What is Technical Analysis?

Technical Analysis Strategies

Technical Analysis is the science and art of forecasting future price movement depending on historical prices combined with indicators. Technical Analysis Training Course - This Technical Analysis study often interprets the price data by studying a chart and looks for patterns & stock signals for buying & selling.

The history & origin of this Technical Analysis technique dates back several hundred years to Japanese & Arabian markets, Technical Analysis involves using math manipulation of price data to optimize buy and sell points. Use of this type of Technical Analysis in the modernized computerized programs has become increasingly popular.

The information which the is studied & assessed is price movement so as to plan an entry or exit into a trade. The objective is to determine how the market is trending.

What Does It Really Measure?

This Technical Analysis - studies the supply and demand of indices in an attempt to figure out in what direction the price will continue heading in.

While trading analysis deals with stock price and indicators it is just a measure of investor sentiment.

What to Look For

Find the Market Trend

The motto of analysis is: "the trend is your friend." Finding the prevailing trend will help you become aware of the overall direction and offer you better indices opportunities - especially when shorter-term market movements give conflicting signals.

Daily charts are more ideally suited for identifying longterm trends. Once you've found the over-all direction then you in general open buy/sell orders in that particular direction.

Trend or Range

No matter what price is doing, it mostly falls into one of these 2 categories. If the price is moving in a setup or in one direction, you as a Stock Index trader can use trend-lines to analyze where the price should go. If the market seems to be bouncing back and forth in a range, you as a Stock Index trader can use support & resistance lines to make note of where to open buy or sell stock orders.

One of the greatest objectives of Technical Analysis studies & methods in the market is to determine whether a given indices will move in a trend in a certain direction, or if market will move sideways & remain range-bound. The most common Technical Analysis method to determine this is to draw trend lines which are used by stock traders to determine whether or not the current direction of the market price will continue. Many investors avoid trading in a rangebound stock market & only buy or sell indices when there is a trend since this makes more predictable.

For technical analysts the most crucial tool is the chart. The purpose of a chart is to provide a visual representation of price quotes (drawn on the y-axis) against time (drawn on the x-axis) for indices, this chart is used as a basis for making predictions of the future price direction.

Trend Lines

The direction of these trend lines determines the market direction. A trend line drawn moving upwards represents a bullish market & a trend-line drawn moving downwards represents a bearish market.

Support & Resistance - Technical Analysis

Support & resistance zones are points on a chart which tend to act as price boundaries. A support zone is generally the trough or low point on chart while resistance zone is the high or the peak point on chart. These support & resistance areas are used as buy/sell points.

Moving Averages - Technical Analysis

Moving averages indicator are used to show the average price over a given period of time. MAs indicators are called moving because they reflect the latest average in the movement of the market prices.

Strategy

To be a successful trader you need to create a strategy. There is not one set Indices strategy that is good for all stock traders. But Rather, every trader needs to create their own strategy.

Technical Analysis is the most widely used strategy in the market and is used to decide the entry and exit points.

Market movements have identifiable repeating price patterns that have been studied over many years providing a thorough understanding of these market trends and how they can be used to form the basis of a good strategy.

There are many Technical Analysis tools available provided to facilitate this study

The beginner trader is advised to study each Technical Analysis tool separately to get working knowledge of the concepts & application for each Technical Analysis study. Once you understand a Technical Analysis strategy, keep on using it while learning others. Each Technical Analysis tool tends to combine well when used together with other Technical Analysis Tools.

Support and resistance levels are also used in many strategies. Support is defined as the level that is repeatedly seen as the bottom (floor) - when the price gets to this technical level it tends to bounce. Resistance level is the ceiling, the upper boundary (ceiling) that price rarely trades above.

Support and resistance areas are valid for a period of time, until they are broken, When the market breaks through these support & resistance areas, the price is expected to continue in that particular direction. For example, if the market price rises above the previous resistance level, it is seen as a bullish stock signal and the bullish movement should continue upward.

Longer chart time frames establish more stronger support & resistance levels. Traders can use these support & resistance areas to determine when to enter a trade or exit an open trade.

Moving averages is another common stock technical indicator used as to create trading strategies. Moving averages try to smooth out short term market price fluctuations giving a clearer picture of the price moves & trends. Traders can draw SMA to determine price movement tendency to move up or down -trend.

If price crosses above the simple moving average then it will keep on moving up.

If the price crosses below the SMA then it will keep moving down

These are examples of trade strategies that can be used individually or combined.

Traders use two or more Technical Analysis studies to determine when to open an order when both Technical Analysis indicators support the same direction. If several Technical Analysis indicators show that the market is moving towards a particular direction the a trader can trade with more reassurance than when he is only relying on one Technical Analysis indicator.

Fundamental analysis should also be used in combination to reinforce Technical Analysis findings, or vice versa. A trader should ideally take into account two or more Technical Analysis indicators when developing a Trading Strategy.

Every trading strategy should provide clear guidelines about when to enter & exit a buy/sell trade, how much loss can be accepted if the market moves in the other direction & how much profit is expected. Following these simple Technical Analysis guidelines can help you become successful on indices trading.

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