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TA Types N Trend Line
TA Types N Trend Line
Chart
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Lalit Mohan Gupta
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approach… “It’s one small step for
man, one giant leap for mankind.”
NEIL ARMSTRONG
Types of market analysis:
1. Technical Analysis
2. Fundamental Analysis
3. Sentiment Analysis
Three types of market analysis It’s kind of like standing on a three-legged stool.
If one of the legs is weak, the stool will break under your weight and you’ll fall flat on your face.
If your analysis on any of the three types of trading is weak and you ignore it, there’s a good chance that it will cause you to lose out on your trade!
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TechnicalAnalaysis
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FundamentalAnalaysis
Fundamental analysis is a way of looking at the for market by analyzing economic, social, and management forces that may affect the supply
and demand of an asset.
Using supply and demand as an indicator of where price could be headed is easy. The hard part is analyzing all of the factors that affect
supply and demand. In other words, you have to look at different factors to determine.
You have to understand the reasons of why and how certain events like an increase in the unemployment rate affects a company's economy.
The idea behind this type of analysis is that if a company's current or future economic outlook is good, their market should strengthen.
The better shape a companies economy is, the more foreign businesses and investors will invest in that
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SentimentAnalaysis
Earlier, we said that price action should theoretically reflect all available market information. Unfortunately for us traders, it isn’t that simple.
The markets do not simply reflect all of the information out there because traders will all just act the same way. Of course, that isn’t how things work.
This is why sentiment analysis is important. Each trader has his or her own opinion of why the market is acting the way it does and whether to trade in the same
direction of the market or against it.
The market basically represents what all traders feel about the market.
Each trader’s thoughts and opinions, which are expressed through whatever position they take, helps form the overall sentiment of the market regardless of what
information is out there.
The problem is that as retail traders, no matter how strongly you feel about a certain trade, you can’t move the markets in your favor.
Even if you truly believe that the market is going to go up, but everyone else is bearish on it, there’s nothing much you can do about it.
As a trader, you have to take all this into consideration. You need to perform sentiment analysis.
It’s up to you to gauge how the market is feeling, whether it is bullish or bearish then you have to decide how you want to incorporate your perception of market
sentiment into your trading strategy.
If you choose to simply ignore market sentiment, that’s your choice, it’s your loss!
Sentiment analysis can be an important tool in your toolbox.
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*Important Point*
1. Fundamental analysis works for long term, sometimes may work for short term but depends when
you make the entry
2. Technical works mostly for short term and sometimes intraday too
3. Sentiment trading works depending on situations, may work for intraday or short term and long term
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Technical analysis assumptions:
Technical analysis is based on two assumptions:
1. Price Moves in Trends: Technical analysts believe that prices move in short-, medium-, and long-term trend. In other words, a stock price is more likely to
continue a past trend than move erratically. Most technical trading strategies are based on this assumption.
2. History Tends to Repeat Itself: Technical analysts believe that history tends to repeat itself. The repetitive nature of price movements is often attributed to market
psychology, which tends to be very predictable based on emotions like fear or excitement. Technical analysis uses chart patterns to analyze these emotions and
subsequent market movements to understand trends.
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TechnicalAnalysis- The Use Of Trend
The idea of a trend is perhaps the most important concept in technical analysis. The meaning in finance
isn’t all that different from the general definition of the term – a trend is really nothing more than the
general direction in which a security or market is headed.
There are a lot of ups and downs in this chart, but there isn’t a clear definition of which direction the
stock is headed.
Trends aren’t always easy to spot because prices almost never move in straight lines. Rather, prices
tend to move in a series of highs and lows over time.
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TechnicalAnalaysis :Prerequisite to Trendline
To draw a Trendline we must understand Higher highs, higher lows, lower lows, lower highs
Highers highs: The price closed higher than the day before or the previous high, this is a signal of greater confidence and a possible trend for further higher prices.
Higher lows: Each low will be higher than the one that occurred just prior
*Important*
- Lower highs: The price closed lower than the day before or the previous high, this is a signal of greater confidence and a possible trend for further lower prices.
- Lower lows: Each low will be lower than the that occurred just prior
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Trendline
A trendline is a simple charting technique whereby a line is added to a chart to represent the trend in a
market or stock. Drawing a trendline is as simple as drawing a straight line that connects lower lows or
higher highs to show the general trend direction. These lines are used to cut through the noise and
show where the price is headed, as well as identify areas of support and resistance. Support levels are
where the price rebounds higher multiple times, whereas resistance levels are where prices rebound
lower multiple times. The strength of support and resistance levels are determined by the number of
rebounds from the trendline
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How To Draw Trend Lines
Recap: A trend line is simply a line that many traders use as part of their technical analysis. It is a line drawn along a trend to show support or resistance.
A trend line can never be a horizontal line, it must be always be diagonal line. There are only two types of trend lines, a falling trend line and a rising trend line.
- A falling trend line shows that the market is in a down trend and a break of it can mean that the market is now in changing to an up trend.
- A rising trend line shows that the market is in an up trend and if price breaks it, it can mean that the market is now in down trend.
- The very first thing to know about drawing trend lines is that you need at least two points in the market to start a trend line. Once the second swing high or low has been
identified, you can draw your trendline.
- The higher time frames will always produce the most reliable trend lines, so start there and work your way down
- Most trend lines you come across will have some overlap from the high or low of a candle, but what’s important is getting the most touches possible without cutting
through the body of a candle
- Never try to force a trend line to fit – if it doesn’t fit the chart then it isn’t valid and is therefore not worth having on your chart
- It takes two or more points to draw a trend line. The more points used to draw the trend line, the more validity attached to the support or resistance level represented by
the trend line. It can sometimes be difficult to find more than 2 points from which to construct a trend line. Even though trend lines are an important aspect of technical
analysis, it is not always possible to draw trend lines on every price chart. Sometimes the lows or highs just don't match up, and it is best not to force the issue
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A valid up-trend example because: - More than 2 points respect the support line. - No candle body
intersecting the support line
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Invalid Trendline because after break down price still goin up instead of down!!
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