How to Use Technical Analysis to Identify Growth Stocks

Technical analysis tracks a security’s price change over time using charts and indicators and trader is looking for pattern or trend, and trader reacts to patterns or trends. Technical analysis can be a happy medium for the traders who get comfortable very fast but not without danger.

Fundamental analysis stands different from technical analysis and evaluates factors like debt-equity ratio, net cash, profit growth, etc of a company. You don’t have to decide between one and the other, they both do the trick.

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Chart Patterns

There are lots of different patterns in the price chart that traders can leverage for picking up buy and sell signals and for making future prices prediction.

This is because technical analysis assumes that the price will behave as a pattern/trend over time and investors will get trades on this.

You could search for growth stocks in one way: by studying the chart to find buy and sell signals. A cup and handle pattern, for example, may identify bullish trends with lows and then higher highs to make an inverted cup with handles on either end – the cup and handle pattern is a strong pre-cursor for buying or selling stocks that fall into this pattern.

Volume

Growth systems apply technical analysis to find stocks that could out-grow the market either via buy-and-hold or positional trading.

Volume analysis can show you which interest someone has bought or sold in a stock, and this is one way to spot growth stocks. If volume is higher in combination with price, it might be a good sign for buying; or when volume is lower in combination with a lower price, it may be a good sign for selling.

The good scenarios would be that when the stock hit its “go to buy” price the day it breakouts must also have strong relative volume – at least 40-50% of the daily average volume – so that there would be significant institutional participation and the price should continue uphill from here.

Relative Strength Index (RSI)

Trading is used by traders to watch price movements against losses during a certain period of time in order to identify patterns; higher RSI line indicates that a stock is moving faster than the others, lower RSI line means that it is not moving at all.

Ideal results include having an RSI rise new highs either during or right before a breakout, because this is when you will see how strong it is and be tempted to buy more shares.

Keep an eye out for a bullish divergence when an indicator sets lower highs but prices move up, this is the sign of strength in a stock’s price action. Because the Relative Strength Index may trade high or low over long time, you should also look for other indicators so you can ensure you are trading based on reliable data.

Fibonacci retracements

The traders are looking for support and resistance levels using fibonacci retracements in market corrections, which can also be inflection points to indicate a market reversal or break. They’re also often found in other types of technical analysis such as Gartley patterns and Elliott Waves.

We get retracement points using Leonardo Pisano Bigollo’s number sequence, called Fibonacci. It’s a sequence used in trading and other fields for more than 1,200 years to make solid guesses for investors.

Moving averages

Moving averages are trend following indicator that is used to smoothen out price movement and see trends. As well, moving averages can be used as resistance or support; when the buyers increase buying at those areas, trending downward will usually hit its lows; and on the other hand, trending upward tends to ebb once selling pressure becomes strong.

Moves tend to be the only technical indicator that analysts and traders use along with other indicators such as volume and Chaikin money flow analysis to support or disprove buy and sell signals. When choosing moving average timeframes according to trading style and objectives.

This is how technical analysis works because history repeats itself, and price action based on what happened in the past can be predicted based on patterns and trends that will lead to making profitable trades on growth stocks.