Technical Analysis of Stocks


Technical analysis is a method to project and predict the price of stocks via analysis of past data such as price chart and its movements, trading volume, open trading volume, pattern formation, and technical indicators. Technical analysts always consider three assumptions. First, all you need is in the price chart. Second, prices move based on a predictable trends. Third, price movement repeats itself. Four concepts are used for technical analysis as discussed here.


1- Trend lines (positive and negative trend lines)

A positive trend is when three consecutive price changes have an upward movement in the price chart. A negative trend is when three consecutive price changes have a downward movement in the price chart.


2- Resistance and support lines

Resistance is an area in the upward trend in which new prices can not cross above it. The support area is the area that the downward movement can not move beneath that in a bearish movement. The greater the number of collisions to the resistance and support lines, the more powerful these lines are.


3- Indicator (on the-chart and off-chart)

Indicators are tools that assist the analyst in predicting the direction of market movement. There are numerous indicators that are classified into two groups: Indicators on the chart and indicators off-chart.


4- Candle (classic patterns and graphic arrangement)

Classic patterns are specific behaviors in charts, inspired by the behavior of nature, that can predict future price movements. Analysts examine numerous diagrams to predict and project the best possible behavior. The graphic arrangement is classified into three forms: bar, line, and candle. The candle is the most common method which contains information such as starting price, highest daily price, the lowest daily price.