- Technical analysis requires chart reading or the study of previous or past market data to assess the next movement by using various price indicators and charts , but may or may not follow the same patterns every time but most likely pattern can be gauged with experience. Reading chart requires knowledge of which indicators to be used.
- Some commonly used indicators are MACD, Stochastic, RSI, William’s %, simple Moving averages, Exponential moving averages, etc. Under normal market conditions anyone can access the direction of the market. Common indicators are mentioned below which include both the movements of the market or stock as well as over bought and oversold regions where one can enter or exit a trade , it requires studying the indicators, charts, but charts are indicative of what has happened and not binding on what may come after . There are numerous websites, books on chart reading which may help in trading the stocks.
- Stochastic: The slow stochastic is one of the most popular indicators used by day traders because it reduces the chance of entering a position based on a false signal. In general, slow stochastic measures the relative position of the latest closing price to the high and low over the past 14 periods. This indicator is very effective when used by day traders.
- Williams’s %R: this is a momentum indicator measuring overbought and oversold levels, similar to a stochastic oscillator. It was developed by Larry Williams. It is used to determine market entry and exit points. The Williams %R produces values from 0 to -100, a reading over 80 usually indicates a stock is oversold, while readings below 20 suggests a stock is overbought.
- MACD : Moving average convergence divergence is an indicator
- Relative strength Index or the RSI:, RSI on a scale of 0-100, indicates that the overbought position is at 70 and the oversold position is at 30. A trader with today's simple-to-use software may choose to reset the indicators' parameters to 80 and 20. This helps the trader be sure when making the decision to buy or sell an issue and not pull the trigger too fast.
- Fibonacci Levels: 12th century monk Leonardo de Pisa, better known to his friends as Fibonacci, discovered a fascinating mathematics sequence that appears throughout nature. Beginning with a simple 1 + 1, the sum of the last two number sets that precede it creates another Fibonacci value:1+1=2 1+2=3 2+3=5 3+5=8 5+8=13 8+13=21 13+21=34 21+34=55 etc, etc.For reasons that remain unknown, major ratios drawn from these numbers describe a predictable interaction between trend and countertrend movement in markets. The most important ones to remember are 38%, 50% and 62%. Applying these percentages to trending price predicts the extent of retracement contrary to the underlying trend, as well as how far a new high or low will travel. For traders, these hidden points represent invisible support/resistance zones where prices will hesitate and/or reverse.
