Technical Analysis (definitions)
From line charts to trends, in this article you can find all the important definitions related to technical analysis.
- Line chart is used to represent data over a given time span and connects a series of data points with a continuous line. This is the most basic type of chart which shows an asset's historical price action, and most often uses only closing prices.
- Bar Chart, sometimes abbreviated OHLC (open, high, low, close) - each tick on the chart provides the price at open, highest price, lowest price, and last or "close" price for a given time period.
- Candlestick chart (also called Japanese candlestick chart) is a style of financial chart used to describe price movements of a given asset. It originated from Japanese rice merchants and traders to track market prices and daily momentum hundreds of years before becoming popularised in the United States. Each candle in the chart shows the Open, High, Low, and Closing price of a security. The body of the candle is shown as the difference between the Open and Close price. The candle wicks show the difference between the High and Low and the Open and Close.
- Support / Resistance - levels set in areas where the price will most likely have problems with continuing the current trend, will stop or be rebounded. This is because buyers (support) or sellers (resistance) pile up at a given price level. Supports are set below the price and stop declines, while resistance is set above the price and stop the asset from further appreciation.
- Trend - a general direction of a market or an asset's price. Trends can be upwards (bullish), which are marked by rising data points, downwards (bearish), which are marked by falling data points or sideways (flat), which occur when the forces of supply and demand are nearly equal. There is no specific timeline for a direction to be considered a trend, but overall, the longer the direction is sustained, the more qualified the trend becomes.
- Time frame, TF - unit of time in which the price is measured. For different chart types, different price values are measured. In the case of Japanese candles, we take into account the opening, high, low and closing in a given time period, e.g. 1 hour. The most popular time intervals are M1 (1 minute), M5 (5 minutes), M15, M30, H1 (1 hour), H4, D1 (day) and W1 (week). Sometimes, we can also meet other less popular time intervals, such as 6H (six hours) or 12H (twelve hours).
- Price Patterns are formations which appear on financial instruments charts, which have shown to have a certain degree of predictive value. The most basic form of chart pattern is a trend line. Other most popular chart patterns include head and shoulder formations, double and triple tops and bottoms, pennants, flags and wedges, and are used by many traders due to their easily recognisable pattern and accuracy.
- Candlestick pattern is a movement in prices shown graphically on a candlestick chart that sometimes can predict a particular market movement. We can distinguish between bullish (i.e. hammer, morning star, bullish engulfing) and bearish formations (i.e. evening star, hanging man, bearish engulfing). The bullish patterns indicate that the price may rise in the near future, while the bearish patterns warn of potential price drops. No pattern works all the time as the candlestick patterns represent trends in the price movement, not guarantees.
- Indicators and Oscillators - an indicator is a mathematical calculation based on price or volume of a given asset and is used to predict price movements in the future, for example moving average (MA) or ADX. Oscillators are the technical indicators that operate by plotting the output of a trend indicator between two extreme values and are used to identify overbought and oversold conditions. The most popular oscillators are the moving average convergence-divergence (MACD) indicator and the relative strength index (RSI).
This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.