Technical Analysis

Support and Resistance:

When the market moves up and then pulls back, the highest point reached before it pulls back is now resistance.

As the market continues up again, the lowest point reached before it climbs back is now support.

Another thing to remember is that when price passes through a resistance level, that resistance could potentially become support. The same could also happen with a support level. If a support level is broken, it could potentially become a resistance level.

Trend lines:

To draw trend lines properly, all you have to do is locate two major tops or bottoms and connect them.

·         It takes at least two tops or bottoms to draw a valid trend line but it takes THREE to confirm a trend line.

·         The STEEPER the trend line you draw, the less reliable it is going to be and the more likely it will break.

·         Like horizontal support and resistance levels, trend lines become stronger the more times they are tested

Channels:

If we take this trend line theory one step further and draw a parallel line at the same angle of the uptrend or downtrend, we will have created a channel.

Channels are just another tool in technical analysis which can be used to determine good places to buy or sell. Both the tops and bottoms of channels represent potential areas of support or resistance.

A leading indicator (Oscillators) gives a signal before the new trend or reversal occurs.

A lagging indicator (trend-following, or momentum indicators ) gives a signal after the trend has started and basically informs you "Hey buddy, pay attention, the trend has started and you're missing the boat."

The Stochastic, Parabolic SAR, and Relative Strength Index (RSI) are all oscillators. Each of these indicators is designed to signal a possible reversal, where the previous trend has run its course and the price is ready to change direction.

Bollinger Bands

Bollinger bands are used to measure a market's volatility.

The Strategy:

The whole idea behind the Bollinger bands is that price tends to return to the middle of the bands. It has been found that buying the breaks of the lower Bollinger band is a way to take advantage of oversold conditions. Usually, once a lower band has been broken due to heavy selling, the price of the stock will revert back above the lower band and head toward the middle band. This is the exact scenario this strategy attempts to profit from. The strategy calls for a close below the lower band, which is then  used as an immediate signal to buy the stock the next day.

Moving Average Convergence Divergence (MACD):

The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.As shown in the chart above, when the MACD  rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. 

Parabolic SAR:

Until now, we've looked at indicators that mainly focus on catching the beginning of new trends. Although it is important to be able to identify new trends, it is equally important to be able to identify where a trend ends.

One indicator that can help us determine where a trend might be ending is the Parabolic SAR (Stop And Reversal). A Parabolic SAR places dots, or points, on a chart that indicate potential reversals in price movement.

From the image above, you can see that the dots shift from being below the candles during the uptrend to above the candles when the trend reverses into a downtrend. The parabolic SAR is extremely valuable because it is one of the easiest methods available for strategically setting the position of a stop-loss order. As you become more acquainted with technical indicators, you'll find that the parabolic SAR has built up quite the positive reputation for its role in helping many traders lock-in paper profits that have been realized in a trending environment

Stochastic

The indicator consists of two lines: % K and %D. These two lines fluctuate in a vertical range between 0 and 100. Readings above 80 are considered overbought and readings below 20 are considered oversold. . A 14-period %K would use the most recent close, the highest high over the last 14 periods and the lowest low over the last 14 periods. %D is a 3-day simple moving average of %K. This line is plotted alongside %K to act as a signal or trigger line.
When the faster %K line crosses above the slower %D line and the lines are below 20, a buy signal is generated. When the %K lines crosses below the %D line and the lines are above 80 a sell signal is generated.

Average Directional Index:

The Average Directional Index, or ADX for short, is another example of an oscillator. It fluctuates from 0 to 100, with readings below 20 indicating a weak trend and readings above 50 signaling a strong trend.

Unlike the stochastic, ADX doesn't determine whether the trend is bullish or bearish. Rather, it merely measures the strength of the current trend. Because of that, ADX is typically used to identify whether the market is ranging or starting a new trend.

For instance, when ADX starts to slide below 50, it indicates that the current trend is losing steam. From then, the pair could possibly move sideways, so you might want to lock in those profits before that happens.

Relative Strength Index

Relative Strength Index, or RSI, is similar to the stochastic in that it identifies overbought and oversold conditions in the market. It is also scaled from 0 to 100. Typically, readings below 30 indicate oversold, while readings over 70 indicate overbought.

If you think a trend is forming, take a quick look at the RSI and look at whether it is above or below 50.If you are looking at a possible uptrend, then make sure the RSI is above 50. If you are looking at a possible downtrend, then make sure the RSI is below 50.

Fibonacci Retracements:

The basic reason people using retracement tools are any stock before further continuing in actual trend it corrects or recovers little and then continues further. Fibonacci retracement is useful in finding this particular stock behavior.

Fibonacci numbers were named after Leonardo of Pisa, also known as Fibonacci, even though they had already been described earlier in India. The best-known Fibonacci numbers are a simple series of numbers that form a sequence. After two starting values, zero and one, each number is the sum of the two preceding numbers.

The Fibonacci sequence of numbers is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. Each term in this sequence is simply the sum of the two preceding terms and sequence continues infinitely. One of the remarkable characteristics of this numerical sequence is that each number is approximately 1.618 times greater than the preceding number.

The key Fibonacci ratio of 61.8% - also referred to as "the golden ratio" or "the golden mean" - is found by dividing one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.

The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right. For example: 55/144 = 0.3819.

The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right. For example: 8/34 = 0.2352.

Fibonacci retracement is created by taking two extreme points on a chart and dividing the vertical distance by the key Fibonacci ratios. 0.0% is considered to be the start of the retracement, while 100.0% is a complete reversal to the original part of the move. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels. The first thing you should know about the Fibonacci tool is that it works best when the market is trending.

The idea is to go long (or buy) on a retracement at a Fibonacci support level when the market is trending up, and to go short (or sell) on a retracement at a Fibonacci resistance level when the market is trending down. In order to find these retracement levels, you have to find the recent significant Swing Highs and Swings Lows. Then, for downtrends, click on the Swing High and drag the cursor to the most recent Swing Low. For uptrend, do the opposite. Click on the Swing Low and drag the cursor to the most recent Swing High.