Overview
Technical analysis evaluates price movements and trading volume to identify trends and predict future stock behavior. Unlike fundamental analysis, it focuses on historical data rather than company financials.
Key Concepts in Technical Analysis
- Support & Resistance: Price levels where stocks tend to stop falling (support) or rising (resistance).
- Trendlines: Lines drawn on charts to indicate price direction.
- Momentum Indicators: Tools measuring the speed of price movements.
- Volume Analysis: Evaluates trading activity to confirm trends.
Common Chart Patterns
- Head & Shoulders: Signals potential trend reversal.
- Double Top & Double Bottom: Indicates strong resistance or support.
- Triangles (Ascending, Descending, Symmetrical): Suggests continuation or breakout.
- Candlestick Patterns: Visual representations of price movements.
Popular Technical Indicators
- Moving Averages (SMA & EMA): Smooths price data to identify trends.
- Relative Strength Index (RSI): Measures overbought or oversold conditions.
- MACD (Moving Average Convergence Divergence): Tracks momentum shifts.
- Bollinger Bands: Shows volatility and potential price breakouts.
Risks & Considerations
- False Signals: Patterns may not always predict future movements.
- Market Noise: Short-term fluctuations can mislead traders.
- Over-Reliance on Indicators: Combining multiple tools improves accuracy.
Tools & Resources
- Charting platforms for technical analysis.
- Trading software with built-in indicators.
- Educational resources for mastering technical strategies.