In the complex and ever-changing stock market, investors need to choose an investment analysis method that suits them to help them capture effective information, and technical analysis is one of the most commonly used techniques. The Invest101 team introduces 6 commonly used types of technical analysis indicators to help investors understand the principles behind various technical analysis and more easily judge stock price trends.
What is h5 technical analysis/h5
Technical analysis is an analytical behavior that studies past changes in stock prices and predicts future trends.
h5 technical analysis is mainly based on three concepts: /h5
All information in the market is reflected in prices, so prices should be the basis for analysis.
There is often a clear trend in price movements, and the trend tends to last for a period of time. If a trend emerges, prices are likely to move in that direction.
Historical price movements tend to repeat themselves because we can predict market psychology through emotions such as fear or excitement.
Currently, technical analysis is used across a wide range of financial instruments, including stocks, bonds, commodity futures, and cryptocurrencies.
h5 technical analysis indicator types/h5
Commonly used indicators in technical analysis include:
- support and resistance levels
- chart pattern
- moving average
- Momentum indicator
h5 trend line/h5
Trend line is the most commonly used technical analysis. It forms a trend line by connecting the high and low points of past prices to predict price trends and determine the support and pressure in the development process of the trend.
Trend lines are divided into upward trend lines and downward trend lines:
An upward trend line is an upward-sloping straight line connecting the low point and the second low point of an upward trend. The upward trend line acts as a support line. When the price pulls back to the upward trend line and stabilizes, it is a signal to buy on dips; if the price is like A break below an uptrend is a signal to sell.
A downward trend line is a downward-sloping straight line connecting the high point and the second high point of a downward trend. When the price rebounds to the downward trend line and remains stable, it is a signal to sell on highs; when the price falls below the upward trend, it is Buy signal.
The orbit line is an extension of the trend line, also called a channel line. The ascending orbit line is composed of two upward trend lines, and the downward orbit line is composed of two descending trend lines.
The first application of trend lines is to find support and resistance levels, thereby finding opportunities to buy on dips (uptrend) and sell on highs (downtrend); the second application of trend lines is to determine stock price trends Whether it is over or not, when the price breaks through the support and resistance levels of the trend line, it means that the trend may have ended, which is a signal to close a profit and establish a reverse position.
h5 support and resistance level/h5
Two important concepts related to trends are support and resistance levels. A support level is a range formed by buying that prevents the price from falling. In this range, the amount of buying is sufficient to absorb all the selling; in contrast to the support level, the resistance level is the range where the selling volume prevents the price from rising. Within this range, the number of sell orders exceeds the number of buy orders.
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Behind the concept of support and resistance is that investors have come to a consensus on a stock’s price. Support and resistance levels can be diagonal lines, such as trend lines, or horizontal lines.
Another key principle of support and resistance levels is the principle of polarity change. Once a support level is broken, it becomes a resistance level. The same goes for resistance levels, which turn into support levels once broken.
The figure below takes the trend changes of the US S&P 500 Index weekly chart from November 2021 to October 2023 as an example. It can be clearly seen that the US S&P 500 Index is on a downward trajectory from 2021-11 to 2022-9, and from 2021-11 to 2022-9. In 2022-10, the trend turned into an upward track, and the index aligned with the support and resistance levels within the upward track and continued to push higher.
h5 chart pattern/h5
Charts are a record of the results of the game between buyers and sellers in the market. They are the basic components of technical analysis. Since some typical chart patterns will appear repeatedly in the market, people gradually begin to use the experience of learning patterns to predict future market trends.
Typical chart patterns include reversal patterns and continuation patterns. The following will introduce 4 common chart forms.
h5 head and shoulders top and head and shoulders bottom/h5
The head and shoulders top is one of the most common reversal patterns. It usually forms gradually when the stock price rises and signals a reversal in the stock price. The head and shoulders top usually consists of four parts: the left shoulder, the head, the right shoulder and the neckline. The head is the high point of the pattern and the two shoulders are at the same level.
The head-and-shoulders bottom is an inversion of the head-and-shoulders top. In a downward trend, the formation of a head-and-shoulders bottom means that the price has hit a staged bottom, and the price is more likely to rise in the future. Like the head and shoulders top, the head and shoulders bottom consists of four parts: the left shoulder, the head, the right shoulder and the neckline. The head is the low point of the pattern and the shoulders are about the same level.
h5 double top and double bottom/h5
A double top usually occurs at the top of an uptrend and signals the end of an uptrend. A double top consists of two similar price peaks, with the support level at the peak being called the neckline.
A double bottom is a reversal of a double top, usually appearing at the end of a downtrend and signaling the start of an uptrend. A double bottom consists of two troughs next to each other with similar prices. The resistance level at the trough is called the neckline.
h5 Breakthrough Triangle/h5
In the breakout triangle pattern, price volatility continues to narrow, and the support and resistance lines intersect.When the stock price breaks through the resistance line, buy it and sell it when it falls below the support line. The target is the breakthrough position plus the amplitude of the end of the triangle.
The flag is a common continuation pattern. The flag pattern is named because the price trend looks like a flag hanging on a flagpole. It is a consolidation pattern that may appear in an upward or downward trend. Since price is not always in a clear up or down trend, it sometimes fluctuates repeatedly before reverting back to its previous trend.
Flag patterns can be divided into bull flag patterns and bear flag patterns, which indicate bullish and bearish market trends respectively.
- Bullish Flag
A bull flag pattern (also called a rising flag pattern) is a bullish pattern that appears in an uptrend. It consists of a rapidly rising trendline (the flagpole) and a rectangular channel or downward sloping area (the flag) in which price is consolidating.
- Bearish Flag
The bear flag pattern, also known as the falling flag pattern, is a bearish pattern that appears during a downtrend. It consists of a rapidly declining trend line (the flagpole) and a rectangular channel or upward sloping area (the flag) in which price is consolidating.
For the remaining four technical analysis methods, please refer to the original link.