What's Technical Analysis?

Technical Analysis Strategies

Technical Analysis is the science and art of forecasting future price movement based on historical prices combined with indicators. Technical Analysis 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 modern computerized trading programs has become increasingly popular.

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

What Does It Really Measure?

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

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

What to Look For

Find the Trend

The motto of technical 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 trading opportunities - especially when shorter-term market movements give conflicting trading signals.

Daily charts are more ideally suited for identifying long-term trends. Once you have found the overall direction then you generally open buy or sell orders in that direction.

Trend or Range

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

One of the greatest goals of Technical Analysis studies & methods in the trading market is to determine whether a given indices will move in a trend in a certain direction, or if market will move sideways and 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 will continue. Many investors avoid trading in a range-bound stock market & only buy or sell indices when there is a trend since this makes trading more predictable.

For technical analysts the most important trading tool is the chart. The purpose of a chart is to provide a visual representation of trading 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.

Trendlines

The direction of these trend lines determines the trading market direction. A trend line drawn moving upward represents a bullish market and a trend line drawn moving downward represents a bearish market.

Support and Resistance - Technical Analysis

Support and resistance zones are points on a chart which tend to act as boundaries. A support level is usually the trough or low point on a chart whereas a resistance area is the high or the peak point on a chart. These support and 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. Moving Averages indicators are called moving because they reflect the latest price average in the movement of the prices.

Strategy

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

Technical Analysis is the most widely used strategy in the trading 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 trading 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 one Technical Analysis method, keep on using it while studying others. Each Technical Analysis tool tends to combine well when used with other Technical Analysis Tools.

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

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

Longer chart timeframes establish more stronger support and resistance levels. Traders can use these support and resistance levels to determine when to enter a trade or exit an open position.

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 movements and 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 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 trading 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 together 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 and exit a buy or sell trade position, how much loss can be accepted if the trading market moves in the other direction and how much profit is expected. Following these simple Technical Analysis guidelines can help you become successful in stock indices trading.