Stock Technical Analysis

Technical analysis, also known as charting, is the study of past stock prices and the patterns they make when graphed. As the second leg of the investor's crystal ball, technical analysis gives a way to see into the future and predict stock price movements. When it comes right down to it most charting patterns involve the relationship between the support and resistance lines.

Support and resistance lines are drawn from peak-to-peak or valley-to-valley and describe the boundaries of the pattern (Fig 1). Support lines generally mark the lower boundary of the

pattern where prices continually fall down to but then rebound back up. Support lines are bullish promoters. Resistance lines mark the top edge of the pattern and is the point where prices rise to but are then forced back down. Resistance lines promote bearish behavior. If the pattern breaks the

resistance line it usually signifies an end to a bearish pattern and the beginning of a bullish one. The opposite is true of a support line.

When people think of charting they think of the well-known patterns such as head-and-shoulders, flags, channels, pennants, wedges and the like and that is what this website focuses on. There are many more patterns however and for a full understanding please review the recommended reading.

In addition, if you will be relying on technical analysis to be your tool for analyzing stocks then it is suggested that you purchase a solid stock charting software package. This holds especially true for those entering the exciting world of stock day trading where investing decisions need to be made in seconds.

Go HERE for a review of some stock technical analysis software packages.

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Standard Patterns

-- Head & Shoulders

-- Channel

-- Flag

-- Pennant

-- Wedge

Moving Averages

Fig 1

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