Technical Studies

After identifying the trend, the chartist seeks mathematical tools that can indicate whether the current trend will hold or possibly breakout, or breakdown.

These technical tools, also known as technical studies, can be further categorized into momentum studies, volatility studies, directional studies, trend studies and volume studies.

Momentum studies seek to measure the velocity of price movement. A car that is losing momentum as it approached the top of hill is not likely to make it over the top. Stochastics, rate of change, MACD, Trix and CCI are some examples of momentum studies.

Volatility studies are used to predict breakouts. When volatility slows, the expectation is that the market will explode, like a pot of boiling water with a tight lid. Bollinger Bands are an example of a volatility study.

Directional studies measure the length and strength of the current trend looking to forecast when the trend will change. DMI, Parabolics and True Range Oscillation are examples if directional studies.

Trend studies indentify support and resistance. Trend lines and linear regression are two prime examples.

Volume studies attempt to measure the buying and selling pressure by weighting price movement in conjunction with volume. On Balance Volume is one example.

 

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