Technical Analysis is defined as 'The method of predicting future stock price movements based on observation of historical stock price movements'.
There are many definitions associated with the technical analysis of stock prices. The most important ones are:
- Resistance - an area that brings on increased selling
- Support - an area that brings on increased buying
- Breakout - when a price passes through and stays above an area of support or resistance
- Trend line - a sloping line of support or resistance
- Moving average - lags behind the price action
- Bollinger bands - a range of price volatility
- Pivot point - derived by calculating the numerical average of a particular currency's or stock's high, low and closing prices
Knowing when to Buy and Sell stocks is the key to a successful share trader using technical analysis. Many methods may be used: Moving averages, Candle stick patterns and Fibonacci.
To test out your technical analysis formulas/equations usually two things are required:
- charting software
- historical stock data
For charting software, I recommend AmiBroker. I personally use it, and came accross it from other people's recommendation as the cheapest and value for money application.
End Of Day historical data for the Australian Stock Exchange is available freely on ASX historical data
Start back testing out your technical analysis formulas before purchasing the stocks with real money.