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Basic Technical Analysis Page 2


Technical Analysis & Timing

Markets don't move straight up and down. The direction of any market at any time is either Bullish (Up) Bearish (Down) or Neutral (Sideways). Within those trends, markets have countertrend (backing & filling) movements. In a general sense, "Markets move in waves," and in order to make money, a trader must catch the wave at the right time.


 
Drawing Trendlines will help to determine when a trend is changing.
Trendlines show support boundaries under prices. These boundaries may be used as buying areas.
Temporary trendline penetrations are not as significant as a close beyond the trendline. Prices retrace a portion of the current trend before resuming in the original direction. These counter trend moves tend to retrace to certain predictable percentages. The best known application of this movement is 50% retracement.
When prices trend between two parallel trendlines, they form a Channel.

When prices hit the bottom trendline, this may be used as a buying area, and when prices hit the upper trendline, this may be used as a selling area.


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