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A Guide To Technical Analysis
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Technical analysis is a method of forecasting price movements by looking at purely market-generated data. It is the art of charting financial instruments and overlaying mathematical indicators to derive trading ideas. It is utilized to evaluate price predictability and is based on the notion that prices do not move randomly but instead move in repeating and identifiable patterns.

Almost every trader uses some form of technical analysis. Even the most reverent follower of market fundamentals is likely to glance at price charts before executing a trade. At their most basic level, these charts help traders determine ideal entry and exit points for a trade.

There are literally hundreds of technical analysis indicators utilized by traders and analysts to evaluate trading activity. The three key principles of technical analysis are:

1.      All market information is discounted and reflected in market prices.
2.      Prices move in trends and trends persist.
3.      Market action is repetitive.

The following guide describes the most popular technical analysis tools. These technical analysis tools include:

CHARTS

BAR CHARTS

Bar charts are probably the most widely used by traders and not only give us the closing price but also the high, low and opening prices. As traders we need to know as much as possible about a stock and its movements and these bars are the perfect tool for the job. With a single glance at one of these bars we can get a feel for how investors traded this stock for the day and their general sentiment towards it.

Small bars (or bodies as they are technically called) are a sign the market maybe consolidating its position or thinking about its next move. Long bodies could indicate the market is again on the move and looking to test new levels. Some charting packages will only show the close on the bar, many traders elect to use this style with great success. Some say the opening price does not give a true indication of market sentiment and choose to ignore it. There is a marked difference when drawing trend lines on a line chart compared to a bar chart. With a bar chart you get the entire trading range and a trend line can be drawn using these ranges as opposed to only using closing price data on a line chart.

Candle stick Charts
Reading Candle stick charts
Candle stick charting was developed by the Japanese several centuries ago and has undergone resurgence in popularity in recent times. This form of chart is by far my personal favorite and I usually use it exclusively. Although more complex to understand, once mastered, candle charts can give you the best overall view of market sentiment.

BullishCandle
Bearish Candle
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