BhuvanChand Maddi

Technical Analysis

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bhuvanchand maddi
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3 min read

Important notes:

  • Sideward trends are good for traders and not really helpful for investors.

Trends Reversal:

  • The upward trend is generally formed by Higher highs and Lower lows. If a Lower High is formed as shown below pic then don`t panic and come to any conclusion. It is a sign of alert if a Lower Low is followed then we can confirm trend reversal is happening then you can square off your position. If you want to play a safe game you can even wait for another Lower High and confirm the pattern and then you can exit.

Similarly in down trends(Lower highs and Lower lows) observe for the first Higher Low(H5 in the above pic) then alert and you can confirm the trends change if another Higher Low is formed(This is a safe bet).

If someone risks and observes the trend change at a point H5 then he is taking high risk. So as a result he is entering into an up trend quickly.

Candle stick bullish patterns:

  1. Bullish Engulfing pattern

  1. Morning Star pattern

    • Doji candle color doesn`t matter

  1. Hammer pattern

    • Color of hammer is not really important but green color is peferable.

  1. Inverted Hammer pattern

    Bearish Trend Reversal patterns:

  • They are exact reversal of bullish patterns. They will form at the trend.

  • See the names
    Bullish Engulfish - Bearish Engulfish
    Morning star - Evening star
    Hammer - Hanging Man

    Inverted Hammer - shooting star

  • Hanging man: article

  • Shooting Star: article

Indicators:

MACD:

The Moving Average Convergence Divergence (MACD) is a widely-used indicator in technical analysis for stock trading. It helps in identifying the direction of the trend, momentum, and potential reversals in the price of a stock. Here's how it works:

  1. Components: MACD consists of two lines – the MACD line and the Signal line, along with the MACD histogram.

    • MACD Line: It's calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA.

    • Signal Line: This is the 9-period EMA of the MACD line.

    • Histogram: It represents the difference between the MACD line and the Signal line.

  2. Interpretation:

    • Trend Identification: When the MACD line is above the Signal line, it indicates an upward trend, suggesting a buying opportunity. Conversely, when the MACD line is below the Signal line, it signals a downward trend, suggesting a selling opportunity.

    • Momentum: The distance between the MACD line and Signal line can indicate the strength of the momentum. A wider gap often suggests stronger momentum.

    • Crossovers: A crossover of the MACD line over the Signal line is considered bullish, while a crossover below is bearish.

    • Divergences: If the stock price is making new highs or lows, but the MACD isn't, it can indicate a potential reversal.

  3. Histogram Analysis:

    • The histogram provides a quick visual of the difference between the MACD line and the Signal line.

    • A positive histogram (above zero) indicates bullish momentum, while a negative histogram (below zero) indicates bearish momentum.

    • Increasing bars in the histogram can signal strengthening momentum in the current trend, while decreasing bars can indicate weakening momentum.

Nice article

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