The forces that determine a stock's price are the result of
- Market analysts who have access to information you don't,
- Market makers who are working to maintain a specific price, and
- Patterns of behavior that investors have exhibited for as long as there have been markets.
You can control none of these...but you can study how they interact to affect the markets. Knowing this will help you trade smarter...and profitably.
DEFINITIONS
BREAKOUT: The beginning of an extended rally.
CHART: A graphic representation of movement of a stock, commodity, bond or currency. Axes are usually price and time.
INVESTOR BEHAVIOR: Investors often react to news stories, market changes and other factors in the same irrational, but predictable, fashion.
TRENDLINES: A line drawn to connect a series of highs or lows in a trend.
MARKET ANALYST: Paid employee of a broker who specializes in the study of a particular industry, or, sometimes, company.
MARKET MAKER: A broker or bank continually prepared to make a two-way price to purchase or sell for a security or currency.
OVERBOUGHT POSITION LINE: Drawn parallel to the supply line, it passes through the first point of resistance (the top of a rally) that occurs between the support line's successive points of support.
OVERSOLD POSITION LINE: Drawn parallel to the supply line, it passes through the first point of support (the lowest point of a reaction) that occurs between the supply line's two successive tops.
SUPPLY LINE: Shows the angle of decline in a bear market by passing through two successive points of resistance (tops of rallies).
SUPPORT LINE: Shows an advancing angle in a bull market by passing through two successive points of support (the lowest points of two successive reactions).
VOLUME INCREASE: Actual increase in the wolume of transactions of the instrument being charted.
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