Technical analysis involves evaluating securities through statistical analysis of market activity, such as price movements and volume. Here are some key concepts and tools used in technical analysis:
### 1. **Charts**
- **Line Chart**: Shows closing prices over a specific period.
- **Bar Chart**: Displays open, high, low, and close prices for a given period.
- **Candlestick Chart**: Similar to bar charts but with a more visual representation.
### 2. **Trends**
- **Uptrend**: Series of higher highs and higher lows.
- **Downtrend**: Series of lower highs and lower lows.
- **Sideways/Range**: Prices move within a horizontal range.
### 3. **Indicators**
- **Moving Averages**:
- **Simple Moving Average (SMA)**: Average of closing prices over a period.
- **Exponential Moving Average (EMA)**: Gives more weight to recent prices.
- **Relative Strength Index (RSI)**: Measures the speed and change of price movements, typically used to identify overbought or oversold conditions.
- **Moving Average Convergence Divergence (MACD)**: Shows the relationship between two moving averages of a security’s price.
- **Bollinger Bands**: Uses standard deviation to plot lines above and below a moving average.
### 4. **Patterns**
- **Head and Shoulders**: Predicts a reversal from bullish to bearish or vice versa.
- **Double Top/Bottom**: Indicates a reversal after a peak or trough.
- **Triangles**: Symmetrical, ascending, and descending triangles can indicate continuation or reversal.
### 5. **Volume Analysis**
- **Volume**: Helps confirm trends and patterns. Higher volume indicates strong momentum.
### Example Strategy: Moving Average Crossover
1. **Select two moving averages** (e.g., 50-day SMA and 200-day SMA).
2. **Generate a buy signal** when the shorter moving average (50-day SMA) crosses above the longer moving average (200-day SMA).
3. **Generate a sell signal** when the shorter moving average crosses below the longer moving average.
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