Technical Analysis: An Overview
There are 2 school of thoughts when it comes to analyzing and approaching financial markets.
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Fundamental Analysis
Attempts to measure the underlying value of a security - Its intrinsic value - by looking at the economic and financial facotrs that affect the business.
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Technical Analysis
Attempts to predict future price movements of a security by analyzing its historical price movements volume and trends
Key Principles of Technical Analysis
A chart of a stock discounts all the news, facts, data, emotions and expectations.
Stock prices move in trends (up, down or sideways)
Within the trend, prices move in waves
Key Principles
Charts
A chart is the book where the story of a stock's price movement is told. When analyzing charts the time frame used its important and is primarily determined by the trader's trading horizon. Day traders for example, would favor charts with the shorter time frames, such as a5-minute chart. Traders with a longer trading horizon would look at charts using longer time frames.
Line Charts
Shows the closing price.
Often used to show the general price movement of a stock.
Bar Charts
Shows the high, low, open closing prices for each period.
Candlesticks Charts
Similar to a bar chart but arguably more visually appealing.
Trend
Trends indicate the current prioce movement of a stock's price. Trends are often used to forecast future price movement.
Uptrend
Characterized by higher highs and higher lows and indicates demand as buyers are willing to pay higher prices for the stock
Downtrend
Characterized by lower highs and lower lows and inidicates waning demand resultin falling prices
Sideways
Characterized by a horizontal price movement where prices fluctuate within a certain range.
Support and Resitance
Support
Price level where demand for shares can be found which may lead to a possible reversal in price to the update.
Reistance
Price level where supploy of shares can be found which may lead to a possible reversal in price to the downside.
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Stock Market 101
Attempts to measure the underlying value of a security - Its intrinsic value - by looking at the economic and financial facotrs that affect the business.
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Technical Analysis
Attempts to predict future price movements of a security by analyzing its historical price movements volume and trends
