What is Technical Analysis?

Technical analysis is a business discipline used to evaluate investments and identify business opportunities by analyzing statistical trends derived from business activities, such as price and quantity movements. Unlike fundamental analysis, which seeks to assess the value of a security based on business results such as sales and returns, technical analysis focuses on the study of price and quantity.

Technical analysis tools are used to examine the ways in which supply and demand for a security affect changes in price, quantity and average order. It is based on the assumption that the security's past trading activity and price changes may be important indicators of the security's future price movements, provided that they are linked to appropriate investment or trading rules.

It is often used to generate short-term trading signals from various charting tools, but it also helps to improve the rating's strengths and weaknesses in relation to the wider market or the market in their sectors. This information will help analysts improve their overall rankings.

Philosophy of Technical Analysis

There are three basic areas on which the technical approach is based:

1) The Market action discounts everything

2) Prices move in trends

3) History repeats itself

For the purposes of this post, let's focus on what it means to shorten marketing completely. To quote the great John Murphy, "The technician believes that anything that could affect price - fundamentally, politically, psychologically or otherwise - will actually be reflected in the price of this market. Furthermore, because the study of price action is all that is needed. Although this statement seems bold, it is difficult to disagree when one takes the time to consider the true meaning.

The price action is a reflection of shifts in supply and demand. When demand is greater than supply, prices rise. If supply is greater than demand, prices will fall. Isn't this simple concept the basis of all economic and fundamental predictions? So let's turn it around: we as technicians have come to the conclusion that if prices rise for any reason, demand should increase supply, and therefore standards should be strong. In the discussion of technical analysis, we talk about the basics. Funny isn't it? But think about it. Aren't technicians studying the basics right away? Now, according to Murphy, most technicians would probably agree that standards are fundamental forces of supply and demand. That is why the markets are moving up or down. Price simply reflects the strong or bearish psychology of the market.

"Chartists don't usually look at why prices are rising or falling. In the early stages of price fluctuations or critical points, no one often seems to know why the market is rising. In a way," (See: Apple Stock Crash?) Although the technical approach is sometimes as simple as its assertion, the logic of this initial assumption - that everyone notices discounts - can be even more compelling in terms of quantity. , then a study of the market price is equally necessary. By studying price charts and a number of supporting technical indicators, the influential graphic designer will let the market tell him which way he is likely to take. The chartist does not have to try to outsmart the market or outsmart. All technical tools are simple techniques that help the chartist in the process of studying marketing. The chartist knows that there are reasons why the markets are going up or down. They simply do not believe that knowledge of what factors are necessary in the prediction process. "

“Trading formula”

• Expected profits = (Target price – entry price)*P{success} – (Entry price – stop price)*P{failure}

• Decision making: Determine (Entry price, Target price, Stop Price) such that the expected profits can be maximized.

The role of Technical Analysis

• Help you make the selection among the three choices at any fixed time t:

 1. Open a position

 2. Close a position

3. Do nothing

The history of Technical Analysis

• Dow Theory: Charles H. Dow published the first stock market average on July 3, 1884. The ABC of Stock Speculation, S.A. Nelson, 1903. (The first book the term “Dow Theory” was used.) Dow Theory, Robert Rhea, 1932. ]

• Elliott Wave Theory: The wave principle was published in 1938 by Charles J. Collins, which was based on the original work of Ralph Nelson Elliott.

• William D. Gann: Geometric angels and percentages. Most work was published during the 1950s and ’60s.

Basic foundations behind technical analysis

• Price discounts everything

• Price movements are not totally random

• The market has Three trends (Dow)

• Major trends have three phase (Dow)

• Volume must confirm the trend

• A trend is assumed to be in effect until it gives definite signals that it has reversed

• The market is more psychological than logical

Doubts and Criticisms

• The doubts and criticisms have a history as long as that of the theory:

Can the past be used to predict the future?

Signals are always too late?

Analyst Bias: subjective interpretation; art vs. science

Trader’s Remorse: Not all signals and patterns work

Always another level: Bullish or Bearish?

Trends

Trend: An upper trend is a series of successively higher peaks and troughs; a downtrend is just the opposite, while horizontal peaks and troughs would identify a sideways price trend (trendless).

Remark: It is the direction of those peaks and troughs that constitutes market trend

Support and resistance

• Support is a level or area on the chart under the market where buying interest is sufficiently strong to overcome selling pressure and a decline is halted and prices turn back up.

• Resistance is a level or area over the market where selling pressure overcomes buying pressure and a price advance is turned back.

• Tested support and resistance are more reliable.

• Previous peaks and troughs are potential supports and resistances. Some other candidates can be those levels or areas indicated by indicators such as MA, trend channels, percentages and so on.