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Learn Technical Analysis with Examples & Integrated Stock ScreenerAbout this Site We aim to provide comprehensive Technical Analysis of stocks starting from the most basic concept to advance concepts of technical analysis along with their trading strategy, real life examples and well supporting community. What make us different from others is that we do not limit it to theory but we have integrated this section with stock screener of multiple geographical location, so that our visitors get exposure to not only theoretical examples but to real world behavior of stocks when such patterns/indicators are observed, so that they are better geared for trading decision in futures.
On daily basis we generate lots of pre-screened reports based on standard indicators/patterns that help visitors to gain good insight of stock patterns based on its previous price movement to enable them to take some important trading/investment decision.
Stock Analysis Stock analysis is a technique to measure the pulse of the stock and determine the right price to enter and exit stock with handsome return. There are two major yet very contrasting approaches to do the same. They are Technical Analysis/ Fundamental Analysis. Since we are
primarily into technical Analysis, majority of the tutorials and screeners are based on it. But to bring it to perspective, we have tried to provide introduction to both at Stock Analysis Introduction.
Technical Analysis Technical analysis is a study of historical price and volume of the stock to predict its future behavior. Technical analysts study these price movements and identify formation of patterns that are formed repeatedly and the behavior of price after formation of patterns. If probability of price movement after this pattern, in certain direction, is very high then, analyst can bet on the buying or selling of the stock. There are three basic principle of technical analysis. Price Discounts Everything, Price Moves in Trends & History repeats itself.
Charts are most essential and powerful tool in Technical analysis and owing to advancement in computer science and easy online access to them via site like ours; it has become handy for lot of part timer traders/investors also.
As we speak, Technical Analysis is a very mature form of stock research and with that being the case, lots of research is being done and lots of different sub streams have evolved. Some uses technique like simple over bought/oversold oscillator, while some uses more advance technique to understand market cycle using Elliot waves. Some draw simple closing price line chart to find support & resistance, while some use momentum indicator to measure trend and its strength, while some prefer to draw relatively
complex candlestick chart with multiple points like open, high, low and close.
With this much of choice, novice users often get overwhelmed and are not sure where to start and often run away or make incorrect trading decision when try to use too many of them with less experience.
One of the key to success is to select a few of them, they could be simple ones like Moving Average, or a chart pattern like double top, or simple oscillator like RSI, and read and observe their behavior using our stock screener and do some paper trading before start making consistent analysis.
As this is vast topic, we split it into multiple sections and they can be navigated from the menu but we suggest you to learn more about basic of technical analysis first.We think it is necessary to make a mention that it takes lot of reading and experience to trade like a professional using these concepts. So please take caution in taking important trading decision.
Stock Analysis IntroductionTechnical Analysis Tutorial
Stock analysis is a technique to measure the pulse of the stock and determine the right price to enter and exit stock
with handsome return. There are two major yet very contrasting approach to do the same. They are:
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1.Fundamental Analysis
Fundamental Analysis is a study based on company financial past results including sales, profit, operation, general economic forecast, expected demand, profit margin, sales forecast, debts, competition, management and many other parameters. Based on these studies, analyst tries to find right value (intrinsic value) of the stock. A buy or investment decision is taken and when stock is trading below right value and a sell decision is taken when the stock is much above its fair value.
Since the focus of the site is on technical analysis we will limit our scope on fundamental analysis to this level only. Definition from Wikipedia "Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets."http://en.wikipedia.org/wiki/Fundamental_analysis
2.Technical AnalysisTechnical analysis on the other hand do not believe in the finding intrinsic value of the stock. They rather study equity's price and volume movement to predict the future direction of the stock price. Technical analysis in a
very simple definition is, study of charts to determine patterns and use them to trade when such patterns has very high probability of a stock movement in a certain direction._BLACK
Both these analysis uses very different ways to analyze stocks and have been quite effective in producing good results. Both these approach may not always give buy/sell signal at the same time and may even give strong and opposite signal on same stock. One study may indicate strong buy where as other may give strong sell. Beginners may get confused and are strongly advise to study both but follow one, as mixing them could produce undesired results.
Best of both world: Fundamental analyst look to buy a stock when it is at attractive price (below fair value) and when technical indicators also support the call.
For Example: Based on fundamentals, the stock is over priced and it suggests exit of the stock. But, upward trend in the stock is very strong in such case it makes sense to hold the stock till strength of the trend weakens and thereby maximizing the profit.
Similarly, when undervalued stock is in downtrend then it makes sense to wait for a lower level than buying the stock at that price.
Learn Technical Analysis Basics with ExamplesTechnical Analysis Definition Technical analysis is a study of historical price and volume of the stock to predict its future behavior. Technical analyst study these price movement and identify formation of patterns that are formed repeatedly and the behavior of price after formation of patterns. If probability of price movement after these pattern, in certain direction, is very high then, analyst can bet on the buying or selling of the stock.
Basic principles of Technical analysis Technical Analysis is based on these three principles:1. Price Discounts Everything: Technical analyst believe in efficient-market hypothesis (EMH). This means the current value of the stock, is fair value of the stock and has correctly factored in all the information that could affect the price of the stock at any given point of time.
2. Price Moves in Trends: Technical analyst believes that share price moves in trends whether upward or downward or sideways. And they will continue to do so in future. They go by this assumption to trade in stocks.
3. History Repeats Itself: Technical analyst believe that market movement in a certain situation would be similar to its movement in the past. Or Investors in certain scenario, even though they are irrational, will behave in similar way
as they behaved in past. These typical movements are studied by analyst and are used to take advantage in trading stocks for a given situation.
On Analyzing stock movement in greater details, technical analysis helps to find two things.
1. Demand & supply. If technical indicators suggest that there could be surge in demand then price may shoot up and vice versa. Some indicators like Williams %R gauge over bought and oversold conditions. If indicators suggest sustained demand/supply, then stock moves in trend. Some indicators like MACD & Moving Average helps to find beginning of trend or end or reversal, while some like ADX tells about trend strength, while some tries to find where and how money is flowing.
2. Possible behavior of traders/investors in certain situation. Price movement of shares tend to follow certain trends, this is a result of traders tendency to react in certain way after some news. These behaviors results in typical chart pattern. Chartist carefully observes price and volume to see strength or weakness of the trends and try to take advantage of emotional decision taken by the parties. Similar market cycle, accumulation/distribution and chart patterns like triple top, resistance line are observed again and again.
Minimum Period for Technical analysis In contrast to fundamental analysis, technical analysis can be applied at any period of time from few minutes to many years. Owing
to shorter time interval, they have become extremely popular with day traders and swing traders who trade may trade several times a day or may trade in duration of few trading days to few weeks to few month.
Learn Technical Analysis Basics with Examples: Part IITools used in Technical Analysis Technical analyst depending on their generation and experience various techniques. Among popular once, are Charts, excel and even some continue with pen & paper to do calculate intra-day support and resistance using Pivot Point.
With sophistication of tools and advancement in computer science and easy access to world of knowledge using mobile internet, analyst tend to rely on tools and website like ours to do charting or pattern finding. Charts are most essential tool for the analysts of this generation and with the advancement of technical analysis, charts have also improved. Some of the commonly used charts are 1. Line Chart.2. Bar Charts.3. Candlestick Charts.
TopStockResearch.com provides range of charts from very simple chart one month EOD line chart to complex technical charts with moving average and other indicators. It also provides option to the viewers to create their own charts using interactive chart, chart to compare with other stocks etc.
Typical Technical Indicators Quicker results, more agile way of analysis and lesser requirement of investment/infrastructure have encouraged lots of research on this stream of stock analysis. Some of them have made their findings to public while some have kept it as trade secret. Result is plenty of choice of indicator and plenty of tools, websites, for the traders to pick and choose their favorite ones. Among the more common ones are
1. Trend Trading. Trends are friends. One of the most common and most successful form of trading is trading with trend. Key to success if to identify trend and start trading till a trend reversal is observed. Some of the very common ways to identify trend are Moving Average ,
MACD, Trend Strength indicator like ADX.
2. Support and Resistance. These are the point which forms a very importance levels which stocks doesnt tend to penetrate. Both support and resistance can be together as in case of chart pattern channel, or a dynamic band like Bollinger Bands. In other cases only support or resistance may be present. They may be horizontal trend line or rising trend line or dynamic line provided by Moving averages.
3. Breakout. Stocks when breaks out from support or resistance, they tend to make huge movement and in that direction.
4. Chart Pattern. These are formation of certain patterns indicating reversal of trend like Double Bottom (W) or continuation pattern like flag.
5. Candlestick Charts. They are more complex type of chart plotted with open, high, low and Close. Since it contains more information, it indicates trading pattern in that interval. These can be as simple as single day pattern like Hammer, to reversal pattern like Bullish Engulfing or trend continuation pattern like Three White Soldiers.
6. Money Flow. Some Indicators rely on volume to find the phase in market cycle like accumulation/distribution, and how smart money is flowing. Indicators like ADI, CMF, MFI utilizes volume to figure out money flow.
Applicability of Technical Analysis Since it studies price volume history of the stocks, it can well be applied to other financial instruments like Forex, Commodity etc.
Cautions Technical analysis is more of an art than science. It requires lot of experience to trade using technical analysis. In real life, the pattern formation may not be as clear as theoretical examples.
Secondly, since they are purely based on past price movement, and prior sequence of events, they do not guarantee similar behavior in future. Therefore, it is very important to keep a stop loss when playing in stocks.
Always use stop loss when relying only on technical analysis.
Tutorials On Market Cycle What is Market Cycle? The price of a stock never moves in one direction and in one fashion. Observing charts of a stock or any financial instruments shows that charts always move in a zig zag manner whether its an uptrend or downtrend or a sideways market market. On carefully observing those zig-zag patterns reveals that they are not just moving in an haphazard way, rather they are following a cycle called a market cycle.It is very important for a trader to know the market cycle as it will help in guiding the possible entry and exit points of a trade.
Components of Market Cycle:All market follow the same cycle that is they go up, follow peak, then go down and then form a bottom.This is called as market cycle and after one cycle another cycle will follow and this will go on. There are basically four phases of Market cycle. They are:
1.Accumulation: Accumulation phase is formed at the bottom or near the bottom of a chart. This is also known as the oversold phase. Here the long term investor (smart and experienced) enter in the market and start accumulating the stock at the discounted price.They feel that the worst bearish phase comes to an halt and sooner or later the bull will take over the market. In accumulation phase the price do not move much, rather it is neutral (flattened).Accumulation gives traders signal to buy or long.
2.Mark Up: This phase starts when the neutral accumulation phase will gives a breakout witnessed by an increase in volume. Here other traders and investors jumps in, following an uptrend. This phase is also witnessed by the formation of higher highs and higher lows.
Mark up phase also gives traders signal to buy.3.Distribution: This phase forms the top part of the cycle. This phase is the saturation phase where bulls looses its faith and bears takes over. This is also known as oversold level. Here buyers gives over and seller comes into play making the price falls. Distribution is witnessed by other chart patterns like double top, head and shoulder etc.Distribution gives traders signal to sell or short.4.Mark Down: This is the last phase of the cycle and is followed by fall in price till another accumulation phase is reached. In this phase traders can watch formation of lower highs and lower lows.Mark Down gives traders signal to sell or short.Duration: Market Cycle may be as short as few minutes to weeks and may last longer like few years. It depends on a particular investor or trader what horizon he is looking at and comfortable with for trading. We also recommend to read How volume plays an important role in finding different phase of market cycle along with this text.
Tutorials on support and resistance with examples and Strategies.
Support Basics Resistance Basics
Support and resistance are one of the important pillars of technical analysis and stock analysts invariably use them as one of their key technical tools.
Support is a point below which stock price is unlikely to fall below unless a significant development around the stock takes place and resistance is a price beyond which stock price is unlikely to rise in the selected time frame.
Why are these support and resistance formed?Support and resistance are formed at points around high supply or demand zone. If at support at 100 then in and around that price there are lots of buyers ready to buy causing the stock not to fall from that price perceiving it to be cheap and same goes for resistance where lot of traders would like to offload their positions considering that price to be too high for the stock and good time to book profit.
These points can be static price like a psychological number like 100 or 50, or even may be previous highs/lows. Or they may even by a dynamic price with Market movement. If the overall market is moving up, support price may continue to move up and vice verse.
These points validity depends on trend they are in or the time frame. Support and resistance exist for small interval period like intraday to a multiyear time frame. So it is important to identify them based on period where traders are performing analysis
Minor Support & Resistance cause trends to slow or pause while major Support & Resistance cause trend reversal
Parameters Determining strength of Support and
Resistance? A number of factors a trader may want to look around to see the strength and to confirm it. They are:
1.Length: The longer the duration of Support or Resistance the more reliable and stronger it is. Longer duration shows more points, a price is hitting showing the positive sentiments.2.Height: The broader the distance between the Support and Resistance the more powerful it is.3.Volume: Higher volumes add strength to the Support or Resistance. Higher volumes indicates more traders have the same sentiment at a particular time frame.
What happens when Support or Resistance Breaks? The market sentiments is not the same at all the times, as it depends on a lot of factors, results in breakout of Supports and Resistance. Support once broken acts as a resistance in future while resistance broken act as a new support in future. The longer the period the support/resistance line holds before break, the stronger the reversal is.
Example of Support and Resistance With Example
Shapes of Support and Resistance? If you look at the chart patterns traders may come across different levels of support and resistance. For example in an uptrend it can be a sloping upwards,or it can be a horizontal in case of sideways etc. Therefore on the basis of that Supports and Resistance is of two types. They are:
1. Horizontal Supports and Resistance (Equal Highs and equal lows)2. Slanting or diagonal Supports and Resistance (Higher highs and higher lows or Lower highs and lower lows)3. More smoothened lines formed by moving average.4. Fixed price like pivot or Fibonacci retracement levels.
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