Technical Analysis
Introduction to Technical Analysis
Technical analysis studies historical price data and patterns to predict future market movements. It assumes that all fundamental information is already reflected in the price.
Chart Types and Timeframes
Line Charts: Plot the closing prices over a period, providing a simple view of price movements.
Bar Charts (OHLC): Show the open, high, low, and close for each period, providing more detail.
Candlestick Charts: Similar to bar charts but offer visual cues through candle bodies and wicks.
Timeframes: Ranging from 1-minute to monthly charts. Shorter timeframes suit day trading; longer ones suit swing or position trading.
Support and Resistance Levels
Support Level: A price point where demand is strong enough to prevent further price decline.
Resistance Level: A price point where selling pressure prevents further price increase.
Identifying Levels: Use historical price data to spot where prices have consistently rebounded or retraced.
Trend Lines and Chart Patterns
Trend Lines: Straight lines drawn on charts to indicate the prevailing direction of price movements.
Uptrend Line: Drawn below price action, connecting successive higher lows.
Downtrend Line: Drawn above price action, connecting successive lower highs.
Chart Patterns:
Continuation Patterns: Suggest that the existing trend will continue (e.g., flags, pennants).
Reversal Patterns: Indicate a potential change in trend direction (e.g., head and shoulders, double tops/bottoms).
Indicators and Oscillators
Moving Averages (MA): Smooth out price data to identify trends.
Simple Moving Average (SMA): Average price over a set period.
Exponential Moving Average (EMA): Gives more weight to recent prices.
Relative Strength Index (RSI): Measures the speed and change of price movements to identify overbought or oversold conditions.
Moving Average Convergence Divergence (MACD): Shows the relationship between two moving averages to signal momentum changes.
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