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Technical Analysis Categories
- Types of Charts
*
Bar Charts
*
Line Charts
*
Candlestick Charts
- Chart Reading
*
Trendlines
*
Resistance Levels
*
Support Levels
- Moving Average
* Simple Moving
Average
* Weighted Moving
Average
* Exponential
Moving Average
* Triangular Moving Average
- Momentum Indicators &
Oscillators
-
Rate of Change
-
Relative Strength Index
- Moving Averages
Convergence /
Divergences
-
Price Oscillator
-
Stochastic
-
Money Flow Index
-
Williams %R
-
Volume + Moving Average
- Stock Chart Overlays:
-
Bollinger Bands
-
Parabolic SAR
- Stock Chart Patterns:
*
Head and Shoulders
* V
Formations
* Double
Tops and Bottoms
* Triple
Tops and Bottoms
* Saucers
- Rounded Tops and
Bottoms
* Ascending,
Descending and
Symmetrical Triangles
* Channels
- Rectangles
* Rising
and Falling Wedges
* Bullish
and Bearish Flags
* Pennants
* Diamonds
* Cup and
Handle
* Pan and
Handle
* Spikes
* One-Day
Reversals
* Island
Reversal
- Dow Theory
- Elliot Wave Theory
- Spinella Heart Rate Theory
- Fibonacci
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Chart Reading
When analyzing a stock chart there are three main areas that
investors need to focus on; as outlined below:
- The Trendlines
– The trendlines indicate the general direction of
the security. A straight line connects the high stock prices of a sideways
trend. The high prices are the resistance points for that particular
security. Another straight line connects the low price points of the
stock. The low prices are the support levels for the stock. The difference
between the two trendlines is the stock’s trading range. Technical
analysts usually trade in the direction of the trend.
- Resistance Levels
– They are the higher stock prices on the upper
horizontal trendline. Similar to a glass ceiling or the top end for a
particular security, an extra push is needed to break through to a higher
level. If a stock cannot break through its resistance level, it is an
indication that the stock has reached its high; it may be time to sell the
security.
- Support Levels
– They are the lower stock prices on the horizontal
bottom price trendline. It is the floor of a stock’s trading range, and a
pull is needed to break through the floor to a lower trading level. When a
stock hits the support level, it is usually considered a buying
opportunity. If the stock breaks through the support level, however, it is
generally an indication to sell the security.
When a stock breaks through its support or resistance levels, a "flip
flop" occurs. The previous resistance level becomes the new support level
for the next trend, and likewise, the previous support level becomes the
resistance level for the next trend.
The first step in utilizing charts is to identify the security of
interest; the charts then become a valuable part of the decision making
process. Investors need to scrutinize their transactions, so that they
receive the best return they can on a stock. If investors purchase a stock
at $10 a share and it increases to $20, they have doubled their money, for a
100% gain. Now, if they effectively use the charts, and purchase the stock
at $9 and sell it for $21, they have a 133% gain. While the $2
difference may not seem like a lot of money, the percentage difference is
significant, and adds up over a lifetime. Many investors are afraid to lose
a stock, and pay more than they should. I have found that there is always
another good buy and that overpaying for a stock is just a mistake. It’s
better to pass on a stock than to overpay. Additionally, understand the
dividend dates, and try to collect dividends when possible. The point of
using technical analysis is to attempt to time the markets, to maximize
investment returns.
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