Welcome to Day 2 of the 10 days of trading course from BlackBull Markets. Today we will be discussing ‘technical analysis’.
What is technical analysis?
Technical analysis is a type of analysis based on the price movement of an asset on a chart. The justification for using technical analyses is that past prices may indicate future prices.
Technical analysis uses statistical trends such as trading volume and price ceilings and floors to help determine the price of an asset in the future. Technical analysis stands in contrast (or compliment) to fundamental analysis, which involves looking at an asset from a financial and macroeconomic point of view.
Timeframes that analysts typically evaluate:
Examples of technical indicators:
In addition to studying candlestick formations, technical traders can draw from a virtually endless supply of technical indicators to assist them in making trading decisions.
Moving averages are probably the single most widely-used technical indicator. Many trading strategies utilize one or more moving averages. A simple moving average trading strategy might be something like, “Buy as long as price remains above the 50-period exponential moving average (EMA); Sell as long as price remains below the 50 EMA”.
Another common technical analysis method is Fibonacci levels. Fibonacci was a 12th-century mathematician who created a set of ratios that are widely used by technical traders. Fibonacci ratios, often known as levels, are widely utilised to identify trading opportunities and profit goals that develop during long-term trends.
0.24, 0.38, 0.62, and 0.76 are the basic Fibonacci ratios. These are frequently stated as percentages - 24%, 38%, and so on. It's worth noting that Fibonacci ratios work well together: 24 percent is the opposite, or remaining, of 76 percent, and 38 percent is the opposite, or remainder, of 62 percent.
The most commonly used Fibonacci indicator is Fibonacci retracements. There is frequently a corrective retracement in the opposite direction after a security has been in a prolonged uptrend or downturn for some time before price continues the overall long-term trend. During a retracement, Fibonacci retracements are utilised to discover good, low-risk trading entry locations.
Investors are looking for signs that the market is finding support at certain levels, from which price will begin to rise again. For example, if you were looking for a chance to buy a stock worth between $10 and $40 following a 38 percent price retracement, you may place a buy order around the $31 price level. (Moving from $10 to $40 equals $30; 38% of $30 equals $9; $40 – $9 = $31).
Also see our eBook on 10 technical indicators you should know. https://blackbullmarkets.com/en/stay-one-step-ahead-free-ebook/
BlackBull Markets frequently release videos focussed on technical analysis. Please follow us on our social media channels to stay up to date and expand your technical analysis skills.