Trend Lines are lines that traders draw on charts to connect a series of prices together. These lines are then used to identify whether an assets price is trending up, down or sideways.
A trend line break indicates to the trader that a trend may have ended, and a reversal may have occurred or may be immanent.
Resistance is the level at which a share or stock price has historically had difficulty rising above. Support is the level at which a share or stock price has historically had difficulty falling below.
A trading range is the distance between support and resistance, over a period of time. When a stock or share breaks above or falls below its trading range, it often means a “breakout” from the range (either up or down) is immanent.
Consolidation is typically a period of uncertainty, which ends when the price of shares or stock break either above resistance, or below support.
A triangle pattern is created by drawing trendlines along a price range which becomes narrower over time as an asset’s price makes lower highs, and higher lows. Triangles often predict an aggressive breakout in the direction of the overall trend.
A breakaway gap is a “gap” in the movement of a share or stock price, which is typically supported by levels of higher volume. It is bullish when the price has gapped up, bearish if the price has gapped down.
An Island Reversal occurs when a share or stock price gaps up, and then trades higher than the opening price, and then on the open of the next day, gaps down below the previous day’s open. This is a “bearish” reversal. A “bullish” reversal is the opposite.
A Double Top looks like the letter “M” and describes the top of an asset’s price, (a resistance level) followed by a dip, then another rise to the same level, followed by another drop. The opposite applies to the Double Bottom, which looks like the letter “W”.
Volume is an important indicator as it is used to measure the strength of a market move. The higher the volume during a price move, the more significant it is.
A Moving Average is one of the most important indicators used in learning technical analysis. It shows the average value of an asset’s price over a period of time. Moving averages are typically used to indicate trend as well as areas of support and resistance.
The “head-and-shoulders” pattern is considered one of the most reliable trend-reversal patterns. It is identified when price forms a left “shoulder”, then rises to form a “head”, and then drops to form the right “shoulder”.
Fibonacci Retracements refer to the possibility that an asset’s price will retrace a significant portion of an original rise (or fall), and find support or resistance at the key Fibonacci levels before it continues in the original direction.
Trading foreign exchange and futures on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange or futures you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange- and futures trading, and seek advice from an independent financial advisor if you have any doubts.
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