Technical Analysis Terms: A Glossary of Technical Analysis Tools and Concepts

Technical analysis, also known as TA, is a powerful tool used by investors and traders to make informed decisions about the movement of securities, commodities, and currencies. It involves the study of past price data, patterns, and trends to predict future price actions. This article provides a comprehensive glossary of common technical analysis terms, tools, and concepts to help you better understand this complex yet powerful field.

1. Trend (Trending)

A trend is a continuous upward or downward movement in the price of a security or asset. Trend following is an investment strategy that involves buying or selling securities based on the presence of a trend.

2. Support and Resistance

Support is the price level at which a security's price is more likely to rise than fall. Resistance is the price level at which a security's price is more likely to fall than rise. These concepts are important in identifying potential turning points in the price action.

3. Moving Average (MA)

A moving average is a mathematical average of the closing prices over a specified time period. It is used to smooth out short-term price volatility and identify long-term trends.

4. Fibonacci Retracement and Extension

Fibonacci retracement and extension are technical analysis tools that involve the calculation of potential price targets based on the past price action of a security. They are named after the Italian mathematician Nazomi Fibonacci, who developed a theory of numbers based on the sequence of numbers 1, 1, 2, 3, 5, 8, 13, etc.

5. Parabola

A parabola is a graphical representation of a security's price action, particularly in the form of a price chart. It is shaped like a downward-pointing arrow and is often used to identify potential trends and support/resistance levels.

6. Candlestick Charting

Candlestick charting is a visual representation of security price action that includes open, high, low, and close prices for each trading session. It is considered a more detailed and accurate way to study price action, particularly for traders seeking to identify potential trading opportunities.

7. Price Pattern

A price pattern is a specific pattern of price action that typically indicates a potential change in the price movement of a security. Common price patterns include head and shoulders, double tops and bottoms, and falling wedges.

8. RSI (Relative Strength Index)

RSI is a technical indicator used to measure the relative strength of a security's price action. It is calculated by dividing the security's price change by its moving average true range, a measure of the price movement's volatility. RSI is often used to identify potential overbought or oversold conditions in the price action.

9. Bollinger Bands

Bollinger Bands are a set of three moving averages used to visualize the price action of a security. They are named after their creator, John Bollinger, and are particularly useful in identifying potential trends, support/resistance levels, and potential price reversals.

10. Ichimoku Charting

Ichimoku charting is a Japanese-inspired technical analysis method that involves the calculation of five lines representing the price action of a security over various time periods. It is considered a more holistic and objective approach to analyzing price action, particularly for long-term investors and traders.

Technical analysis, with its vast array of terms, tools, and concepts, can be a complex and overwhelming field. However, understanding its core principles and applying them to your investment and trading strategies can lead to more informed and profitable decisions. This glossary of common technical analysis terms provides a valuable resource for beginners and experienced traders alike, helping to bridge the gap between the abstract world of numbers and the real-world impact of investment decisions.