Combining technical analysis and indicators

For new traders, the seemingly endless streams of data available often overwhelms the senses. Applying a combinaton of some of the more well-known technical analysis tools and technical indicators assists in bringing a chart to life for the trader.

In the following discussion, we will be using the Alumina Limited (AWC) chart and simply pointing out some general charting analysis on the stock. The daily chart below is of AWC from March to September 2006.

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Trend Line: Points 1,2,3 on the chart show the areas where the stock has failed to pass, technically you need a minimum of three points touching the line, however the more the better.

Island Reversal: Technically the resistance line was broken at Point 4, however that was during takeover speculation, notice the island reversal pattern then the quick retreat back under the line.

Support Line: Point 6 shows that AWC has hit a medium term support region of around $6 a share.

Tweezer Bottom: Point 5 highlights an area where AWC hits a similar low , seven days apart. Technically this isn't an exact tweezer bottom but it's significant short term support.

MACD: Point 8 highlights the MACD crossover. The crossover would be considered more significant if it crossed over from a lower position.

RSI: Point 9 (the purple rectangle) highlights the RSI. The movement has basically followed the share price, there has been no divergence or movement in oversold/overbought positions.

Volume: During a break of a resistance line you always like to see increased volume (Point 10) . During the breakout today, volume was average to say the least.

Break Out: Point 7 highlights the area where the share price has broken through the trend line.

As mentioned above, the bullet-point discussions are some of the more widely-used technical analysis tools that chartists often employ.