The Basic of Technical Analysis

Thursday, September 4, 2008 ·

Support A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross below. Recurring failure for the price to move below that point produces a pattern that can usually be shaped by a straight line. A support level penetrated becomes resistance.
Resistance A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross above. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line.
Trend
Trend is simply, the overall direction prices are moving, UP, DOWN, OR FLAT.
Channel - When prices trend between two parallel trendlines they form a Channel. - When prices hit the bottom trendline this may be used as a buying area and when prices hit the upper trendline this may be used as a selling.
Double top (reversal formation) For obvious reasons this is often called an "M-top". The market is failing twice at a resistance and is reversing then sharply. A break of the support would indicate further losses towards the target that can be evaluated through the following procedure. The vertical width of the "M" (price difference) is projected downwards from the breakpoint of the support.
Double bottom (reversal formation) The opposite of Double top. (often called an "W-top"). When the market is failing twice at a support and is reversing then sharply. A break of the resistance would indicate further rising towards the target that can be evaluated through the following procedure. The vertical width of the "W" (price difference) is projected downwards from the breakpoint of the resistance.
Triangle The triangle formation can be quite difficult to analyse and the fact that a few different types of triangles exist doesn't make this task any easier.
Head and Shoulders Formation of left shoulder forms a new high with a corrective dip, next rally forms higher high = head, correction from head goes below high of left shoulder and near as low of the left shoulder correction, breaching up trendline, rally of right shoulder does not breach head high, retracing half to three quarters of head correction.
Fibonacci PIVOT POINTS. For reasons that remain unknown, major ratios drawn from Fibonacci numbers describe a predictable interaction between trend and countertrend movement in markets. The most important ones to remember are 38,2%, 50% and 61,8%.

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