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Technical analysis 101 part 2
The document provides an overview of technical analysis, emphasizing the importance of trends in various time frames, including uptrends, downtrends, and sideways trends. It discusses how trends are indicated by series of high and low points, along with the roles of support, resistance, and volume in determining trend strength and potential reversals. Additionally, it highlights the necessity of validating peaks and troughs based on the timeframe used for analysis.
Technical analysis 101 part 2
- 1. John LockeJohn Locke LockeIn Your Success, LLCLocke In Your Success, LLC Technical Analysis 101 Part 2Technical Analysis 101 Part 2 www.LearnToTradeOptionsNow.comwww.LearnToTradeOptionsNow.com •© 2016 Locke in Your Success, LLC.
- 2. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. TrendTrend • An uptrend is occurring when price is making a series of higher highs and higher lows. Support is rising. • A downtrend is occurring when price is making a series of lower highs and lower lows. Resistance is falling. • A sideways trend is occurring when a series highs and lows are generally the same. Support is staying the same.
- 3. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. Trend depends on your time frameTrend depends on your time frame Prices do not move in straight lines, they zigzag. This creates different trends in different time frames. People like to say that there are long, intermediate and short term trends but in reality, there are many, many trends on any price chart that can range from minutes to decades. The trend or timeframe you use will depend on the planned duration of your trade. Just like support and resistance, trend is more important in longer time frames. When analyzing trends, always check longer time frames to be sure you are not in conflict with a stronger trend line or support or resistance area.
- 4. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. Sideways TrendSideways Trend • A sideways trend is when you have a series of range bound highs and lows. A sideways trend has a horizontal support and resistance area. • As long as each successive high and low are within the support and resistance area then the sideways trend is in tact.
- 5. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. Sideways trendSideways trend Horizontal Support Horizontal Resistance
- 6. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. UptrendUptrend • An uptrend is when you have a series of higher highs and higher lows. These high and low points will vary dramatically depending on the timeframe you are using!! • An uptrend has a rising support and resistance area. • As long as each successive low is higher than the preceding low then the uptrend is in tact. • Any failure of a high to exceed a previous high is an early warning that the trend may change or reverse. • A lower high in conjunction with a downside violation of the prior low indicates a trend change.
- 7. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. UptrendUptrend Diagonal Support
- 8. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. DowntrendsDowntrends • A downtrend is when you have a series of lower highs and lower lows. These high and low points will vary dramatically depending on the timeframe you are using!! • A downtrend has a dropping support and resistance area. • As long as each successive high is lower than the preceding high then the downtrend is in tact. • Any failure of a low to penetrate a previous low is an early warning that the trend may change or reverse. • A higher low in conjunction with an upside violation of the prior high indicates a trend change.
- 9. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. DowntrendDowntrend Diagonal Resistance
- 10. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. RetracementsRetracements • When identifying peaks and troughs, you need to be sure that the peak or though is “valid” For your timeframe. Generally, (in an uptrend for example) a valid trough should retrace at least 1/3 of the previous rally OR take at least 1/3 of the time it took to form the rally.
- 11. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. I am innocent !I am innocent ! • A trend is presumed innocent until proven guilty. In other words the prevailing trend will remain in tact until there is sufficient evidence to prove that it has changed. • When looking at trends, you ALWAYS need to analyze them within the context of your time frame!!
- 12. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. ReversalsReversals • Where does the trend change? It Depends on your timeframe!
- 13. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. FLIR was in a longer term uptrend. The uptrend is assumed to be in force until theFLIR was in a longer term uptrend. The uptrend is assumed to be in force until the weight of the evidence shows it has changed. The first valid lower low is followed by aweight of the evidence shows it has changed. The first valid lower low is followed by a lower high BUT the trend has not reversed until that first lower low has been violated.lower high BUT the trend has not reversed until that first lower low has been violated.
- 14. © 2016 Lockein Your Success, LLC.© 2016 Locke in Your Success, LLC. VolumeVolume • This is written in the context that markets generally rise.*** • Volume measures the intensity of buyers and sellers attitudes. • Volume is totally independent from price. • Volume typically goes with the trend. In an uptrend, it will expand on up moves and contract on down moves. The reverse is true for down trends. • Rising prices with rising volume is considered normal. Increased interest (volume) is needed to sustain an upward move in price. It also shows new buying interest. • Rising prices with decreasing volume is abnormal. If prices rise as volume drops, this is considered bearish and is a sign of technical weakness. This indicates lack of sellers as opposed to new buying interest.
- 15. VolumeVolume • Decreasing priceswith decreasing volume is normal. This indicates lack of buyers as price corrects from a previous rally. • Decreasing prices with increasing volume is abnormal. This shows strong selling interest and is bearish • . • Excessively strong price moves with excessively strong volume in either direction CAN be an indication of a “blow off” move that becomes exhausted and sometimes results in a sharp or “v” reversal. • High volume, after a significant bullish rally without much price movement is churning and is bearish. • High volume, after a significant bearish rally without much price movement is usually due to accumulation and is bullish. • Record volume after a major low is a reliable signal that the market has bottomed and is bullish. © 2016 Locke in Your Success, LLC.© 2016 Locke in Your Success, LLC.
- 16. • John Locke •www.lockeinyoursuccess.com • john@lockeinyoursuccess.com • Facebook: Locke in Your Success • Twitter: locke4success • 603-738-1795 Locke In Your Success, LLCLocke In Your Success, LLC © 2016 Locke in Your Success,© 2016 Locke in Your Success, LLC.LLC.