Candlestick Patterns

Candlestick patterns serve as powerful visual cues, offering valuable insights into market sentiment and potential reversals. These patterns often reflect the psychology of market participants and can provide early indications of trend changes. For instance, the Doji, characterised by its small body and nearly equal opening and closing prices, suggests market indecision and potential trend reversal.

The Bullish/Bearish Engulfing patterns occur when one candle completely engulfs the previous one, indicating a shift in sentiment from bearish to bullish or vice versa.

Support and Resistance

Support and resistance levels are fundamental concepts in technical analysis, representing areas where buying and selling pressures converge. Support levels denote price zones where buying interest typically exceeds selling pressure, preventing further price declines and causing prices to bounce higher. Traders often identify support levels using various techniques, such as trendlines, moving averages, or chart patterns. Conversely, resistance levels represent price zones where selling pressure outweighs buying interest, leading to price reversals or temporary pauses in upward momentum. These levels can act as barriers to further price appreciation and are essential for identifying potential areas of profit-taking or short-selling opportunities.

Exponential Moving Average (EMA)

The EMA gives more weight to recent prices, making it more responsive to new information than the SMA. The calculation involves applying a multiplier to the recent price data, which increases exponentially. This characteristic makes EMA more suitable for detecting short-term trends. For instance, a crossover of a shorter-period EMA above a longer-period EMA can signal a bullish trend.

Moving Average Convergence Divergence (MACD)

MACD is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. It subtracts the 26-period EMA from the 12-period EMA. The result is the MACD line. A nine-day EMA of the MACD, called the "signal line," is plotted on top of the MACD line. Traders look for MACD line crossovers with the signal line, with crossovers above indicating buy signals and crossovers below indicating sell signals. Divergence between MACD and price can also indicate potential reversals.

Stochastic Oscillator

The Stochastic Oscillator compares a particular closing price to a range of its prices over a certain period. It is composed of two lines: %K (the main line) and %D (a moving average of %K). The oscillator ranges from 0 to 100. Values above 80 indicate that the security is overbought, and values below 20 indicate that it is oversold. This oscillator helps in identifying potential reversal points by highlighting the strength and direction of a price trend.