Technical analysts typically look for signals to buy or sell. Describe 2 techniques employed by technical analysts to identify trends and cycles in prices and trading volume
The simplest type of charting technique is that of identifying a trend. Technicians indicate a consistent change in prices in either upward (rising trend) or downward (falling trend) direction. Rising (falling) trends are said to be the result of bullish (bearish) sentiment about the stock.
Rising trend will continue as long as prices do not fall below the trendline. In terms of trading, the rising trendline is considered a signal to buy. This is the case until trend is broken by prices falling below the trendline.
Falling trend will continue until it is broken by prices rising above the trendline. Until the trend is broken, the falling trend indicates bearish sentiment and is often interpreted as a signal to sell.
Another traditional technique is the moving-average line. Technicians use a moving average to indicate long-term trends. A 200-day moving average is a popular time length; however, smaller periods are also popular, particularly when used in combination with longer period moving averages.
If the overall price trend has been down, then the moving-average line would generally lie above current prices. If prices reverse and break through the moving-average line from below, with heavy volume, then this is a break-out and the signal is bullish and to buy.
Conversely, if the overall price trend has ben upward then the moving-average line would generally lie below current prices. A break through the moving-average line from above, with heavy volume, is a break-out and the signal is bearish and to sell.
