Page 46 - Module 4 - Trading_Ways_and_Means

Module 4 - Lesson 7 Popular Analysis Tools

Indicators are used as a measure to gain further insight into to the supply and demand of securities
within technical analysis. Those indicators (such as volume) confirm price movement, and the
probability that the move will continue. The Indicators can also be used as a basis for trading, as they
can form buy-and-sell signals. In this slideshow, we'll take you through the second building block of
technical analysis and explore oscillators and indicators.

There are hundreds of tools available on most charting platforms, however for the purpose of this
introduction will only introduce the ones most traders begin with. The Analysis Tools we recommend
you to be focussing on will be discussed in great detail during the Intermediate and Advanced
sections of your course.

1. Trend Lines
Trend lines are a very simple but overlooked tool. A properly drawn trend line can give us a wealth
of information. Price direction entry points exit points and points where price may stall, breakout or
reverse. Trend lines are drawn below price in an uptrend and above price in an uptrend. A trend
refers to the direction of prices. Rising peaks and troughs constitute an uptrend; falling peaks and
troughs constitute a downtrend that determines the steepness of the current trend. The breaking of
a trend line usually signals a trend reversal. Horizontal peaks and troughs characterize a trading
range.

2. Moving Averages
This tool has been around for a long time. It’s mentioned at the beginning of the 1900s in literature
and is thought to have been used long before. Moving Averages smooth out the prices for a given
period and create an average of price for a given number of days or periods. Prices above or below
this average can give clues as to where the market is heading. Usually more than one line is used,
each line being calculated over different periods. A fast line has a smaller number of days, like 8, and
a slow line has a larger number of days, like 34. When the fast line crosses below or above the slow
line a sell or buy signal is created respectively.

3. Support & Resistance
Price Support & Resistance is the basic most fundamental part of trading. Markets react to natural
Support and Resistance levels more than to any other signals or indicators imaginable! Many traders
after years of research would eventually stripe their charts from all indicators and leave only Support
and Resistance lines to guide them through. Forex charts with proper Support & Resistance levels
offers advantage of taking low risk entries, finding proper timing, defined targets, keeping overall
confidence in your position - it's the very best scenario for any trader. Learning how to identify
Support & Resistance levels takes time and practice.
Support
A support level is the price at which buyers are expected to enter the market in sufficient numbers
to take control from sellers.

Resistance
A resistance level is the price level at which sellers are expected to enter the market in sufficient
numbers to take control from buyers.

Role Reversal
Support levels, once penetrated, frequently become resistance levels and vice versa.

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