Technical Analysis

Dear ,

Here are brief yet insightful explanations crafted to deepen your understanding of Technical Analysis.

Technical Analysis:

  • Focusing on: Charts, historical data, and price movements to predict future trends.
  • Tools: Technical indicators like moving averages, relative strength index (RSI), and Bollinger Bands.
  • When to Use: Short-term trading, identifying entry and exit points based on price patterns.
  • Example: You notice a stock consistently bouncing off a support level at $20, indicating potential buying opportunity. You set a stop-loss order at $18 to limit potential losses and a take-profit order at $25 to lock in gains.


Indicator Term Benefit When to Use Example Calculation
Momentum RSI (Relative Strength Index) Measures momentum and potential overbought/oversold conditions Short-term trading, identify entry and exit points Stock A: RSI 70 (above 70 suggests overbought)
Trend & Reversals MACD (Moving Average Convergence Divergence) Identifies trend direction and potential reversals Short-term trading, confirm signals from other indicators Stock A: MACD line crossing above signal line suggests potential uptrend MACD positive values are bullish and negative bearish
Support/ Resistance & Volatility Bollinger Bands Measure volatility and potential support/resistance levels Short-term trading, identify price breakouts or pullbacks Stock A: Price trading near upper Bollinger Band, suggesting potential resistance
Market Sentiment Short Interest Number of shares sold short relative to outstanding shares Gauge market sentiment and potential buying pressure Short-term trading, identify potential squeezes Stock A: Short interest 10%, indicating potential squeeze if sentiment changes
Trend & Support/ Resistance Moving Averages Track price trends over different timeframes Short-term and long-term trading, identify support/ resistance and trend direction Stock A: 50-day MA trending upwards, suggesting uptrend Calculate by averaging closing prices over chosen timeframe

Choosing Your Approach:

  • Technical Analysis: Ideal for those comfortable with charts and short-term trading strategies.
  • Fundamental Analysis: Suited for investors seeking long-term growth through company valuations.
  • Combination: Many investors use a blend of both, leveraging technical signals for timing and fundamental analysis for stock selection.

Additional Resources:


  • No single indicator is perfect. Use a combination for a more comprehensive view.
  • Backtest indicators on historical data to understand their effectiveness.
  • Consider your investment goals and risk tolerance when choosing indicators.
  • Stay informed about market trends and company news for better context.

Best wishes,
The Learn and Permits Support Staff

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