BQLearning: How Technical Analysis Tools Can Be Used To Make Trading Decisions
(Source: BloombergQuint)

BQLearning: How Technical Analysis Tools Can Be Used To Make Trading Decisions

BQ Learning is a special show that seeks to demystify financial markets, economic theories, legal processes and political structures.

In this series, we explain how technical analysis works; how to identify trading opportunities through it and decode various concepts associated with it.

The first step is to identify a trend. Technical tools such as candlesticks, trendlines and moving averages, among others, help to substantiate a stock’s price movement.

A trend can be spotted by looking at the daily price candlestick bars—lower highs and lows signal a downtrend and higher highs and lows signal an uptrend.

When a stock price indicates a downtrend, the support level becomes crucial. This level can be identified by mapping the moving averages onto the candlestick price bars. The long-term 200-day moving average usually provides a good support level. Traders use this to identify if the stock price can reverse.

Then comes a crossover. If price of a stock crosses below the 200-daily moving average, it indicates a further downside, and vice versa.

Also, volume, along with price movement, is another indicator of a trend. If rising price is supported by heavy volumes it offers confidence to traders to buy the stock and vice versa.

Watch the full episode here to know how the technical analysis tools such as trendlines, candlesticks, moving averages, Relative Strength Index and MACD can be used together to identify trading opportunities.

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