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Technical Investment Analysis - Measuring the Market

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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 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 Calculate Security Price Momentum with the Subtraction Method

When evaluating a trading chart, everything you really need to know about security price momentum is that it compares the price today with the price x periods ago. A higher number means a faster speed [more…]

How to Calculate Security Price Momentum with the Rate-of-Change Method

In practice, security price momentum is really what math nit-pickers call rate of change. It compares the price today with the price x periods ago. A higher number means a faster speed — and momentum is [more…]

How to Determine a Security Price’s Percentage Rate of Change

One problem with the security price momentum indicator is that you miss a frame of reference — you don’t know whether the move is a huge change over a short period or a minor event hardly worth considering [more…]

How to Determine a Security Price’s Relative Strength Index

The Relative Strength Index (RSI) was devised to determine the best time to make a trading decision. You want to make that decision at the change of direction only by ensuring that the average up move [more…]

How to Use the Stochastic Oscillator to Interpret Trading Price

When looking at trading price momentum indicators, two relationships are particularly important: The high-low range over x number of days, and the relationship of the close to the high or the low over [more…]

How to Measure Trading Price Volatility

Volatility is the degree of variation of a trading price series over time. You can measure volatility in plain or fancy ways. In financial analysis, volatility usually means one thing — the standard deviation [more…]

How to Apply Bollinger Bands to Trading Price

The most popular trading price volatility measure is the Bollinger band, invented by John Bollinger. He charted a simple 20-day moving average of the closing price with a band on either side consisting [more…]

How to Set Trading Price Stops with Average True Range Bands

Instead of using the standard deviation to form the upper and lower bands for a stop, you can use a version of the average true range (ATR). To use a band for a stop, you want the band to be asymmetrical [more…]

Commodities Market Indicators: Private Sector Sources of Market Data

One way to identify where the commodity markets are heading is by watching certain market indicators. These key metrics provide insight into what the markets are doing and help you design and calibrate [more…]

Commodities Market Indicators: U.S. Government Data

The commodity waters can be perilous at times, and knowing how to navigate them is crucial. Keeping your eye on where the markets are heading will help you develop a winning investment strategy. Data compiled [more…]

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