Errera & Brown - Chapter 8
Key Points of Emphasis
- Technical Analysis relies on the principals of probability and statistics.
- The (3) most popular technical charts are Line or "close only," Bar, and Candlestick.
- Line Charts record only the daily Closing price and are best used for long-term trending.
- Bar Charts indicate the daily Open, High, Low and Closing prices for the trading day.
- Candlestick Charts also show the OHLC but do so in a fashion as to illustrate the market direction, up or down, for that day's trading.
- Identifying the current trend is the first step.
- Determining if the trend is going to change is the next step. This can be ascertained if the preponderance of the evidence indicates it will. Buy/Sell decisions will then be made.
- Trendlines are used to indicate the trends.
- Various price patterns exist for Traders to identify.
- Volume is a good indicator of market activity and can reinforce the day's price movement.
- Resistance is the price level at which Sellers enter the market again. It establishes a "ceiling" price in the current market.
- Support is the price level at which Buyers enter the market again. It establishes a "floor" price in the current market.
- Moving Averages are good studies to utilize if you believe in the statistical premise of "reversion to the mean."