The purpose of this article is to understand, start trading and discover the basics of technical analysis and stock market charting. The following will give you an overview of Stock Trading strategies, what technical analysis is, resistances, supports, moving averages, volumes and price targets. Here I will not go into detail. it is primarily an introductory article on the basics of technical analysis.
Make Your First Charts on The Stock Market
To start, you need to do a technical analysis to have a chart in front of you. Most online brokers have it. but if you’re just starting out, you probably want to try your hand first on charts available on general stock exchange sites. Personally, I use stock market charts. For US stocks and commodities, I use Stock charts.
Before going any further, you need to understand what technical analysis is by its definition. Technical analysis is the art of using past trends to interpret the most likely future trends and translating them into price targets.
Resistance And Support
Stock prices do not move uniformly up or down but in what traders call a range, a trading range to be exact. This range can be a downtrend or an uptrend or even can be a neutral sideways range. But anyway, the price of a share always evolves according to upper and lower limits inside a trend.
The upper limit is called resistance while the lower limit is called support. When the price of a stock moves above the upper limit then the trend is bullish. When prices move below the lower limit then the trend is bearish.
So, when prices stumble against a resistance and go back down this is seen as a bearish movement. Whereas if the prices are supported by a support before rebounding and resuming the rise then the movement is bullish.
Remember that technical analysis is the idea behind studying past trends to predict future trends. Moving averages as their name suggests are an average of a stock’s price over a given time. the best-known moving averages are at 20.50, 100 and 150 days. ie the 20-day moving average will be equal to the average share price over the last 20 business days.
Moving averages can also serve as support or resistance for a stock’s price. It depends on the stocks but some stocks use their moving averages a lot as support or resistance.
The more you use a long moving average, ie beyond 100 days and more, the more the trend that you decipher is long term. If prices move below the 20-day moving average but above the 150-day moving average. This means that in the short term the trend is bearish but in a long term underlying trend that is still bullish.
For every action there are transactions. The number of shares traded per day is called volume. Volume is critical to confirm or refute a trend change.
To validate a trend reversal, it will be necessary that a maximum of stakeholders think that this trend reversal is taking place so that they adhere to and participate in the movement. They will then create higher than normal volume to confirm an upward or downward trend change.
The Course Objectives
By analyzing stock prices and using technical analysis you will identify chart patterns. From these figures, you will get an idea of where the action will go. Knowing where the action will go is having a price target. It is when you place yourself in a trade that it is confirmed and that you start to win that you project yourself towards what price objectives you think the action will reach and where from then on you will decide either to take your profits or to do a new analysis to have a new objective.