8th Jun 2018 | 19:15 PM IST
8th Jun 2018 | 19:15 PM IST
After learning the basics of technical analysis one can only get acquainted with the terminology of technical analysis for technical analysis is a vast discipline of study. More you learn, more you would feel the need of learning. The point being, there are too many theories, concepts, assumption and interpretation that you will never find a point where you can claim that you know everything. Therefore, the key to learning any new concept is to grasp the elements which matter the most. In the context of technical analysis, you have to understand the concepts which will have a direct effect on your day-to-day trading.
Let's advance to the next level of learning technical analysis.
There are many more candlestick patterns like Hangman, Hammer, inverted hammer, etc. You will understand these pattern gradually as you go along learning technical analysis. The above mentioned are some of the most important patterns which are regularly used by the professional traders.
A candlestick pattern is the one in which only one or at the most three candlesticks are involved. Similarly, there are chart patterns where a number of candles form a certain design or pattern which gives away the quintessential behaviour of the traders. The basic assumption is that traders tend to behave in the same manner in the same situations, their behaviour perfectly reflects in the chart patterns. The chart patterns are of two types - reversal and continuation. These chart patterns are usually seen on the daily or weekly candle. Chart patterns can't be as conclusive as the candlestick patterns are as one needs to have a higher level of expertise to identify the chart patterns in the formative stages as to derive optimum benefit out of them.Let's look at some of the most prominent chart patterns.
There are various other chart patterns like a Falling Wedge, Rising Wedge, Symmetrical Triangle, Rectangle, which are used by traders.Importance of Volume - All the chart and candlestick patterns are only confirmed when the share price movement happens on the back of considerable hike in the volumes. This is the condition for confirming all the patterns.
Support and resistance is not an indicator but these are levels which are identified by taking into account various things. Plotting support and resistance and finding it on a technical chart is a quite an easy job. The stock prices don't move in a straight line they move in a zig-zag fashion and form various highs and lows. The general method is that the daily low price is seen as a support zone while the resistance level is at the daily high price. As and when the breakouts happen the earlier resistance level becomes a new support while the price finds a new resistance level above.
RSI analyses the degree of recent gains to recent losses to understand if the stock is oversold or overbought. RSI is measured on a scale of 0-100. Usually, if it is above 70, it is considered that the stock is overbought so the trader can initiate sell on it. Likewise, when RSI is less than 30, it means the stock is oversold, therefore can be bought. RSI like moving averages is the most widely used indicators. Professional traders always have RSI indicator on their screens. The reason is that RSI gives near a perfect indication of increasing and decreasing strength in the stock which is a vital information to take entry-exit calls.
Technical analysis, as I said above, is a never-ending subject. To get better at technical analysis one has to be vigilant while watching the charts. There are various indicators and oscillators available which come in handy but they are not entirely reliable. The success of a technical analyst lies in building a skill set which sees the trend forming little ahead of others and taking action accordingly. It is easier said than done but with practice one can have complete command on charts. That is the reason it is important to engage in regular practice of reading charts and building your trade ideas in the live market and backtesting them before executing.
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We are a team of stock market nerds trying to stay ahead of the herd. We spend our grey cells...
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