| ng charts is a tricky thing, one you need training to | | | | they often will continue that fall. On the other hand, a |
| do successfully. A person without training will see | | | | rise above the moving average often signals a |
| simply up-and-down moves with no meaning. Those | | | | continued rise. |
| trained in analysis, however, can discern the meaning | | | | The Relative Strength Index (RSI) is used to analyze |
| of these sometimes seemingly random movements. | | | | the number of days a stock ends up with the |
| Those 'in the know' can use the charts to see what | | | | number of days it finishes down. It is calculated as |
| the future holds for stock prices. There is not | | | | follows. You take the closing price of a particular |
| necessarily one pattern that can be used to make | | | | stock over a certain period, (usually between 9 and |
| good predictions but when the dozens and dozens of | | | | 15 days) divide the average number of days with an |
| different patterns, all of the indicators, are taken | | | | up finish by the average number of days with a |
| together, those with practice can be very good | | | | down closing. Then add this number to one and use |
| indeed at anticipating future market movements. | | | | the result to divide 100. Subtract that result from 100. |
| Stock Price Patterns - One commonly used pattern | | | | This gives you the RSI, which has a range between |
| to watch for is Cup and Handle. A high price to start | | | | 0 and 100. |
| then a dip and then back up forms the cup. Then | | | | Often an RSI above 70 is a signal that a particular |
| when prices level out for a bit you have the handle. | | | | stock is overbought and a fall in price can be |
| Buying on the handle can bring you quite satisfactory | | | | expected. Conversely, an RSI below 30 can be a |
| profits. | | | | good signal that it is time to buy. Of course, these |
| Head and Shoulders is another commonly watched | | | | numbers must be used in conjunction with an |
| pattern to look for. The first shoulder is a peak in | | | | appreciation of how the market stands as a whole. |
| price. Then follows a dip, then a second, higher, peak | | | | What is a high or low RSI varies between a bull and |
| forms the head. This is followed by a dip and then | | | | bear market. If you chart RSI over longer periods |
| the rise that forms the second shoulder. This is | | | | the movement becomes less abrupt so looking at |
| interpreted bearishly and you should look for prices | | | | charts that cover a year or more gives a good |
| to fall significantly after the second shoulder. | | | | indication of how that stock normally moves against |
| Moving Average - Hands down, the most used | | | | its RSI. |
| indicator is the Moving Average. For a 30 day moving | | | | Unlike the RSI, which follows only stock prices, The |
| average the Average price over time is calculated by | | | | Money Flow Index, also known as MFI, also includes |
| adding the closing prices each day for 30 days | | | | the number of shares traded. This indicator also |
| together and then dividing by 30. Moving averages | | | | varies from 0 to 100. As with the RSI, 30 is usually a |
| are also frequently used for 20, 50, 100 and 200 | | | | good place to look at buying and 70 is where selling |
| days. Moving averages are plotted onto a graph as a | | | | should be considered. And again as with the RSI, |
| line that goes up and down as the price changes. | | | | tracking the MFI over longer periods gives a more |
| When you see prices fall below the moving average | | | | accurate result. |