Technical analysis is one of the ways to predict the stock market. As it’s vast and can’t be taught all at once, so I will share a few commonly used indicators. Remember, One indicator alone can’t function/applied to understand the fluctuation in the market. It’s advisable to use 2-3 technical-indicators together to cross-verify the future signals of the stock market.
Before moving on to types of indicators, first, let’s begin with the basics: Support and Resistance.
Technical analysis: Support & Resistance
The above zigzag pattern shows the bull market when the price moves up and then pulls back the highest point it reaches before the pullback, known as resistance.
Resistance indicates the surplus of sellers.
Support, it truly stands with its meaning, when the price continues up again, the lowest point reached before it started back is now Support.
A support level indicates the surplus of buyers.
In this way, resistance and support continually formed up with the changes in the price of the stock. It applied reverse to the downtrend.
Trend lines are the most common and underutilized ones. If drawn correctly, they can give as accurate results as any other method.
Types of trend
- Uptrend (higher lows)
- Downtrend (Lower highs)
- Sideways trend (ranging)
An uptrend line is drawn along the bottom of easily identifiable support areas(valleys), known as the ascending trend line.
In a downtrend, the trend line is drawn along the top of easily identifiable resistance areas (peaks), known as the descending trend line.
POINTS TO REMEMBER WHILE DRAWING TREND LINES:
- First, zoom out the chart to see the past trend along with the CMP (current market price) and take at least two tops or bottoms to draw a valid trend line, but it’s advisable to take three to confirm a trend line.
- The steeper the trend line you draw, the less reliable it will be going to be & easy to break.
- Most importantly, do not ever draw trend lines by forcing it to fit the market. If it doesn’t fit, then the trend line isn’t a valid one.
Stay tuned for more updates!