Stock Chart Technical Analysis
Technical analysis studies historical price and volume of a stock, called stock chart, to predict future movement of the price. It uses a number of techniques like support, resistance, trend, chart pattern and technical indicators to analyze price movement in the past and the possibility of how the price will move in the future.
It doesn't take in anything like fundamental analysis which studies company's revenue, income, debt, etc. To be successful in stock investment, an investor should combine both technical and fundamental analysis before investing into a certain stock. It's almost impossible to find a golden stock that fits all criterium, as you
normally don't have lots of time and there are millions of professionals out there who are constantly watching. It's just the matter of how much information is enough and how much risk you want to take to make your move. If you make more profitable trades than the losing ones, you are on your way to financial success.
is the price level at which the price on the way down will stop and bounce back up as demand is getting stronger. Support line is a horizontal line that touch 3 or more low points of the chart where the price turn direction to move back up. Traders tend to buy when they see price stop falling and start rising after hitting support level. Support could be broken which will create a new support at a lower price.
is the price level at which the price is on the way up will stop and change the direction as the demand is getting weaker. Resistance line is a horizontal line that touch 3 or more high points of the chart where price turn direction and move back down. Traders tend to sell when price reverse after hitting resistance level. Resistance could be broken which will create a new resistance at a higher price
is the gap between support and resistance where prices keep moving back and forth between these 2 lines. This indicates the demand and supply is evenly balance. Traders watch for break through above the resistance as a buying signal (demand is more than supply) and break down a support level as a selling signal (demand less than supply).
is a straight line that connects many price points to act as a support or resistance line. many principles for support or resistance can be applied for trend lines as well. An Uptrend Line
has a positive slope and is formed by connecting 3 or more low price points. Uptrend line works as a support and indicates that demand is more than supply.
A break below uptrend line indicates that demand has weakened and price could potentially be lower, giving a sell signal. A Downtrend line
has a negative slope and is formed by connecting 3 or more high price points. Downtrend line works as resistance and indicates that demand is less than supply. A break above downtrend line indicates that demand has been growing and trend could be reversed, signal a buying opportunity.
which is different with Linear Scale as it shows the same distance for the same percentage increase or decrease instead of price difference (e.g. price change from 10 to 20 means 100% increase, so the gap between 10 and 20 vs gap between 20 and 40 is the same). Trend lines work better with log scale. The more points that the trend line connect together, the similar distance between points, the more valid the trend is.
occurs when a particular study or indicator does not confirm the price action of the security. A divergence will usually result in the security reversing direction and that can be a major reversal point or just a short term correction, you never know.
displays the difference between two moving averages or studies of a security's price. When the short term moving average crosses the longer-term moving average, a buy signal would be indicated if it crossed up and a sell if it crosses down.
Moving Averages (MA)
smooth out price fluctuations to form a trend following indicator. There are 2 types of MA are the Simple Moving Average (SMA) and Exponential Moving Average (EMA). Exponential Moving Averages (EMA) gives more importance to the most recent days as compared to the Simple Moving Average (SMA) that treats each day equally.
There are 3 text boxes next to SMA or EMA indicator choice, each will allow you to customize the number of periods you want to average out for 1 of your MAs on the chart. So you can have 3 different MA with the 3 text boxes
The most popular settings are 50 and 200 day MA’s for intermediate and long term investors and many interpretations and strategies are designed around this basic tool. One popular strategy is to enter a position when prices rise above the MA and stay long until prices fall below the MA and the MA turns down, and additional positions are added when the security’s price pulls back to the rising MA. Conversely short positions are entered or added when a price pulls back up to and touches a falling MA.
Traders often use shorter terms averages, 10 and 30 days are popular with both plotted on the same chart and a buy signal is generated when the 10 day moving average crosses above the 30 day and both averages are moving in an upward direction. A sell signal is given when the shorter average falls below the 30 day average and it too begins to decline. While 10 and 30 days are popular periods there is no setting that fits all markets, investment styles and stocks, stay flexible.
Longer term periods can be used to reduce whipsaws but this will tend to reduce the number of buy and sell signals the averages generate.
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are moving average envelops surrounding the price line and are made sensitive to changes in volatility of the underlying security by calculating the envelope bands at two standard deviation levels above and below the moving average. Bands widen when the volatility of the security increases and contract when it decreases. Trader generally look for buying opportunities when prices are on the lower line and selling opportunities when prices are near the upper band.
There are 2 text boxes next to Bollinger Bands choice, which allow you customize your own Bollinger Bands. The first text box is the number of periods for the simple moving average that is use to shape Bollinger Bands. The second text box is for the standard deviation multiplier.
The time period for the moving average varies but Mr. Bollinger recommends 10 days for short term traders, 20 days for intermediate term and 50 days for long term trading. The standard deviation is typically set to 2. Smaller number will give narrower band which let to prices touch the band more often.
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is used to measure volatility like Bollinger Band. The bands are widen when volatility is high and narrow when volatility is low. Trader can start buying the stock when price break above the upper band and selling the stock when price break below the lower band. Higher band constructed by multiple highest prices over the n periods and lower band constructed by multiple lowest prices over the n period
There is 1 text box next to Donchian Channels choice that user can use to customize the number of periods (n) used to calculate the Donchian Channels.
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is a trend following indicator. It has 3 lines with the middle one is the EMA of the price, the upper band is typically set 2 x Average True Range (ATR) above the EMA and the lower band is typically set 2 x Average True Range ATR) below the EMA.
There are 3 text boxes next to Keltner Channels choice which allow you to customize the Keltner Channels to fit your need. The first text box is for number of periods you’d like to set for the middle line EMA, typically is set to 20. The second text box is for the multiplier that is used with ATR, typically set to 2 (the larger it is the larger the band is). And the third text box is for the ATR. More on ATR can be found here
Keltner Channels is used to identify the trend (trend up with angle up, trend down with angle down). When price reach the upper band it is considered bullish, while reaching the lower band is considered bearish. Moving outside of the band is considered acceleration in that direction (either more bullish or more bearish).
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is a tool used to measure trends and consists of a straight line drawn through the prices using the least squares method to plot the line. Two parallel lines are drawn equidistant above and below the linear regression line and these lines act as support and resistance. The space between the parallel lines is where equilibrium exists and if stock price moves to one of the channels prices will usually move back to center or the opposite channel line while a significant penetration of either line on volume, would indicate a breakout is occurring.
There is 1 text box next to Linear Reg. Line which allows you to customize the number of periods cover by the line.
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or Moving Average Convergence/Divergence is a technical indicator that uses three moving average to gauge the intensity of public sentiment. RealtimeStockquote.com uses 12, 25 and 9 as our default settings but users are encouraged to experiment with other settings that may more closely reflect their investment style and market conditions and those settings can be saved by the user. MACD is calculated by subtracting a 25 period exponential moving average from a 12 period EMA. A Trigger line is then calculated by using a 9 period EMA of the MACD and as in all of our technical indicators periods can be weeks, days or even 1 minute intervals.
We take pride in clean, crisp, large, easy to read charts and accordingly we have adopted the method of displaying the MACD value as a red histogram and the signal line as a blue line opposed to other charting services that have lines running all over the page but convey no more meaning or information.
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Money Flow Index
(MFI) is a momentum indicator and a refinement of RSI that incorporates volume into the calculation and measures the strength of money flowing in and out of a security. As a momentum indicator look for tops to occur when the MFI hits 80 and for bottoms to occur when MFI is below 20. An investor looking for intermediate term highs and lows should consider 13 for the time period setting and for the more aggressive trader signals can be identified using 10 or 9 period setting.
Day traders might try using a 9 period setting on a 15/30 minute intraday chart.
MFI is also a valuable divergence indicator. If the stock continues to make new reaction highs while MFI does not confirm those highs or lows (visa versa) a reversal is probably in order.
The MFI is not related to what some technicians call Money Flow which is just a derivative of OBV (OBV X stock price).
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On Balance Volume
(OBV) is the first and still the most popular indicator to measure positive and negative volume flows and was created by Joe Granville and introduced in his 1963 book, Granville's New Key to Stock Market Profits. The concept behind the indicator is that volume precedes price.
OBV is calculated by adding a period's volume when the close is up and subtracts the period's volume when the close is down. A cumulative total of the volume additions and subtractions create the OBV line. This line can then be compared with the chart of the underlying security to look for divergences or confirmation between OBV and price. If a stock continues to rise while the OBV levels off or declines a divergence is occurring and a reversal in the stock price is very likely and conversely if a stock makes a new reaction low that is not confirmed by the OBV line the security will most likely soon rise.
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Relative Strength Comparison
compares the performance trend of a stock to an index. This comparison removes the emotion from the equation and many times a drop in relative strength can indicate a coming drop in actual price of the stock.
The object is to identify which stocks are performing the best or the worst assuming that trends will persist for some time as strong stocks stay strong and weak stocks stay that way.
It is probable that before a stock price drops sharply it will first loose relative strength against an index and vice versa on the upside.
Price Rate of Change
(ROC) This oscillator measures change or momentum as a percentage rather than in points and the latest plot is calculated as a ratio of the last price to the price a certain number of periods (N) ago. The ROC is displayed in an overbought/oversold format and RealtimeStockquote.com uses 16 days as our default but good results can be had with shorter settings. As with all overbought /oversold indicators, it is prudent to wait for a turn before placing a trade and the turn can be identified by waiting for a crossover of the oscillator lines.
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Relative Strength Index
or (RSI) is an excellent overbought/oversold indicator that can be used to predict reversal points. Conceived by J. Welles Wilder, Jr. this momentum oscillator measures the velocity of directional price movement and buy signals are triggered at 30 and sell signals at 70 when the traditional 14 period parameter is used. Not all stocks act the same and buy and sell levels will vary from one stock to another with some topping out above 70 and others turning before that level is reached. Many traders are using shorter periods than 14 resulting in an indicator that reaches extremes sooner and are also using 20 for buy signals and 80 for sells signals. RealtimeStockquote.com allows a user to vary indicator parameters to their investment style and market conditions and some users find periods as low as 8 on our intraday charts to be valuable.
The Relative Strength Index (RSI) should not be confused with the traditional relative strength which is a measure of a security's strength against that of another, usually a market index. See below.
Another valuable way to use RSI is to look for divergence in stock price action and RSI. If an upward sloping stock price is accompanied by a downward sloping RSI a divergence is occurring and the stock price will usually reverse.
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is an oscillator developed by Dr. George Lane that measures the position of a stock compared with it's recent trading range and indicates overbought or oversold conditions. It displays the current price as a percentage relative to the stocks trading range (high/low) over the specified period of time, RealtimeStockquote.com uses 15 as the default time period but users can adjust that to match their investment style and shorter periods will provide more signals but too few periods will provide false signals making the indicator useless. When the last price is near the top of the recent trading range (above 80%, 15 periods), the stock is overbought and may be due for a correction. Oversold conditions are indicated by a reading below 20%.
Like RSI, a divergence between the stock price and the stochastic can indicate a change in security's trend.
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has its bar as total volume of trades for the chosen frequency (1 minute, 5 minute, daily, monthly, etc.). VMAs is Simple Moving Average of Volume. VMAe is Exponential Moving Average of Volume which takes more weight from current data. We can choose how many intervals we want to use to calculate these VMA. Our Stock Chart allows you to have up to 2 MA lines. Most of the time, we only use 1 Moving Average.
When price is moving up and Volume Moving Average (VMA) is also moving up, it helps to confirm bullish signal. When price is moving down and VMA is going up, it helps to confirm bearish signal. A reversal in VMA while price is still either going up or down could signal price reversal in a near future.
created by Larry Williams to indicate overbought and oversold conditions based on today's price in relation to past prices. This indicator has an excellent ability to anticipate price reversals and often tops out and turns down days before the stock price breaks. We use 12 as our default setting but traders are using shorter periods with good results and when the indicator is near the top of the trading range, above 85, the security is in an oversold condition. The overbought condition exists at 15% or below.
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