Technical analysis (TA) is a method for analyzing market and investor trends and behavior patterns expressed in candlestick charts, trading volumes, indicators.
When looking at a stock, ask yourself - Is this chart telling me that I should be looking for buy or sell opportunities?
QUESTIONS ASKED
What’s the stock’s history?
Exploring the monthly candlestick chart
- Is the stock price high, low or in the middle?
- What are the overall structures?
- Does the stock have any potential to rise?
How good an investment is it?
Exploring the weekly candlestick chart
- What does the fundamentals and future potential look like?
- Is the trend going up (bullish) or down (bearish)?
- Should I buy or sell?
- What’s the purpose of the order and where should I place a stop loss?
How is the stock developing now?
Exploring the daily candlestick chart
- What is the momentum of the stock?
- Are people interested in buying or selling the stock?
- Timing the order - when should I order the stock?
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Source: FractalFlow.
MASTERING TECHNICAL ANALYSIS
STRUCTURES
- Tells you what to expect, based on support and resistance levels.
- Helps you to define the current market conditions, so you know when to buy, sell or stay out of the market.
TRENDS
- Uptrend (Higher highs + higher lows) - Looking for buying opportunities.
- Downtrend (Lower highs + lower lows) - Looking for selling opportunities.
CANDLESTICK PATTERNS
- Reversal patterns.
- Continuation patterns.
- Bilateral patterns.
INDICATORS
- Exponential Moving Average (EMA).
- Relative Strength Index (RSI).
- Moving Average Convergence Divergence (MACD).
STRUCTURES
SUPPORT AND RESISTANCE LINES (S&R)
- Critical levels, that are hard to break through
- Resistance is hard to grow above (the ceiling)
- Support is hard to climb under (the floor)
SUPPORT AND RESISTANCE SECRETS
- S&R lines as active price barriers
- Switching quality
- Number of tests on the line
- S&R lines can be horizontal or sloped
- S&R lines can be straight or curved
- S&R from indicators
- S&R from pitchforks
- S&R from Fibonacci
- Momentum S&R via RSI indicator
S&R lines as active price barriers
- Price below the line = Resistance.
- Price above the line = Support.
- Most traders pay attention to S&R lines.
Switching quality
- Resistance lines become support lines and visa versa.
- Price will usually test a line before breaking into the other side and switch to a higher or lower resistance- or support line level.
Number of tests on the line
- The more times price touches (tests) a support- or resistance line, without violating ( crossing) the line, the more powerful the line tends to be.
- A line that has been tested 10 times is much stronger and represents a much more reliable barrier than a line only tested 3 times.
- The more price touches a support- or resistance line, the more obvious the line becomes, and more traders start treating it as a meaningful barrier.
S&R lines can be horizontal or sloped
Trendline support and resistance levels are not drawn only by horizontal lines, but by trendlines which can be upward- or downward sloping.
S&R lines can be straight or curved
- Via a tool called Fibonacci Arcs / Circles
- Focus on the 1.618 ratio
S&R from indicators
- Moving Average (MA) 20.
- Bollinger Bands.
S&R from pitchforks
- Andrews’ Pitchfork
S&R from Fibonacci
- Most traders use the Fibonacci Retracement tool and reacts on its indications (psychologically primed).
Momentum S&R via RSI indicator
- RSI allows us to see non obvious reversal points, that the price alone can’t show us, by observing when the momentum line reaches the momentum support and resistance line.
INDICATORS
ANDREWS PITCHFORK INDICATOR
Andrew's Pitchfork is not that well known and is rarely used by novice traders. However, it is a quick and easy way for traders to identify possible levels of support and resistance for an asset's price.
It is created by placing three points at the end of previous trends and then drawing a line from the first point that runs through the midpoint of the other two points. The reason this indicator is called a "pitchfork" becomes apparent from the shape that is created in the chart.
FIBONACCI INDICATOR
Fibonacci retracements are popular among technical traders. They are based on the key numbers identified by mathematician Leonardo Fibonacci in the 13th century. Fibonacci's sequence of numbers is not as important as the mathematical relationships, expressed as ratios, between the numbers in the series.
In technical analysis, a Fibonacci retracement is created by taking two extreme points (usually a peak and a trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%.
Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.
RSI INDICATOR
The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset.
The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100.
MACD INDICATOR
The MACD's popularity is largely due to its ability to help quickly spot increasing short-term momentum. However, before we jump into the inner workings of the MACD, it is important to completely understand the relationship between a short-term and long-term moving average.