Technical Analysis in the Stock Market:
In technical analysis, the support and resistance of a particular security are levels where the price will tend to stop and turn back the other way. These price levels are often denoted by multiple touches (or near touches) of the level without a breakthrough. For example, if a stock price falls to $2 multiple times within a certain timeframe, but continues to “bounce” off of that level, it would be considered strong support, especially if heavy buying volume comes in at that level. Conversely, if a stock prices rises to $5, but continues to “hit its head” and revert back down, that would be considered strong resistance, especially if heavy selling volume comes in at that level.
Many traders, especially those implementing short-term approaches like day and swing trading, utilize technical analysis for potential buy and sell areas. Before even entering a trade, individuals can map out their desired entry price, exit price, and stop loss based on the security’s historical performance. A popular resource for technical analysis is candlestick charts, which can track price-action and the force behind each move. If you boil it down to the core, candlestick charts are able to accurately track sentiment, which is the primary reason stocks move. Through technical analysis, if you can pinpoint market reversals and accurately predict a future move, you can take advantage of profitable opportunities in the market and grow your portfolio.