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Technical analysis of stock trends categories / approaches Technical analysis of stock trends can be separated into five major categories: • Price indicators (oscillators, e.g.: Relative Strength Index (RSI)) • Number theory (Fibonacci numbers, Gann numbers) • Waves (Elliott's undulatory theory) • Gaps (high-low, open-closing) • Trends (following moving average). [a] Price indicators Relative Strength Index (RSI): The RSI measures the number of up-moves to down-moves and normalizes the calculation, so that the index is expressed in a very selection of 0-100. If your RSI is 70 or greater, then a instrument is assumed for being overbought (a predicament by which prices have risen more than market expectations). An RSI of 30 or less is taken being a signal that this instrument may be oversold (a predicament through which prices have fallen more(a) the market expectations). Stochastic oscillator: This is utilized to indicate overbought/oversold conditions on the scale of 0-100%. The indicator will be based upon the observation that within a strong up-trend, period closing prices often concentrate inside the higher section of the period's range. Conversely, as prices cave in a strong down-trend, closing prices tend to be near the extreme low from the period range. Stochastic calculations produce two lines, %K and %D, which are helpful to indicate overbought/oversold aspects of a chart. Divergence between the stochastic lines plus the price action with the underlying instrument provides a powerful trading signal. Moving Average Convergence/Divergence (MACD): This indicator involves plotting two momentum lines. The MACD lines are the real difference between two exponential moving averages as well as the signal or trigger line, that's an exponential moving average of the difference. In the event the MACD and trigger lines cross, then this is taken as being a signal a alter in the buzz is probable. [b] Number theory: Fibonacci numbers: The Fibonacci number sequence (1, 1, 2, 3, 5, 8, 13, 21, 34 ...) is constructed with the addition of the initial two numbers to reach on the third. Exactely a range to another larger number is 61.8%, that is a popular Fibonacci retracement number. The inverse of 61.8%, which is 38.2%, can also be used as a Fibonacci retracement number (along with extensions of these ratio, 161.8%, 261.8%). Wave patterns and behavior, identified in Currency trading, correlate (to some extent) with relations in the Fibonacci series. The tool is utilized in technical analysis that combines various amounts of Fibonacci retracements, all of which are utilized by different highs and lows. Fibonacci clusters are indicators that happen to be usually found on the side of the price chart and check just like a number of horizontal bars with some other degrees of shading. Each retracement level that overlaps with another, makes all the horizontal bar privately darker with those prices level. The most important degrees of support and resistance are located the spot that the Fibonacci cluster could be the darkest. This tool helps gauging the relative strength with the support or resistance of assorted price levels in a single quick glance. Traders often seriously consider the volume round the identified levels to make sure that the effectiveness of the support/resistance. Gann numbers: W.D. Gann was a stock and a commodity trader employed in the '50s, who reputedly made over $50 million inside markets. He made his fortune using methods which he developed for trading instruments determined by relationships between price movement and time, known as time/price equivalents. There is absolutely no easy explanation for Gann's methods, in essence he used angles in charts to ascertain support and resistance areas, and predict the times of future trend changes. He also used lines in charts to calculate support and resistance areas. [c] Waves Elliott's wave theory: The Elliott Wave theory of light is definitely an strategy to market analysis that is according to repetitive wave patterns and also the Fibonacci number sequence. An ideal Elliott wave pattern shows a five-wave advance followed by a three-wave decline. [d] Gaps Gaps can be achieved by factors like regular selling or buying pressure, earnings announcements, a general change in an analyst's outlook or any other kind of news release. An up gap is actually created when the lowest pr ice on a trading day is over the highest most of the previous day. A down gap is actually created if the highest cost of your day is leaner versus the lowest valuation on the prior day. An up gap is usually a sign of market strength, while a down gap is really a sign of market weakness. A breakaway gap is a price gap that forms on the completing a vital price pattern. It usually signals the beginning of an important price move. A runaway gap is a price gap that usually occurs around the mid-point of important market trend. Consequently , it's also called a measuring gap. An exhaustion gap is a price gap occurring right at the end of your important trend and signals the trend is ending. [e] Trends A trend refers to the direction of prices. Rising highs and lows constitute an up trend; falling peaks and troughs constitute a downtrend that determines the steepness with the current trend. The breaking of the trend line usually signals a trend reversal. Horizontal lows and highs characterize a trading range. Normally, Charles Dow categorized trends into 3 categories: (a) Bull trend (up-trend: several highs and lows , where each high is above the previous one); (b) Bear trend (down-trend: a number of highs and lows, where each low is gloomier as opposed to previous one); (c) Treading trend (horizontal-trend: a number of highs and lows, where peaks and lows are about exactly like the last peaks and lows). Moving averages are employed smooth price information in order to confirm trends and support-and-resistance levels. Fortunately they are useful in picking a trading strategy, specially in futures trading or perhaps a market with a strong up or down trend. Recognizing a trend may be done using standard deviation, a measure of volatility. Bollinger Bands, as an example, illustrate trends on this approach. If the markets become more volatile, the bands widen (move even further through the average), while during less volatile periods, the bands contract (move closer to the common). Various Trend lines Pattern recognition in Trend lines, which detect and draw these patterns: ascending; descending; symmetrically & extended triangles; wedges; trend channels. This article is authored by Alexandar Portman. Wish to know more to do with the modern technology to handle the forex? Want to be more suggestions to the best way to trade forex freely?=> here more analysis freely
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