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Focus on Price
If the objective is to predict the future price, then it makes sense to focus on price movements. Price movements usually precede fundamental developments. By focusing on price action, technicians are automatically focusing on the future. The market is thought of as a leading indicator and generally leads the economy by 6 to 9 months. To keep pace with the market, it makes sense to look directly at the price movements. More often than not, change is a subtle beast. Even though the market is prone to sudden knee-jerk reactions, hints usually develop before significant moves. A technician will refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline.
Daily Candlestick Chart for CTIX
[img]stockcharts.com/c-sc/sc?s=CTIX
Bullish Reversal Candlestick Patterns: The Bullish Reversal Candlestick Pattern has over 14 different pattern styles. These include the Bullish Engulfing, the Piercing Pattern, the Harami, the Hammer, the Inverted Hammer, the Morning Star, and the Abandoned Baby. To use Bullish Reversal Candlestick Patterns succesfully, look for the pattern in a downtrend and use Bullish Confirmation to validate your analysis. Further reinforce your results by using additional analysis to confirm the patterns.
Price Scaling
There are two methods for displaying the price scale along the y-axis: arithmetic and logarithmic. An arithmetic scale displays 10 points (or dollars) as the same vertical distance no matter what the price level. Each unit of measure is the same throughout the entire scale. If a stock advances from 10 to 80 over a 6-month period, the move from 10 to 20 will appear to be the same distance as the move from 70 to 80. Even though this move is the same in absolute terms, it is not the same in percentage terms.
A logarithmic scale measures price movements in percentage terms. An advance from 10 to 20 would represent an increase of 100%. An advance from 20 to 40 would also be 100%, as would an advance from 40 to 80. All three of these advances would appear as the same vertical distance on a logarithmic scale. Most charting programs refer to the logarithmic scale as a semi-log scale, because the time axis is still displayed arithmetically.
The chart above uses the 4th-Quarter performance of VeriSign to illustrate the difference in scaling. On the semi-log scale, the distance between 50 and 100 is the same as the distance between 100 and 200. However, on the arithmetic scale, the distance between 100 and 200 is significantly greater than the distance between 50 and 100.
Key points on the benefits of arithmetic and semi-log scales:
• Arithmetic scales are useful when the price range is confined within a relatively tight range.
• Arithmetic scales are useful for short-term charts and trading. Price movements (particularly for stocks) are shown in absolute dollar terms and reflect movements dollar for dollar.
• Semi-log scales are useful when the price has moved significantly, be it over a short or extended time frame
• Trend lines tend to match lows better on semi-log scales.
• Semi-log scales are useful for long-term charts to gauge the percentage movements over a long period of time. Large movements are put into perspective.
• Stocks and many other securities are judged in relative terms through the use of ratios such as PE, Price/Revenues and Price/Book. With this in mind, it also makes sense to analyze price movements in percentage terms.
Daily Candlestick Chart for FTWR
[img]stockcharts.com/c-sc/sc?s=FTWR
General Steps to Technical Evaluation
Many technicians employ a top-down approach that begins with broad-based macro analysis. The larger parts are then broken down to base the final step on a more focused/micro perspective. Such an analysis might involve three steps:
Broad market analysis through the major indices such as the S
Daily Candlestick Chart for CTSO
[img]stockcharts.com/c-sc/sc?s=CTSO
Daily Candlestick Chart for MAXE
[img]stockcharts.com/c-sc/sc?s=MAXE
British Industrial Production: Release Schedule: 8:30 (GMT); monthly, usually 26 working days following the reporting month's end
Revisions Schedule: Monthly revisions made to adjust for incomplete data.
Source of Report: Office for National Statistics (UK)
Web Address: http://www.statistics.gov.uk/default.asp
Address of release: http://www.statistics.gov.uk/statbase/Product.asp?vlnk=6230
Daily Candlestick Chart for TNIB
[img]stockcharts.com/c-sc/sc?s=TNIB
Broadening Formation: A broadening formation is an example of a consolidation pattern and a highly useful tool in the prediction of the likelihood of a reversal in the direction of a current trend. When found in an uptrend it indicates not a continuation of that trend, but a near-term reversal of the price action.
The broadening formation occurs when the fluctuation within the price produces a series of higher highs and of lower lows that steadily widen over time and are generally thought to be found only in found in topping formations where they are considered to be the result of unrealistic expectations of bullish investors.
Unlike the majority of other consolidation patterns, broadening formations feature increasingly wide ranges and are subject to much greater levels of volatility as time passes. Volume levels increase as the share price rises, which although normally indicates a bullish position rallies in this instance usually prove to be very short lived and the following declines are prone to decimating former support levels leading to an eventual collapse.
Technical Analysis What is it?
Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.
Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand. Price refers to any combination of the open, high, low, or close for a given security over a specific time frame. The time frame can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly price data and last a few hours or many years. In addition, some technical analysts include volume or open interest figures with their study of price action.
Daily Candlestick Chart for MOJO
[img]stockcharts.com/c-sc/sc?s=MOJO
Depression: The simple definition of a depression is a large scale recession that lasts an extended period of time. Some define a depression as a scenario where real GDP drops by over 10%. Another way to differentiate it from a recession is the period of time. Recessions are said to typically last one year while an economic depression lasts several years.
The term “depression” comes from the Great Depression of the 1930s. Before that event, any modest decline in economic activity was considered to be a depression. The term recession was then used to describe smaller economic downturns while the depression was used to describe major, longer lasting declines like the Great Depression.
Daily Candlestick Chart for MTLK
[img]stockcharts.com/c-sc/sc?s=MTLK
Current Account Balance: The Current Account Balance (CAB) is a function relating to a country's Balance of Payments (BOP), others being the Capital Account and the Financial Account. Basically, it is the broadest measure of international flows of capital, goods, and services in and out of a country.
Daily Candlestick Chart for RIGH
[img]stockcharts.com/c-sc/sc?s=RIGH
Where Is Resistance Established?
Resistance levels are usually above the current price, but it is not uncommon for a security to trade at or near resistance. In addition, price movements can be volatile and rise above resistance briefly. Sometimes it does not seem logical to consider a resistance level broken if the price closes 1/8 above the established resistance level. For this reason, some traders and investors establish resistance zones.
Ascending Trend Channel: An ascending trend channel is a basic chart pattern used in technical analysis.
Ascending trend channels are a useful tool due to their ability to predict overall changes in trend. As long as prices remain within the ascending trend channel, the upward trend in price can be expected to continue. As soon as prices exceed either trendline forming the channel, however, a strong signal either to buy or to sell is generated. A break through the upper trendline generates a strong buy signal, while a break through the lower trendline generates a strong sell signal.
Support and Resistance Zones
Because technical analysis is not an exact science, it is useful to create support and resistance zones. This is contrary to the strategy mapped out for Lucent Technologies (LU), but it is sometimes the case. Each security has its own characteristics, and analysis should reflect the intricacies of the security. Sometimes, exact support and resistance levels are best, and, sometimes, zones work better. Generally, the tighter the range, the more exact the level. If the trading range spans less than 2 months and the price range is relatively tight, then more exact support and resistance levels are best suited. If a trading range spans many months and the price range is relatively large, then it is best to use support and resistance zones. These are only meant as general guidelines, and each trading range should be judged on its own merits.
Returning to the analysis of Halliburton (HAL), we can see that the November high of the trading range (33 to 44) extended more than 20% past the low, making the range quite large relative to the price. Because the September support break forms our first resistance level, we are ready to set up a resistance zone after the November high is formed, probably around early December. At this point though, we are still unsure if a large trading range will develop. The subsequent low in December, which was just higher than the October low, offers evidence that a trading range is forming, and we are ready to set the support zone. As long as the stock trades within the boundaries set by the support and resistance zone, we will consider the trading range to be valid. Support may be looked upon as an opportunity to buy, and resistance as an opportunity to sell.
Daily Candlestick Chart for IXMD
[img]stockcharts.com/c-sc/sc?s=IXMD
Kagi Charts
Kagi charts are price charts with thick and thin vertical lines connected by short horizontal lines. Just like P
Daily Candlestick Chart for RBCC
[img]stockcharts.com/c-sc/sc?s=RBCC
DeMarker Indicator: The Demarker Indicator is a technical analysis tool developed by Tom Demarker for identifying high-risk buying or selling areas in a given market.
Two variants of the Demarker Indicator exist, one bounded by values from -100 to 100, the other bounded by values from 0 to 1. The basic principle behind the Indicator is the same in either case. If the high price for a period is higher than the previous period's high, the DeMax variable for that period is the difference between the highs; the DeMin variable for the period works similarly for the low prices. The Demarker Indicator is then the moving average of DeMax divided by the sum of the moving averages of DeMax and DeMin. Thus, the higher the value of DeMax relative to DeMin, the greater the value of the Demarker Indicator.
On the 0 to 1 Demarker Indicator scale, a value anywhere above .7 indicates that a downward price turn is imminent, while a value anywhere below .3 indicates that the price will shortly turn upward. Values between .3 and .7 indicate relatively low-risk periods for entering a given asset market. Thus savvy traders can use the Demarker Indicator either to determine when to enter a market, or when to buy or sell an asset in order to capitalize on probable imminent price trends.
Daily Candlestick Chart for IGXT
[img]stockcharts.com/c-sc/sc?s=IGXT
Uptrend Line
An uptrend line has a positive slope and is formed by connecting two or more low points. The second low must be higher than the first for the line to have a positive slope. Uptrend lines act as support and indicate that net-demand (demand less supply) is increasing even as the price rises. A rising price combined with increasing demand is very bullish, and shows a strong determination on the part of the buyers. As long as prices remain above the trend line, the uptrend is considered solid and intact. A break below the uptrend line indicates that net-demand has weakened and a change in trend could be imminent.
Daily Candlestick Chart for MDXG
[img]stockcharts.com/c-sc/sc?s=MDXG
Bond Auction: A government bond auction is the process of selling short and long-term government bonds to investors in an attempt to minimize the cost of financing national debt.
The process starts with the central bank announcing how much money it intends to borrow. Details like the term length of the bonds and the date of the auction are included in the announcement.
Interested market players like broker-dealers, institutions, and individual investors then submit the amount of bonds that they’re willing to buy and bid at the yield that they want to be paid. Take note that the specific processes of bond auctions are different across countries.
The success of a government bond auction can be measured by the bid-to-cover ratio, a metric that measures how much the total bids exceed the initial amount that the central bank was aiming for.
For example, an auction collects bids worth $100 billion, but the central bank had only aimed for $45 billion. The bid-to-cover ratio is 2.22 ($100/$45). An auction with a bid-to-cover ratio of 2.00 or higher is usually considered as successful.
Traders also look at the change in bond yields after each auction. A higher yield means that investors are demanding a higher price for holding the government bond. Alternatively, a lower bond yield usually signals higher investor confidence and lower borrowing costs for the government (which would make it easier to pay debts).
Trader's Remorse ~ Weaknesses of Technical Analysis
Not all technical signals and patterns work. When you begin to study technical analysis, you will come across an array of patterns and indicators with rules to match. For instance: A sell signal is given when the neckline of a head and shoulders pattern is broken. Even though this is a rule, it is not steadfast and can be subject to other factors such as volume and momentum. In that same vein, what works for one particular stock may not work for another. A 50-day moving average may work great to identify support and resistance for IBM, but a 70-day moving average may work better for Yahoo. Even though many principles of technical analysis are universal, each security will have its own idiosyncrasies.
Accumulative Swing Index: The accumulative swing index, or ASI, is a tool developed by J. Welles Wilder to measure the breakout potential of a given market.
The ASI takes the form of a number from 100 to -100, with positive values indicating an upward trend and negative values indicating a downward trend. Once calculated, the ASI can be charted in conjunction with a candlestick chart. The chief value of the ASI is that it's susceptible to the same technical analysis tools as a candlestick chart, allowing traders to use trendlines, wedges, triangles and other tools in order to determine support and resistance levels. However, ASI charts are much simpler and smoother than candlestick charts, making them both easier to analyze and less susceptible to indicating false breakouts. If the absolute value of the ASI for a given day exceeds the absolute value of the ASI at the time of a previous breakout, a new breakout from the trend is imminent, and traders can take positions accordingly.
The ASI is based on Wilder's swing index, which is an extremely complex calculation that incorporates high, low and close prices for an asset along with numerous other variables, some of them specific to certain kinds of markets. On its own, the swing index isn't particularly useful as a predictive tool, but the swing indexes for several successive days can be incorporated by another calculation into the ASI, which fulfills Wilder's original intention for the measure. Full instructions for calculating the swing index and ASI are available in Wilder's "New Concepts in Technical Trading Systems", and a number of popular pieces of trading software are able to calculate the ASI automatically.
Daily Candlestick Chart for NTRR
[img]stockcharts.com/c-sc/sc?s=NTRR
Daily Candlestick Chart for APLN
[img]stockcharts.com/c-sc/sc?s=APLN
Classic Heikin-Ashi TA Patterns
Classic patterns and trend lines can also be used on Heikin-Ashi charts. In contrast to normal candlesticks, Heikin-Ashi Candlesticks are more likely to trend with strings of consecutive filled (black) candlesticks and strings of consecutive hollow (white) candlesticks. The chart below shows Apache (APA) falling with a string of filled candlesticks in late October. The Heikin-Ashi candlesticks formed a falling wedge and APA broke resistance with a surge in early November. A triangle consolidation then took shape as the stock consolidated in November. The upside breakout signaled a continuation of the bigger uptrend.
The next chart shows Monsanto (MON) with a classic correction in June 2011. The Heikin-Ashi Candlesticks were more than adequate to identify this correction and subsequent breakout. Notice how a falling channel formed as the stock retraced around 61.80% of the prior decline. The big breakout in late June signaled an end to this correction and resumption of the advance.
Daily Candlestick Chart for ONCS
[img]stockcharts.com/c-sc/sc?s=ONCS
Daily Candlestick Chart for ORGN
[img]stockcharts.com/c-sc/sc?s=ORGN
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