Simple moving averages are indicators that help assess the stock’s trend by averaging the daily price over a fixed time period. Buy and sell signals are generated when a shorter duration moving average crosses a longer duration one.
Support and resistance utilize price history. Support is defined as areas where buyers have stepped in before, while resistance are areas where sellers have impeded price advance. Practitioners look to buy at support and sell at resistance.
Trend lines are similar to support and resistance, as they provide defined entry and exit points. However, they differ in that they are projections based on how the stock has traded in the past. They are often utilized for stocks moving to new highs or new lows where there is no price history.
There are a number of momentum-based indicators, such as Bollinger Bands®, Chaikin Money Flow, stochastics, and moving average convergence/divergence (MACD). Each of these have unique formulas and provide buy and sell signals based on varying criteria. Momentum indicators tend to be used in range-bound or trendless markets.
- Fundamental analysis evaluates securities by attempting to measure their intrinsic value.
- Technical analysis differs from fundamental analysis, in that traders look to statistical trends in the stock’s price and volume.
- Both methods are used for researching and forecasting future trends in stock prices.