ATS - Technical Analysis

Technical Analysis

1. What is Technical Analysis?
It’s the study of historical price and volume to forecast future price movements using charts and indicators.
2. How is Technical Analysis Different from Fundamental Analysis?
Technical Analysis focuses on price action and patterns, while Fundamental Analysis studies financial statements and business performance. Both aim to help investors make smarter decisions, but they approach it from very different angles.
3. What Are the Three Key Assumptions of Technical Analysis?
Technical analysis is grounded in three powerful assumptions that shape how price, volume, and trends are interpreted. These assumptions help traders forecast future price movements by studying historical market behaviour rather than a company’s internal fundamentals.
4. What is the Dow Theory?
A foundational concept in Technical Analysis that identifies market trends and phases (accumulation, public participation, distribution).
5. What is a trend?
The direction in which the price of a stock moves — it can be uptrend, downtrend, or sideways.
6. How do you draw an uptrend line?
By connecting two or more higher lows on a price chart.
7. What is a support level?
A price point where a stock tends to stop falling due to increased buying interest.
8. What is a resistance level?
A price point where a stock tends to stop rising due to increased selling pressure.
9. What is a breakout?
When the price moves above a resistance or below a support level with high volume, indicating a potential strong move.
10. What is volume and why is it important?
Volume is the number of shares traded. It confirms the strength of price moves—higher volume = stronger conviction.
11. What is a candlestick chart?
A chart type that shows open, high, low, and close prices for a specific period using a candle-like shape.
12. What does a bullish candlestick indicate?
It means the closing price is higher than the opening price—indicating buying pressure.
13. What is a doji candlestick?
A candle where the open and close prices are nearly equal, signaling market indecision.
14. What is RSI (Relative Strength Index)?
A momentum indicator that measures overbought or oversold conditions, ranging from 0 to 100.
15. What RSI values indicate overbought and oversold levels?
RSI above 70 = overbought; below 30 = oversold.
16. What is a moving average?
A technical indicator that smooths out price data by averaging prices over a specific period.
17. What is the difference between SMA and EMA?
SMA gives equal weight to all prices; EMA gives more weight to recent prices.
18. What is a crossover strategy?
A trading strategy where a short-term moving average crosses above or below a long-term moving average to indicate entry or exit.
19. What is MACD?
Moving Average Convergence Divergence—a momentum indicator that uses moving averages to identify trend direction and momentum.
20. . Why is risk management important in technical trading?
It helps limit losses and protect capital, ensuring long-term survival in markets regardless of trade outcomes.