Technical analysis is a tool, or method, used to predict the probable future price movement of a security – such as a stock or currency pair – based on market data.
The theory behind the validity of technical analysis is the notion that the collective actions – buying and selling – of all the participants in the market accurately reflect all relevant information pertaining to a traded security, and therefore, continually assign a fair market value to the security.
Charting on Different Time Frames
The technical analysis time frames shown on charts range from one-minute to monthly, or even yearly, time spans. Popular time frames that technical analysts most frequently examine include:
Technical analysis is an investing method that is used to evaluate investments and identify trading opportunities in price trends and patterns by using charts. By tracking price and trading volume, investors can recognize patterns that help them guide their trading decisions.
A line graph connects various data points to show specific patterns over a defined time horizon of interest for an investor, and can also be known as a line plot or line chart. For investors, the data is used to create a visual representation of a company’s historical stock price moves.
A kicker pattern is a two-bar candlestick pattern that predicts a change in the direction of an asset's price trend. This pattern is characterized by a sharp reversal in price over the span of two candlesticks.
Candlestick patterns, which are formed by either a single candlestick or by a succession of two or three candlesticks, are some of the most widely used technical indicators for identifying potential market reversals or trend change.
Doji candlesticks, for example, indicate indecision in a market that may be a signal for an impending trend change or market reversal. The singular characteristic of a doji candlestick is that the opening and closing prices are the same, so that the candlestick body is a flat line. The longer the upper and/or lower “shadows”, or “tails”, on a doji candlestick – the part of the candlestick that indicates the low-to-high range for the time period – the stronger the indication of market indecision and potential reversal.
The typical doji is the long-legged doji, where price extends about equally in each direction, opening and closing in the middle of the price range for the time period. The appearance of the candlestick gives a clear visual indication of indecision in the market. When a doji like this appears after an extended uptrend or downtrend in a market, it is commonly interpreted as signaling a possible market reversal, a trend change to the opposite direction.
