What Is Technical Analysis? Key Indicators and Chart Reading
What is technical analysis, what are chart types and which indicators are most commonly used?
Technical analysis evaluates securities by analyzing past price movements and trading volume to predict future price direction.
Core Principles:
- Price discounts everything
- Prices move in trends
- History tends to repeat itself
Chart Types:
Line Chart: Simplest type, connecting closing prices.
Bar Chart: Shows open, close, high and low prices.
Candlestick Chart: Most popular type.
Key Indicators:
Moving Average (MA): 50-day and 200-day MAs are most widely followed.
RSI: Ranges from 0 to 100. Above 70 = overbought, below 30 = oversold.
MACD: Shows difference between two moving averages.
Bollinger Bands: Show standard deviation range around a moving average.
Support and Resistance:
Support: A price level where a stock tends to stop falling.
Resistance: A price level where a stock tends to stop rising.
Warning: Technical analysis does not guarantee results. Use alongside fundamental analysis and risk management.
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