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Technical analysis of the stock market. Basics of technical analysis

Technical analysis of the stock market allows you to assess the balance of forces "bulls" and "bears" at the current time. Technical analysis has emerged as a result of observation by traders of the price chart and the identification of rules of behavior formed through the analysis of the psychology of the market, the repetition of history and other factors.

Technical analysis is carried out using all sorts of indicators. Most forecasts are made by professional traders after technical analysis.

The Russian securities market is still underdeveloped in comparison with the markets of other countries. The development of the stock market promotes the expansion of financial instruments. In addition, there are different types of stock markets. The primary stock market involves the issue and placement of new securities for the first time. The secondary stock market can be organized or unorganized. Stock markets are also classified by their territoriality.

Depending on the traded financial instruments, the trader chooses a broker to gain access to the trades. The rating of Forex brokers allows you to estimate the number of financial instruments accessed by a particular broker. Brokers have different commission and working conditions. Approach to choosing a broker for trading is necessary. The rating of Forex brokers includes comparison of brokers in all important aspects of the work.

Differences in fundamental and technical analysis

Fundamental analysis involves studying the fundamental factors that affect the price at the time of news release and in the long term. The fundamental indicators are: the level of GDP, unemployment, changes in the refinancing rate, etc.

Technical analysis involves analyzing the price chart using indicators, geometric figures, support lines and price resistance. Technical analysis more fully takes into account the psychological aspects of players for the short and medium term. This type of analysis is used by almost all traders, while a few fundamental players use the fundamental analysis, which is connected with the need to study a large amount of data to form objective conclusions.

Even after forming conclusions based on the fundamental analysis, the trader searches for the most convenient entry point to the market, using technical analysis tools. Many traders use special programs for technical analysis . The program for analyzing the stock market, as a rule, analyzes the chart and identifies the signals of various indicators. Nevertheless, most traders analyze charts independently, without using additional software. Technical analysis of the stock market involves the use of signals from different indicators, while the program gives signals on one or two indicators and does not take into account many other factors, such as the release of important news, etc.

Postulates of technical analysis

The main functions of the market are as follows:

  • In the concentration of free cash through the sale of securities;
  • In attracting investments through the organization of the purchase of securities of the company;
  • In ensuring their high level of liquidity.

Stock market - the concept is not as abstract as it may seem. Securities sold for sale are real economies of existing organizations that provide jobs, produce goods, work or services, pay taxes.

In the stock market, there are three basic postulates that professional traders use to build their trading strategies:

  1. The price takes into account everything.
  2. The price moves in a directional manner.
  3. History repeats itself.

The price takes into account everything. Like currency, Forex, the stock market takes into account not only the state of the economy of the country, but also the expectations of traders. Expectations are based on rumors, news and fundamental analysis of the market, as well as on insider information. Analyzing the chart, the trader applies his knowledge, information, indicators and other analysis tools to determine the most likely future direction of the price movement.

The price can be affected by a huge number of different factors, such as: statements by politicians, natural disasters, waiting for important news, etc. All, absolutely all the publicly available information is already contained in the price.

The price moves in a directional manner. The stock market, like the Forex market, is subject to trends. That is, the price never moves chaotically. This is confirmed by the main indicator of technical analysis - the trend.

History repeats itself. The psychology of most of the players implies the existence of certain action scenarios that are activated in different situations. It is the repetition of history that contributes to the allocation of general rules for technical analysis of the market.

Indicators of technical analysis

Technical analysis of the stock market is performed by building and using the following indicators:

  1. Trend line, support and resistance levels;
  2. geometric figures;
  3. Technical indicators of a group of oscillators;
  4. Trend technical indicators.

Trend Line

If the price moves up or down - this movement can be called a trend. If the price moves in the lateral direction - this is a lateral trend. The trend has several cycles: origin, development and completion. The trader is looking for signs of a nascent trend to enter the market in his direction. To get out of the market is necessary at the first signs of the end of the trend.

The emergence of a trend in the long term, as a rule, is due to fundamental factors. So, the trend can be formed under the influence of important news. One of the postulates of stock trading is: do not play against the trend or play in the direction of the trend. If a trader tries to play against the market, he ultimately finds himself at a loss.

The development of the trend can take a long time. Trends can last for months and even years. The completion of the trend is also due to fundamental factors. A sign of its completion may be a large price fluctuation in the opposite direction to the trend. This fluctuation indicates that the major player has closed the position.

If you look at the chart below, you can see a downtrend. The trend line in the downtrend is conducted at the price highs. In a downtrend, the line is drawn at the price minima.

To determine the trend, traders also use additional indicators, for example, moving averages, ADX and others.

Support and resistance levels

The resistance level is a line, which the price touched several times and fought backwards. For example, the trend line (in the example above) serves as a resistance line. The picture shows that the price touches the trend line, but does not break it. Near the trend line, it is necessary to enter the market in the direction of the trend, provided there are no signs of its completion.

After the price breaks through the resistance line, this line becomes the level of price support. This is shown in the price chart below.

Geometric figures

The following figures are used for technical analysis of the chart: triangle, rectangle, flag (pendant), head and shoulders, triple top, double and triple bottom, saucer, and others.

All the figures are divided into two groups: reversal and continuation figures. Reversal figures show the trader the possibility of reversing the current trend, and the continuation figures indicate the most likely future continuation. Most often, the method of geometric shapes is not used in itself, but in combination with other analysis tools.

Technical analysis of the stock market, like the Forex market, involves the use of geometric shapes, which is due to the repeated behavior of most traders in case they occur on the chart. In both the stock market and the foreign exchange market, this technique of analysis is widespread.

Triangle. There are four types of triangles used to predict price behavior: descending, ascending, symmetrical and expanding triangles. This figure refers to the reversal group. Before entering the market, when forming this figure on the price chart, it is necessary to wait for the breakdown of its boundaries.

Rectangle. This figure is formed when the appearance on the chart of clear horizontal lines of support and resistance. The rectangle speaks of the balance of forces in the market.

"Flag" or "pennant". These are the figures of the continuation of the trend. The appearance of a flag or a pennant on the price chart is accompanied by a correction of the trend movement.

"Head and shoulders". This figure is of great importance in the formation of the daily chart. In smaller timeframes, a small number of traders work, which means that the reaction to the formation of the figure is lower. The figure refers to the group of reversal. Also in technical analysis, often used figure "inverted head and shoulders", which in this case is called a "double bottom".

"Triple top". This figure refers to the group of reversals and forms three peaks at one price level.

"Double and triple bottom". This model is the opposite of the figure "triple top". The price outlines three lows in one range.

"Saucer". Reversal trend model. The greatest value has on long timeframes - daily, weekly chart. The formation of this figure can last more than a month.

Trend technical indicators

The determination of the direction of the trend plays a decisive role in trade. The game against the market rarely ends in profit. The technical analysis of the stock market is very similar to the analysis of the currency.

Moving Average. Moving averages or MA are the most important trend indicator. This indicator visually represents a line, which is built at average prices for the specified period. When constructing this indicator, the most important are closing prices.

In the investment market there is a saying: "The market is opened by amateurs, but professionals are closing." It fully reflects the importance of closing prices. Professional traders open deals for large sums and exert a strong influence on the price. It is for these reasons that the closing prices are given the greatest importance.

The most popular type of MA is a simple, exponential and weighted moving average. A simple moving average (SMA) is built on the basis of the arithmetic mean for the selected period of time. The weighted moving average (WMA) is constructed taking into account the coefficient of "weight", i.e., the last prices are taken into account most fully. The exponential moving average (EMA) is similar to WMA, but takes into account all prices of the previous period.

Usually traders use two MAs of different periods. In this case, the signal for the purchase is the intersection of the fast MA of the slow MA from the bottom up. A signal for sale is the intersection of the fast MA slow MA down from the top.

Indicators of the group oscillators

Oscillators measure the volume of the market. This group of indicators reveals overbought and oversold zones in which the turn is most likely. The most clear signals indicators of this group give with the trend price movement within the channel.

The most popular among the traders are the following oscillators: MACD, Stochastics Oscillator, RSI and others. These indicators are used in the technical analysis of not only the stock market, but also the foreign exchange market.

MACD indicator. This indicator is built on the basis of the data of moving averages of different periods and is intended to determine the price reversal. It stands for "MovingAverageConvergence / Divergence", which translates as "Convergence / Divergence of moving averages".

The formula for calculating this indicator is as follows: MACD = Fast EMA - Slow EMA.

The properties of this oscillator provide fields "fast" and "slow", which correspond to the period of fast and slow EMA.

When the price is above the zero mark of this indicator and it grows, this indicates an upward price movement, and vice versa, if the price is below the zero mark and falls, it indicates a downward movement.

The signal of this indicator is the crossing at the price of zero level. So, crossing the zero mark from the bottom to the top is a signal to buy, and from the top down - a signal to sell.

If the indicator shows a false price movement (divergence), then this serves as a signal to turn the price.

Indicator Stochastics Oscillator. Stochastics (Stochastics) takes into account not only the closing prices, but also local highs and lows. This indicator is the most informative than other indicators of the group of oscillators. This indicator provides an overbought zone that is located above the "80" level and an oversold zone that is located below the "20" level.

Signal to enter the market is the intersection of the two lines is similar to the signals of the indicator MACD. The divergence on this oscillator also serves as a strong signal for entering the market.

Indicator RSI. The main parameter of this indicator is the period for which it is built. The recommended value of the author is 14, but also periods 9 and 12 are often used. This indicator is used to measure the strength of a trend. He compares the rate of growth and decline in prices for the selected period of time.

If the indicator line is pointing upwards, this indicates a predominance of a growing trend in the market, and vice versa. Conditionally, the balance of forces, that is, the equilibrium in the market, is reached at around 50. The intersection of the indicator line of level 50 from the top down serves as a signal for the opening of a short position for sale. Crossing the level 50 from the bottom up - a signal to buy.

Finally

Technical analysis of the stock market implies the presence of such indicators that are used only in this market, they include: NH-L, TRIN, MAS and others. Often used for analyzing Forex indicators, which were listed in this article. Technical analysis of the stock market implies the simultaneous use of several indicators that are able to complement each other. But it is necessary to take into account other factors in forecasting prices.

The Forex market is specific. Bidding on the currency exchange is a speculation by the exchange rate. Currency is traded in pairs, for example, EUR / USD, GBP / USD. At the same time, Forex indicators are also used in the stock market. The stock market is an abstract concept, but it is closely connected with the currency exchange. With a large purchase of shares, the currency is used, which is immediately reflected in its price. At the same time, a sharp decline in the exchange rate may have a strong impact on the shares of many companies.

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