Some
important terms in technical analysis,
Technical analysis is based almost entirely on the analysis of price and volume. The fields which define a
security's price and volume are explained below
Open
This is the price of the first trade for the period
(e.g., the first trade of the day).daily data, the Open is especially important as it is the consensus price after all interested parties were able to "sleep on it."
High
This is the highest price that the security traded during the period. It is the point at which there
were more sellers than buyers (i.e., there are always sellers willing to sell at higher prices, but the High
represents the highest price buyers were willing to pay).
Low
This is the lowest price that the security traded during the period. It is the point at which there were
more buyers than sellers (i.e., there are always buyers willing to buy at lower prices, but the Low
represents the lowest price sellers were willing to accept).
Close
This is the last price that the security traded during the period. Due to its availability, the Close is
the most often used price for analysis. The relationship between the Open (the first price) and the Close
(the last price) are considered significant by most technicians. This relationship is emphasized in
candlestick charts
Volume
This is the number of shares (or contracts) that were traded during the period. The relationship
between prices and volume (e.g., increasing prices accompanied with increasing volume) is important
Support
A support level is level where the price tends to find support as it is going down as the demand is strong enough to stop the stock from falling any further. This means the price is more likely to "bounce" off this level rather than break through it.Breaking the support is a negative sign of the stock.
Resistance
A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. It is the level at which supply is strong enough to stop the stock from moving higher. Breaking the resistance is a positive sign of the stock.
Trend
Trend is the direction that prices are moving in, based on where they have been in the past. Trends are made up of peaks and troughs. It is the direction of those peaks and troughs that constitute a market’s trend. Whether those peaks and troughs are moving up, down, or sideways indicate the direction of the trend.
Three directions of trend
An uptrend
A downtrend
A sideways trend (Consolidation)
Charts
A stock chart is simply a visual representation of a security’s price or index over a set period of time. Any security with price data over a period of time can be used to form a chart for analysis.
Types of charts
Technical Analysts use a variety of charts to analyze price movements. The three main types are:
Line Charts
Bar Charts
Candlestick Charts