Introduction to Technical Analysis

WHAT IS TECHNICAL ANALYSIS?

It is a method of market analysis where we study traded products by analyzing statistics generated by the market activity which includes past prices and volume. In simple terms, it is the study of price movement by using historical chart patterns to predict the future trend of the market.

BASIC OF TECHNICAL ANALYSIS

• Support and Resistance
• Breakouts
• Moving Averages
• Candlestick Patterns

SUPPORT AND RESISTANCE

What is the support? Support is a price level or area in which traders believe that many buyers are present(Demand). The support area usually (but not always) pushes the price up resulting in an uptrend.

On the other hand, resistance is the price level or area for which the traders are expecting the price to go down. This is where a large number of sellers is expected(Supply).

Visualizing Support and Resistance in an actual chart,

WHAT IS A BREAKOUT?

A breakout is a price level where the resistance becomes a support or the support becomes resistance. It can also be the price level at which a range market will start to form a trend for which the price will explode in an upward or downward direction.

Range Market is known as a sideways trend in the market. This is where a support and resistance trading strategy is expected to be effective.

MOVING AVERAGE

Moving average is a series of data points that are used to create new averages of data points to lessen the impact of price spikes. It smoothes out the price by creating updated averages of data points from the new data points generated from the price movement. It is also the most common indicator tool used in trading.

How to determine market trends using Moving Averages?

To determine the market trend using a moving average, see where the price is located. Is it below the MA or above the MA?

If below the MA,

The market can be classified as a downtrend. See visuals below to determine a downtrend market using MA.

If above the MA,

The market can be classified as an uptrend. Observe the visuals below to determine an uptrend using MA.

If the price is continuously crossing the MA, the market can be classified as Range Market similar to the sample visuals shown on the Moving Average earlier.

CANDLESTICKS PATTERN

Candlesticks is a visual representation of the price movement that shows the price opening, closing, highest and lowest price within a period of time. A candlestick can be a bearish candle or bullish candle depending on the opening and closing price.

The opening and closing of the price represent the body of the candle.

The lowest and highest price is also known as the candle shadow or candle wicks.

Color green usually represent a bullish candle while color red is a bearish candle. (but can be set to different color depending on your trading platform such as MT4 MT5)

SOME OF CANDLESTICK PATTERN TO LOOK FOR

1. Hammer and Shooting Star

Hammer and shooting star pattern is usually used when looking for a strong reversal pattern.

2. Bullish and Bearish Engulfing

An engulfing candlestick shows a strong price movement momentum.

3. Doji

A standard Doji represents an equal number of buyer and seller.

Dragonfly Doji is similar to a hammer candlestick but a weaker one.

Gravestone Doji on the other hand is similar to shooting star candlestick but also weaker.

BE AWARE THAT CANDLESTICK PATTERN IS NOT ALWAYS RIGHT ALL OF THE TIME AND SO AS THE OTHER INDICATOR OUT THERE. NO ONE CAN 100% PREDICT WHERE THE MARKET GOES BUT IT CAN HELP US SIGNIFICANTLY IN OUR TRADING DECISION.

AND ALWAYS REMEMBER, TRADE AT YOUR OWN RISK! 🔥🔥🔥