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Technical analysis (Chapter 5 part 2) - Coggle Diagram
Technical analysis (Chapter 5 part 2)
assumptions of technical analysis
market value (price) of any good or service is determined by interaction of supply and demand
prices for individual securities and the overall value of the market tend to move in trends, which persists for appreciable lengths of time
prevailing trends change in reaction to shifts in supply and demand relationships
price adjustment to new info (technicians' view)
new info causes a decrease in the equilibrium price for a security but the price adjustment is not rapid
technical trading rules and indicators
momentum indicators
breadth of market: measures the number of issues increased and the number of issues declined each day
stock price and volume techniques
importance of volumes: volume changes along with price movements is an indicator of changes in supply and demand
price increase on heavy volume
bullish activity
price decline with heavy volume
bearish activity
the dow theory: stock prices as moving in trends analogues to the movement of water
primary move: broad market movement that lasts several years
day-to-day moves: occur randomly around primary and secondary moves (minor importance)
secondary moves: occur within primary move (technical corrections)
bull market: successive rallies penetrate previous highs / declines remain above previous lows
bear market: successive rallies fail to penetrate previous highs / declines penetrate previous lows
support and resistance levels
support level: price range at which technician would expect a substantial increase in demand for a stock
resistance level: price range at which technician would expect an increase in supply of stock and price reversal
tools for technical analysis
chart
volume data
price and volume
charting price patterns
bar chart
vertical bar's top represent high price of the day
vertical bar's bottom represent the low of the day
point-and-figure chart
compresses price changes into small spaces
X indicate significant upward movement
O indicate significant downward movement
Moving averages: meant to reflect the overall trend for the price series
buy (sell) signal is generated when short-term moving averages exceed below the long-term moving averages
new value for moving average calculated by dropping earliest and adding latest observation to the average
shorter MA lines (the 50-day vs 200-day) reflect shorter trends
if prices reverse and break through the moving-average line from below accompanied by heavy trading volume, positive change
bullish indicator: 50-day MA line crosses the 200-day MA line from below on good volume
relative strength index (RSI): ratio of price to index or past average price over some period
RSI = 100 - [100/(1+UD)]
UD = average of upward price change / average of downward price change
tops-and-bottoms
-tops above 70% (represents overbought situation)
-bottoms below 30 (represents oversold situation)
Candlestick chart
