Business & Finance Stocks-Mutual-Funds

How to Get Started in Technical Analysis

    • 1). Get access to price charts. Technical analysis relies on information contained within a market's price movements. For this reason, it is essential that you have regular access to price charts so that you can visually analyze them. The best solution is to use charting software. Charting software allows you to easily apply technical tools and indicators to the price data.

    • 2). Calculate support and resistance levels. These levels indicate possible areas of price reversal. These can be calculated by taking a price range and plotting levels at certain points such as 25 percent, 50 percent and 75 percent. Alternately, you can observe past price reactions and plot areas of support and resistance accordingly. If done correctly, these levels help you to anticipate future price reversals.

    • 3). Determine the trend. One of the tenets of technical analysis is to trade with the trend. When you observe a price chart, look for steadily ascending price highs and lows to indicate a solid bullish trend. On the other hand, steadily decreasing highs and lows indicate a bearish trend. Bearish trends usually occur over a shorter period of time than bullish trends with comparable price ranges.

    • 4). Monitor the trading volume at all times. Volume often indicates the strength of a price move. The higher the volume, the stronger the move is likely to be. If the volume increases notably during a price reversal, this is a strong indication that the trend of the market has changed.

    • 5). Look for price patterns within the chart. There are many different patterns and you will need to do some research to learn all of them. One popular pattern is the "head and shoulders" which is formed from a high top with lower tops on either side. When this forms at the top of a rally, it indicates a bearish reversal. If the pattern is flipped so that it is formed from a low bottom flanked by two higher bottoms at the end of a decline, it indicates a bullish reversal.

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