The Very Basic Technical Analysis Guide for Lazy Investors
By: Ann Inw
Tags: Trading, Technical Analysis, Investing, Strategy, Stock Market

The technical analysis covers a vast wealth of minor branches, and I can understand if it discourages any lazy amateur investor out there. The good news is, you don’t need to know a lot, at least for a start.

Instead, learn some of the essentials. They may be basics, but regardless are powerful tools to up your investment game.

How to read a candlestick

Let’s start with reading candlesticks. Candlesticks are a representation of the supply and demand of a stock. They are also pretty easy to read quickly.

Illustration by Author

That’s the basic concept. The tails represent the highest and the lowest a price can go in a period of time, (i.e, daily or weekly.) You will see many variations of this candle, for example, a candle without tails, which called a Marubazu, or a candle without body, which is called a Doji.

Illustration by Author

Uptrends? Downtrend? Sideways?

This is also supposed to be easy to understand, even by quickly glancing at the chart. This simple sketch pretty much sums everything up.

Illustration by Author

In short, in an uptrend chart, the price as a whole is moving upwards. The opposite is called a downtrend. If the price looks like it’s not going up or down, we call it sideways or trendless.

Determining Support and Resistance

Support is a price point where a stock is likely to go up after going down (a rebound point.) Supports act as a psychological point where demands are most likely concentrated (for supports).

Meanwhile, resistance is an upper limit a stock can reach before the price likely reverse. That’s where many people are expected to sell.

Here’s a simple illustration explaining what support and resistance are.

Illustration by Author

Determining supports and resistances are hard at first for beginners. But after some practice, you should be able to easily determine support or resistance with a quick glance at the chart.

Support and resistance level is obtained by finding a price point that’s often hit more than once. Let’s take a look at the $APPL chart below.

Chart by TradingView

You can see there’s strong support at around $106 (A). The price was about to reach it again at B but bounced back.

When a stock manages to break a support level, you can expect the price to go down even further.

The first resistance (Resistance 1 in the image) is at $124 (marked with C), which tried to be broken at D. There was a slight pullback but at last, the price managed to break out. And now we have a new resistance level at E, which is the all-time high price of Apple, and it is trying to be broken on F.

You can expect a slight pullback at F when $APPL trying the resistance point. If it’s successful, you can expect the stock to make a new all-time high.

Basic relations of price and volume

Transaction volume is the second most important indicator of a stock’s prospect after the price. I refer to a simple formula regarding the relation of price and volume, as follows:

Illustration by Author

The even easier way to remember it: Up + Up or Down + Down is always bullish, else it’s bearish.

Let’s analyze the reason why we have this formula.

Price up + volume up means there’s an excitement surrounding the stock. People are eager to buy and the transaction volume increases.

Price up + volume down. You should be cautious if any stock price goes up without being backed with an adequate transaction volume. The market is reluctant with the price increase. The sellers here have more power.

Price down + volume up means there is a massive sell-off going on, indicated by the increase of transaction volume.

Price down + volume down means the market isn’t convinced with the stock should go even cheaper. You may mark it as a sign that there’s going to be a reversal anytime soon.

Common Technical Indicators

Technical indicators are tools that help understand the movement of a stock. They act as both a prediction tool and a confirmation tool. There are plenty of indicators traders typically use, but since this article focuses on the very basic, I will include the few most common technical indicators people use.

The first being the Moving Averages or MA. Moving average is a constantly updated average price of a stock over a period of time, commonly 200 days, 150 days, and 50 days. For example, MA50 is a 50-days moving average.

Yellow line: MA100, Red line: MA50, Blue line: MA30. Source: TradingView

The stock should be fine as long as it is above the MA line. However, be careful when it crosses the MA line and stays below it.

A Golden Cross is when the shorter period MA crosses the longer period MA upward. It’s a bullish signal.

Meanwhile, a Death Cross is when the shorter period MA cutting down the longer period MA from above, indicating a bearish possibility.

The second indicator is the RSI (Relative Strength Index) and the Stochastic. They help tell you whether a stock is overbought or oversold.