Technical Analysis of Stock Market

Technical analysis of stock market will help you forecast the direction of the stock market or a stock with the help of price patterns and stock charts. While many investors use fundamental analysis for trading, swing traders and day traders use technical analysis extensively. However, technical analysis will not be sufficient to make investment decisions at times. Although there are many technical signals available in the market there are a few most reliable indicators. Let us discuss them in detail.

The head and shoulder pattern can tell you about the direction of a stock in short, medium and long term. For example, a head and shoulder top has three peaks distinctively that are formed by successive stock rallies. The head or the second rally would reach a higher peak as compared to the first and the subsequent third rally would fall short. Even if you are just learning the want an analysis of stock market, studying this sort of patterns is easy. However, you should also consider volume since it will be strong during the first rally when compared to the third rally.

Gaps are very easy to understand. They occur when the low for a day is higher than the previous day high. Support and resistance levels are provided by gaps. When you are learning technicals of stock market, you should be very cautious about reading gaps. You can predict the occurrence of a strong price movement when the trend crosses a previously formed gap.

Bollinger bands are very important in technical analysis of stock market. These are oscillators which measure the volatility of the price of a stock. With these bands, volatility means standard deviations from the mean. A sell signal is triggered when the price of a stock reaches an upper band. The reliability of this signal is higher when the volatility is high.

Once you learn the basics of technical analysis of stock market, you should move on to some overbought / oversold and momentum indicators. You can add a MACD indicator to a chart in order to decide the current momentum and direction of a particular stock. You can also add stochastics to determine whether the stock has reached oversold or overbought level.

In the technical analysis of stock market, you can use many indicators to predict the direction of a stock. However, you should find the indicators that are best suited for you and you should master over them. You can use these technical indicators to predict the short term to long term price. If you want the technical indicators to work best for you, you should master over charts and take some small losses. More importantly, you should stay disciplined to exit and enter positions depending upon the indicators. Also it is better to have a good understanding of fundamental analysis that can complement in your investment decisions.

Follow along while I explain each of the stock market reports I have written about.

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