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Technical Analysis
Technical analysis is the examination of past price movements to forecast future price direction. It is sometimes referred to as chartist analysis because it relies almost exclusively on charts for analysis.
Technical analysis is applicable to foreign currencies, stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand. Price refers to any combination of the open, high, low or close for a given commodity/security over a specific timeframe. The time frame can be based on intraday (tick, 5-minute, 15-minute or hourly), daily, weekly or monthly price data and last a few hours or many years. In addition, some technical analysts include volume and/or open interest figures with their study of price action.
The CCC platform contains over 100 daily technical analysis reports produced by an independent investment research provider.
Trends
"Markets are trendy - let the trend be your friend"
The first trend theory holds that an uptrend remains intact as long as each successive intermediate is higher than those preceding it and each reaction stops at a higher point than previous reactions. Conversely, a downtrend prevails when each intermediate decline carries price falling short of earlier rallies.
When you've defined the direction of the market through fundamental analysis, then follow it! Weekly and monthly charts are useful in giving an idea of how the market has behaved and how it is likely to behave in the future. Once you have selected the nature of the trend you wish to follow, then you can identify the full scope of your trading strategy depending on the timeframe you are comfortable with.
In and uptrend market, try to buy the dips to maximise profits.
In a downtrend market, try to sell the rallies.
Support & Resistance
Support and resistance levels are unquestionably among the most important of all technical considerations. They are areas which prices are expected to have difficulty moving beyond, and they therefore deserve careful consideration in buying and selling decisions.
Support and resistance levels on a chart can be divided into three basic categories:
- Congestion areas.
- Areas at which previous advances and declines were turned back.
- Transformed support and resistance levels following a break of the support / resistance levels (generally 30 pips) - i.e. once broken, former highs that have been penetrated thereby turn into support levels.
The basic idea behind resistance and support theory is simply that price levels that were significant in the past will have significant impact on price action in the future and should therefore be considered when building a trading plan.
Major Support (troughs)
The price level or area on the chart where buyer interest is sufficiently strong enough to overcome or digest selling pressure and a price decline is turned back up again.
Major Resistance (peak)
The price level or area over the market where selling pressure overcomes or digests buying pressure and a price advance is turned back.
- The longer the trendline has been intact, the more significant the trendline.
- The more the number of times the trendline has been tested, the stronger the trendline.
Validity of Trendline Violation
- The price filter used is a 1% or 3% penetration criteria to eliminate whipsaws. A closing price penetration beyond the trendline is more significant than just an intra-day penetration.
- The time filter requires that prices close beyond the trendline for 2 successive days.
The CCC charting package provides users with key technical analysis indicators such as Moving Averages, Bollinger Bands and Volumes.
