Senwes Scenario December 2016 / January 2017 | Page 37
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Graph 2: Support line vs Resistance line.
SOURCE: COMPILED BY THE AUTHOR.
Graph 3: Support line - Moving Average (MA).
SOURCE: COMPILED BY THE AUTHOR.
through the level will serve as
a selling signal (buying signal).
Please note that this type of analysis should not be done in isolation
but it should be confirmed by
various other technical indicators.
Graph 2 is a graphic illustration
of a broken resistance level and
where prices test the level as support.
Straight lines are not the only
way of determining support and
resistance levels. A good example
is the Moving Average (MA)1 .
The norm is that an MA offers
a natural support or resistance
leve and a break through the
MA could indicate a turnaround
in a trend. Please note that the
validity of the trend turnaround
1
will depend on the chosen period
of the MA, as well as the period
of the interval of the instrument
under observation. Graph 3 is a
graphic illustration of a 100 day
MA which serves as long-term
support.
CONCLUSION
By merely having a reasonable
understanding of the above information, you will be a step ahead
of the rest. However, it will be
most beneficial to combine technical analysis with fundamental
analysis in order to make the best
possible decision. When the longer term support or resistance line
is broken, it can usually be linked
to fundamentally changing supply
and demand factors.
Technical price graphs offer
analysts the opportunity of visually representing the ratio between
supply and demand and possible
changes in the ratio can be indicated by various price formations.
With support and resistance lines
as basis, various formations exist
which can be analysed to generate
possible buying and selling signals.
Future articles will focus on the
interpretation of the formations.
For more information or to
obtain competitive option prices
on a large variety of commodities,
please contact Susari Geldenhuys
at 018 464 7430 or 072 116
9999 or e-mail her at Susari.
[email protected].
The manner in which the MA works was discussed in a previous article. See June / July 2016 Senwes Scenario by visiting www.scenario.co.za.
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