Technical indicators allow to translate graphically the psychology of the operators, and thus to locate the reversals or continuations of the market.
The signals given by technical indicators are generally classified as follows: countercyclical signals (finding supports and resistances in a trendless market, but also lows (highs) in an uptrend (downtrend); trend-following signals (detecting the direction of the current trend); trend-reversal signals (spotting a major reversal in trend).
It is useful to draw the trend lines of indicators in order to identify supports and resistances: an indicator that lands on an important support (trend line that has given previous lows) can reveal the imminence of a rebound, and vice versa in the case of an indicator that hits a major resistance.
When the indicator lands on a trend line, it may be interesting to validate a buy signal using Japanese candlesticks for example or a chart support.
The break of a trend line is an ideal place to lighten up your position and take profits, even if you have to reposition yourself afterwards.
When the price curve and that of the technical indicator move in the same direction, they are said to be in phase: the current trend is healthy and there is no indication that it is losing momentum.
An indicator that breaks support or resistance and returns to it is a good signal, either bullish for support, or bearish.
If a reversal pattern appears when an indicator lands on a trend line, it means that the trend is healthy and will continue.
Technical indicators usually give early signals. The breaking of an important level by an indicator indicates that the price is likely to do the same.
When the technical indicator does not confirm the price movements, you should be on the alert because it means the possibility of a reversal of the current trend.
A divergence must be confirmed by prices. If prices do not seem to be running out of steam and the current trend is still healthy, then the divergence should be ignored. Note that a divergence does not necessarily imply a correction in the stock.
It may be a precursor to a reversal of the current trend, but you should wait for confirmation before taking a short position. A divergence can also be a simple profit-taking signal that precedes the continuation of the dominant trend.
Status:: #wiki/notes/plantation
Plantations:: Technical Analysis
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