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Technical analysis utilizes many tools, some of which include
1. support/resistance levels
2. price channels
3. oscillating and trending indicators
4. chart patterns
5. candle stick patterns

Others such as Fibonacci levels/retracements and Elliot Wave Theory are also important tools, but will not be covered here.

1. Support and Resistance Levels

sup and res
Support and resistance levels are areas of increased buying or selling interest.  These level can be used to determine a trades maximum potential profit point, beyond which future direction requires more analysis.  When a major support or resistance level is broken, the price action can resemble a release in potential energy (i.e. the release of a compressed spring).

2. Price Channels

Price Channels
Price channels, like support and resistance levels, are "self fulfilling prophecies."  Price channels are generated through the monitoring of price action; generating buying and selling pressure.  Just as when a support/resistance level is violated, a channel break out can result in significant price action.

3. Oscillating and trending indicators (See Indicators)

4. Chart patterns

Patterns

Point 1 = Small "head and shoulders"
Point 2 = Double Bottom, i.e. Retest
Point 3 = "W" , i.e. "Higher Lows"
* There are many more formations than just these few.

Chart formations can be helpful; however, they should be taken at face value (there is literature available which will provide you with how often these patterns fail).

5. Candle Stick Patterns


Candle stick patterns, just like stock patterns, can help understand investor sentiment.  For example, if the market opens with no change, then goes down 100 points and recovers back to flat, then you will have what looks like a small cross.  This is referred to as a Doji and it is a reversal signal (signals are only good when combined with a complete market analysis).

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