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There are steps the market moves in , and the steps can be set apart and then studied, one at a time . Also, these steps follow apiece other in a regular sequence , and this sequence can be examined and defined, item by item.

If the trading type can be understood that is manifested by the market at a particular moment, we can find techniques and even tools that work the ideal for a specific market activitiy . Also, You’ll also find, if you know the type of previous trading , the trading occuring now , and the type of trading that will follow , we’ll have an advatnage over other traders. We will always be healthy to select the ideal tools to use , and we’ll be prepared for the future . This is often half the effort .

Experience and a technical analysis explained course has taught us that the trading definitions must be crystal clear and without the slightest ambiguity , or we lose the value of our analysis. We want definitions that can be applied to any market , and to any timeframe . We need definitions that are both easy and robust .

Within the technical analysis explained series types of trading will be discussed in future articles, and we will find that easy definitions combined with careful observations can lead us towards success.

The starting point will be an overview that is simple, so you’ll be healthy to get the huge picture. Then we will begin with our discussion of the market in a trend run . After perceptive trends in the market, we will see how the Drummond Geometry tools combined with time period analysis will enable us to find out where the origination of the trend will be, and where it will end . We will also see how our monitoring tools , the 1-1 zones and the envelope , go along with practical observations and theory collections . And finally we’ll recommend some rules for trading that might wage some help as you develop your own trading plan .

Let’s get our begin ….

We divide all market activity into two major divisions : markets in congestion and trending markets . We can divide up congestion further into congestion entrance, congestion action, and congestion exit . We add trend reversal as a final market condition , bringing us to a total of five trading types .

The definition of what a trend happens to be is irrevocably attached with the position of the close of the bar vis-à-vis the Pldot . No other element is part of the trend definition, while there is much to state about trends and their own characteristics. A trend is always defined by this rule : If 3 closes occur on the same side of the Pldot, there is a trend. This rule is known as the three close, and no trends can occur without closing on the one side of the Pldot. It will never occur . Next in our series on Technical Analysis Explained Congestion Entrance will be the topic .

Technical analysts use Stock Market Trading Software to perform technical analysis or charting as it is also commonly called. These charting tools are very helpful in providing information on momentum, direction, historical relevance and other good information that can go into making a trading decision. For the new trader it is important to note what is meant by technical analysis and how it is different from fundamental analysis, which is another commonly used stock analysis method.

Fundamental analysis, as the term suggests, relate to the fundamentals of the company in question. It has to do with its revenues, earnings, stock price in relation to its earnings, the company’s financial and management stability, its market capitalization and other such fundamental data that relate to the company and many times also to the industry that the company is in. Based on fundamental analysis, we can determine whether a stock is attractively priced, evenhandedly priced or it is overpriced. And, we would make the decision to purchase or sell based on that determination.  Fundamental analysis is more of a qualitative analysis of the company and its stock price. More often that not long-term investors perform fundamental analysis and make their investment decisions based on the results of the fundamental analysis. The drawback of fundamental analysis is that it only looks at the companies numbers and does not look at other decimal aspects such as price movement, accumulation, short and long positions, stock price historical performance and other such data related items.

That is where technical analysis comes in. Technical analysis uses stock market trading or charting software to plot the historical stock price movement in relation with time. The most basic version of this is what comes up when we click on “charts” from a stock ticker’s main menu. Depending on what level of chart one uses, one can overlay this basic chart with a number of other significant and relevant information that can tell you whether the bulls or the bears are in charge (meaning the stock price is trending downward due to bear pressure or trending upward due to bull activity), the moving averages, the trading volume information, the periodic highs and lows, the resistance and support levels and many other relevant and important factors that enable a technical analyst to make a judgment on which direction and how swiftly the stock price is likely to move in the near term. Hence, this type of analysis is more used by short-term and options traders who typically want to get in and out of the market quickly. The drawback of this method, as one might expect, is that technical analysis does not look at the fundamentals of the company at all. It is not concerned with the company’s performance and financial numbers.

Needless to say, as you might have guessed it, neither method used alone is a good way to make trading or investment decisions. One can make a purchase decision looking at the charts only to realize that the company declares terrible results in the next earnings release. Similarly, one can look only at the fundamentals and make a buying decision only to see that the stock price has reached a long-term resistance level and rebounded downward.

Moral of the story: Do not only rely on stock market trading software to make your purchase and sell decisions. It always helps to look at the fundamentals too.