Related Tutorial On Technical Analysis

Market CycleSteps To Start TradingTechnical AnalysisStock Analysis
Support and ResistanceFuturesOptionsPrice and Volume
Highs and LowsTrends  

Previous: Technical Analysis Explained Part I

Learn Technical Analysis Basics with Examples: Part II

Tools used in Technical Analysis Technical analyst depending on their generation and experience various techniques. Among popular once, are Charts, excel and even some continue with pen & paper to do calculate intra-day support and resistance using Pivot Point.

With sophistication of tools and advancement in computer science and easy access to world of knowledge using mobile internet, analyst tend to rely on tools and website like ours to do charting or pattern finding. Charts are most essential tool for the analysts of this generation and with the advancement of technical analysis, charts have also improved. Some of the commonly used charts are
1. Line Chart.
2. Bar Charts.
3. Candlestick Charts. provides range of charts from very simple chart one month EOD line chart to complex technical charts with moving average and other indicators. It also provides option to the viewers to create their own charts using interactive chart, chart to compare with other stocks etc.

Typical Technical Indicators Quicker results, more agile way of analysis and lesser requirement of investment/infrastructure have encouraged lots of research on this stream of stock analysis. Some of them have made their findings to public while some have kept it as trade secret. Result is plenty of choice of indicator and plenty of tools, websites, for the traders to pick and choose their favorite ones. Among the more common ones are

1. Trend Trading. Trends are friends. One of the most common and most successful form of trading is trading with trend. Key to success if to identify trend and start trading till a trend reversal is observed. Some of the very common ways to identify trend are Moving Average , MACD, Trend Strength indicator like ADX.

2. Support and Resistance. These are the point which forms a very importance levels which stocks doesnt tend to penetrate. Both support and resistance can be together as in case of chart pattern channel, or a dynamic band like Bollinger Bands. In other cases only support or resistance may be present. They may be horizontal trend line or rising trend line or dynamic line provided by Moving averages.

3. Breakout. Stocks when breaks out from support or resistance, they tend to make huge movement and in that direction.

4. Chart Pattern. These are formation of certain patterns indicating reversal of trend like Double Bottom (W) or continuation pattern like flag.

5. Candlestick Charts. They are more complex type of chart plotted with open, high, low and Close. Since it contains more information, it indicates trading pattern in that interval. These can be as simple as single day pattern like Hammer, to reversal pattern like Bullish Engulfing or trend continuation pattern like Three White Soldiers.

6. Money Flow. Some Indicators rely on volume to find the phase in market cycle like accumulation/distribution, and how smart money is flowing. Indicators like ADI, CMF, MFI utilizes volume to figure out money flow.

Applicability of Technical Analysis Since it studies price volume history of the stocks, it can well be applied to other financial instruments like Forex, Commodity etc.

Cautions Technical analysis is more of an art than science. It requires lot of experience to trade using technical analysis. In real life, the pattern formation may not be as clear as theoretical examples.

Secondly, since they are purely based on past price movement, and prior sequence of events, they do not guarantee similar behavior in future. Therefore, it is very important to keep a stop loss when playing in stocks.

Always use stop loss when relying only on technical analysis.

Previous: Technical Analysis Explained Part I

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