Technical analysis tools can be used to improve market timing, to forecast price movements, and to indicate turning points before they occur (i.e., to act as a leading indicator). These applications

can be helpful to advisors who recommend stocks to their clients.  With the Kewd Stock Blender, you don't need to calculate anything - we do all the analysis for you!  However, it probably makes sense to learn about what each indicator means before you chose to adopt it as part of your investment strategy.  Below we outline some of the major technical analysis indicators and theory. (courtesy of the Canadian Securities Institute and Investopedia.com)

Market Timing

Fundamental analysts try to understand the micro and macro events that influence the supply and demand of a stock. While having a solid understanding of these factors is important, it does

not ensure successful market timing. In fact, many fundamental analysts are poor market timers. We have probably all seen situations in which an analyst has issued a strong recommendation

to buy a stock at a certain price level, with a certain price target, only to see the price of the stock fall.

The reason this happens often has little to do with the quality of the analyst’s work. The analyst may have been correct in his analysis, but the market may have already priced in the same information. Another possibility is that the analyst may be too far in front of the market. The forecast may come true in the long run, but that does not help the investor who has seen prices move, at least in the short term, in a direction opposite to the forecast and has experienced a large loss.

Trendlines

One of the principles of technical analysis is that prices move in long-term, intermediate, or shortterm

trends. The trendline is used to determine trends. Although it can be drawn by connecting just two points, a third point is needed to confirm that the trend is valid.

Support and Resistance

Support and resistance levels are probably the most noticeable and recurring patterns on a price chart. The most common support and resistance levels are the highs and lows of trading ranges.

These levels are known as horizontal support and horizontal resistance levels. Trendlines and moving averages can also act as support or resistance levels.

You'll often hear technical analysts talk about the ongoing battle between the bulls and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above (resistance) or below (support).

As you can see, support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the red arrows).

Why Does it Happen?
These support and resistance levels are seen as important in terms of market psychology and supply and demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the case of a support) or sell it (in the case of resistance). When these trendlines are broken, the supply and demand and the psychology behind the stock's movements is thought to have shifted, in which case new levels of support and resistance will likely be established.

Chart Patterns, Indicators and Analysis:

Below are some of the many unique methods used to determine price trending:

Head and Shoulders 
This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. As you can see in the image below, there are two versions of the head and shoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the two, but is used to signal a reversal in a downtrend.


 

Cup and Handle

A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed.

 


As you can see, this price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue. There is a wide ranging time frame for this type of pattern, with the span ranging from several months to more than a year.

Triangles

Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.

 

The symmetrical triangle shown above is a pattern in which two trendlines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trendline is flat, while the bottom trendline is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trendline is flat and the upper trendline is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout.