Pivot Points Explained

The Pivot Point is defined as the average of the high, low and settlement price, and is plotted as the green line across the chart. The first support and resistance lines are used mainly in intraday trading in the pits. The blue line above the pivot point is the second resistance level and is defined as the pivot point plus the high price minus the low price. The red line below the pivot point is the support level and is defined as the pivot point minus the high price plus the low price.

The fact is that you do not need to pay the big bucks to learn how to trade. Technical analysis is not hard or scary. Once you understand the basics, you will realize that there is a lot of information to be learned from your charts and it is all free for the taking. Just looking at a price chart is a rudimentary form of technical analysis.

These levels will be test several times until they are finally broken through. The point at which they pass through the Support or Resistance level is known as the Breakout. In general, the price will then continue in the same direction until again the buyers or sellers can no longer be enticed.

Support and resistance lines are your key indicators and any widely-available technical charting software allows you to plot (and refine) both these lines on any security's chart. Both support and resistance should be viewed not in terms of finite points on the chart but in terms of ranges of values. If your security has declined sufficiently to reach a level somewhere within your range of support, you are probably well served to adopt a looser trailing stop as significant strength may very well be evident in your position. By contrast, once your position isentering your zone of resistance, you would be well served to tighten your stops as much as is practical.

The price values during the trading between the two Support and Resistance levels is known as the Trading Range. The overall time period in which this trading range occurs is called a Channel.

The Technical Analyzer provides trading signals based on three different methods: Japanese candlestick charts, market momentum changes, and traditional support and resistance levels. Both Japanese candlestick charts and market momentum changes are useful in predicting reversals in market direction. Traditional support and resistance lines are great tools for trading trending markets. Combining these three approaches together is intended to create an incredibly powerful and predictive tool.

When prices are trending downwards, the market balances along the support line. As prices decline toward that support line, buyers become more inclined to buy and sellers starting holding on to their stocks. The support line marks the point where demand takes precedence over supply and prices will not fall below that support line. The reverse holds true for a resistance line.

The Technical Analyzer is more than a bunch of computer code. There are human market technicians behind every trading idea. While programmers are getting better at copying human decision making abilities, they are not perfect - particularly in understanding how to apply the right set of technical analysis rules to analyze a particular market.

Most technical analysts use charts as their primary tool. Charts are the heart and soul of the technical analyst's tools and they come in all shapes and sizes. The most commonly used types of charts are line, bar, candlestick, point and figure, and renko. Each price style has different interpretations and uses and everyone has their favorites. Pick your favorite for now and we'll get into price style analysis at another stage.

Frankly speaking TA is an art, not a science. Even when you have TA fully mastered, as many traders do, you'll find that the prices will violate against these technical lines as often as they don't. Once it is violated, TA experts will use another set of ideas to 'predict' the prices (eg support becomes resistance, vice versa). Same goes for any of the other indicators. Your chance of getting it right is as good as getting it wrong. Market movement does not follow a fixed pattern.

One of the technical analysis principle of stipulates that support can turn into resistance and vice versa. Once the price breaks below a support level, the broken support level can turn into resistance. The break of support signals that the forces of supply have overcome the forces of demand. Therefore, if the price returns to this level, there is likely to be an increase in supply, and hence resistance.

Sometimes prices trend between two parallel lines the support and resistance levels - forming a channel. This formation can be up, down or sideways and is one of the most successful and profitable methods of technical analysis, giving a strong hint of where the shares should trade in future.

So-called 'breakouts' are when a price moves either above or below an established trading range or trend line. Once the price breaks above its resistance or below its support, it could continue in the same direction.

The longer the prices stay in that area and the greater the volume in that spot, the more important that level becomes because investors remember it exceptionally well. Therefore, that level takes on added significance for the technical analyst. According to experts, previous support and resistance levels can be used as "target" or "limit" prices when the market have traded away from them.

Support and resistance levels are important tools for the technical analyst. By monitoring whether a stock's price is nearing a support or resistance level, an investor will be aware of whether a reversal may be in the offing. Together with monitoring the proximity of the price to the support or resistance level, a vigilant investor will also monitor trading volume in the stock. Increased volume is another key sign that a reversal may be at hand.