Technical analysis studies price and volume data to identify patterns and predict future price movements. Unlike fundamental analysis, it focuses on what the market is doing rather than what the company is worth. Technical analysts believe that price movements are not random and that historical patterns tend to repeat.
Key concepts include support (a price level where buying pressure consistently prevents further decline) and resistance (a price level where selling pressure prevents further advance). Trendlines connect a series of highs or lows to identify the direction of price movement.
Moving averages smooth out price fluctuations to reveal trends. The 50-day and 200-day simple moving averages are the most widely watched. When the 50-day crosses above the 200-day (golden cross), it is considered bullish; when it crosses below (death cross), bearish.
The RSI measures momentum on a 0-100 scale, with readings above 70 suggesting overbought conditions and below 30 oversold. The MACD shows the relationship between two moving averages and helps identify changes in trend direction and momentum.
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