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Technical Analysis

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How to Effectively Work with Trading Price Indicators

In analyzing a chart of trading prices, indicators measure changes in market sentiment — bullish, bearish, and blah. Indicators are only patterns on a chart or arithmetic calculations whose value depends [more…]

Why Technical Analysis Doesn’t Always Work

Stock traders know that technical analysis works because people consistently repeat behaviors under similar circumstances. For example, the technical-analysis concept of a [more…]

How to Find Charting Software for Technical Analysis

You can find charting software to help you with your technical analysis of securities. In fact, a lot of charting software is offered, so spend some time determining what you need from it. Here are the [more…]

How to Understand Demand for Securities

The standard economic law of supply and demand doesn’t apply to securities. The creation of demand for securities more closely resembles an auction. So, in securities trading, the pricing process is like [more…]

How to Identify Crowd Behavior

Technical analysis is the art of identifying crowd behavior in order to join the crowd and take advantage of its momentum. This phenomenon is called the [more…]

How to Trade Mean Reversion

The phrase reversion to the mean refers to a statistical concept that high and low prices are temporary and a price will tend to go back to its average over time. To trade the concept of mean reversion [more…]

How to Respond to Price Extremes

When a price has reached or surpassed a normal limit defined by an indicator, that price is at an extreme. Extremes can be either up or down: [more…]

How to React to Retracements

A market price move in the opposite direction of the main trend is named a retracement. A retracement is also called a correction, which explicitly recognizes that the security had gone too far and is [more…]

How to Estimate Where and When a Retracement Will Stop

To try to estimate where a retracement will stop is called “to catch a falling knife.” In other words, no reliable rules exist to tell you where a trend correction will end or when the primary trend will [more…]

How to Use the Gann 50 Percent Retracement Theory

In the early 1900s, a stock trader named W.D. Gann discovered that retracements in the securities he was trading at the time tended to occur at one-half of the original move from the low to the high. In [more…]

How to Use the Magic Numbers Retracement Theory

The “magic numbers” theory about how retracements should form is based on the Fibonacci sequence of numbers. This theory says that a retracement is most likely to stop at one of a series of numbers, with [more…]

How to Use the Elliott Wave Principle

In stock trading, the basic idea of the Elliott Wave principle is that all price movements have two segments: impulse waves and corrective waves. The Elliott Wave’s [more…]

How to Interpret Trade Volume

In technical trading, you use volume (the number of shares or contracts of a security traded in a period) to measure the extent of trader participation. When a price rise is accompanied by rising volume [more…]

How to Refine Volume Indicators with the Midpoint

Volume is the term for the number of shares or contracts of a security traded in a given period. A technical analyst named Marc Chaikin figured that a representative volume is the percentage equivalent [more…]

How to Measure Market Sentiment

To get a handle on possible market effects on your specific security, you want to measure overall market sentiment. You do this by looking at market statistics. Most sentiment indicators look outside the [more…]

How to Understand Seasonality and Calendar Effects on the Market

Oddly, equities and financial futures change according to the time of year. The changes are regular and consistent enough to warrant your attention. Seasonality [more…]

How to Deal with Randomness in the Stock Market

Technical traders acknowledge that random events can and do cause a stock to have an occasional wild price departure from the norm, but the acknowledgement doesn’t alter the expectation that prices will [more…]

Factor in Trader Memory

In stock markets, a low-probability event (such as a major crash) changes the odds for the next period analysis because traders remember. When you’re performing technical analysis on your securities, you [more…]

How to Think about the Stock Market Scientifically

When evaluating the stock market, even the best indicator fails to work all the time. In fact, some of the best indicators work less than 50 percent of the time, and that’s when market conditions are normal [more…]

How to Classify Stock Market Indicators

A market indicator is a calculation that you put on a chart to identify chart events, chiefly whether the price is trending, the degree of trendedness, and whether a trend turning point is being reached [more…]

How to Choose Your Stock Trading Style

Generally, stock market traders tend to have one of two personal trading styles, and the style dictates the holding period. In a perfect world, as a stock trader, you first determine whether your security [more…]

How to Use Indicator Signals in Stock Trading

Market indicators are designed to give buy and sell signals, although in many instances, the signal is more like a warning and doesn’t have a black-and-white embedded decision rule. Indicators generate [more…]

How to Interpret Stock Trading Benchmark Levels

A new one-year high or low in the market has no analytical value to the technical trader — unless it’s also an historic high or low. An historic high or low is an absolute level that becomes a benchmark [more…]

How to Choose Stock Market Indicators

The good news is that every kind of stock market indicator works, at least some of the time. Moving average indicators, channel breakouts, trading in a three-to-five-day time frame with candlestick analysis [more…]

How to Optimize Your Stock Market Indicators

Optimization is the process of testing a hypothesis (in this case, a stock market indicator) on historical data to discover which indicator would’ve worked the best. Optimization is a necessary evil because [more…]

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