graphical representation has its advantages and disadvantages. The representation in Japanese candlesticks remains by far the best known and used by traders, but it is far from being the only one available.
Chartist Figures
Chart patterns are technical patterns connecting high/low points on a price chart. These highs and lows are used to draw lines of resistance or support. It is the crossing of these levels that gives buy or sell signals. All figures are related to probabilities. Each chart pattern makes it possible to predict the evolution of the course. They allow the technical analyst to obtain buy or sell signals and also to set price targets. These patterns appear regularly on the price histories’ overall time units. They are one of the main tools of chartist analysis.
There are two main categories of chart patterns: continuation patterns and reversal patterns. Continuation patterns indicate a continuation of the current trend. They are a sign of consolidation and a probable resumption of the current upward or downward trend. Conversely, reversal patterns indicate an upcoming trend reversal. They reflect a loss of momentum in the current trend and a probable reversal.
In this section, you will find a presentation of each chart pattern, its graphic representation, statistics concerning it (% of bullish/bearish exits; % of objectives reached, % of a pullback), and trading remarks to better trade it.
Japanese Candlesticks
Japanese candlesticks are the type of chart representation most used by traders. They display a lot of information such as the opening and closing prices but also the highest/lowest over a given period. Japanese candlesticks are a very valuable decision-making tool. They are one of the pillars of technical analysis and a large number of traders use them in their trading. They reflect the psychology of investors. Japanese candlesticks help gauge market sentiment and show key areas defended by buyers and sellers.
Always analyse the current trend: a figure in Japanese candlesticks means absolutely nothing if it is not linked to the current trend. The trend can be bullish, bearish or the market can be consolidating. All Japanese candlestick patterns are more relevant in certain market conditions than in others.
Read More: Trading Strategies In World Stock Market
