All Financial Wisdom
The Fundamentals Of Technical Analysis (quick primer)
I have discussed advanced trading strategies, but I was reminded recently that it is a good idea to cover the basics for many people will need to start here before they move on to more advanced trading. We will analyze the basic fundamentals of technical analysis, checking what trends, moving averages, brackets and resistances mean. So here goes.
Fundamentals of Technical Analysis: Trends
Trends are the straight lines that outline the movements of the market schematically. They are visual aids that serve to help one locate the current price situation in relation to the recent and remote events of the past, help identify movements of entry and exit of the market, and understand the relevance of a certain movement of prices in relation to a broader perspective.
Trends can be upward (bull), bear (bear), or lateral in behavior (where there are no changes).
Fundamentals of Technical Analysis: Moving Averages
A moving average is the curve that softens the behavior of the price, that is, it is a smoothed version of the movements in the price of the shares. Since the moving average minimizes the distortion caused by sudden price movements, it gives us a clearer impression of the true trend in price movement.
Therefore, moving averages confirm a certain trend over a given time period with respect to the opening, the maximum or closing, it is generally used at closing.
Moving averages determine trends, supports and resistances and are classified as:
- Simple Moving Averages.
- Weighted Moving Averages
- Exponential Mobile Averages
Fundamentals of technical analysis: Brackets
A support is a price level below the current level, where the buying force is expected to outperform the sale, that is, where demand must exceed supply, which causes a bearish momentum to be slowed down and The price increases. That is, the support is, generally, the minimum point in any graph in which the price tends to rebound and to raise again.
The support is the minimum part that can be expected in a defined trend of the behavior of an action, being able to be active when they are in a tendency (bull/bear), or passive when they are in a lateral behavior (trading).
Fundamentals of technical analysis: Resistances
A resistance in the opposite concept of a support, that is, supply exceeds demand, putting an end to the bullish momentum and causing prices to fall. The resistance level is the price or maximum point in the graph, it is the level at which the price tends to rebound and fall again.
Resistance is the place of reference as far as buyers were willing to pay, or the place where vendors were able to dominate.
In conclusion, resistances and supports are levels at which the investors think that the market will change, and the point of entry (or exit) when trading.