The theory of technical analysis
A technical analysis. Technical ??????? this study the dynamics of the market, mostly through graphs to predict the future direction of the price. Technical analysis includes several different approaches to the study of evolution of prices, which are interconnected in a single coherent theory. This type of analysis is to study the price dynamics of the market by analyzing patterns of three changes of market factors: price, volume and if we study the market srochn s ??????????? open interest (the amount of open positions). And, for the primary analysis are prices and changes in other factors are studied to verify the accuracy of the direction of the price. This technical theory, as in any theory, there are basic tenets.
Three axioms TA. Three postulate of technical analysis as follows:
1. The market takes into account all. This postulate is the most important in technical analysis, it is necessary for an adequate understanding of the perception of all methods of analysis. Its essence is that any factor affecting the value of ??????? economic, political, psychological previously taken into account and reflected on the price chart. In other words, any change in prices is an appropriate change in external factors. The main consequence of this premise is the need to closely monitor and study the evolution of prices. By analyzing price charts and additional indicators, a technical analyst ensures that the market itself shows him the most likely direction of the movement.
This conflicts with the basic premise of the analysis, which focuses on studying the factors which appear after the analysis of findings on the movement of the market. So if demand exceeds supply, the fundamental analyst concludes increase prices. Technical analyst also concludes "the other way around: if the price increases, the demand exceeds the supply.
2. The movement of prices is subject to trends. This assumption has been the basis for the establishment of the techniques of technical analysis, as affected by market trends, as opposed to the chaotic market can be analyzed. Among the provisions that the price is subject to trends resulting two investigations. The investigation first was that the current trend is likely to grow further, but did not apply to its own opposite, that is a consequence of these excluded disorderly, erratic market movements. The investigation is the second said that the current trend will grow until the motion will not be running in the opposite direction.
3. History repeats itself. Technical analysis and study the market closely connected with the study of human psychology. So graphic pricing models that have been identified and classified in the last hundred years, reflect the essential features of the psychological state of the market. First of all, they point out what ??????????? bychi or Bear dominate at this point in the market. And if in the past, these models are employed, there is every reason to assume that in future they will work, because they are based on human psychology, which over the years does not change. It could be the last ????????? "History repeats itself" a few other words: the key to understanding the future lies in exploring the past.
The objectives of TA. Technical Analysis - Applied Social Psychology. His appointment - to identify trends in the behavior of crowds, and their changes with a view to taking stock of reasonable solutions. Technical analyst identifies market sentiment, placing a combination of the following purposes:
1) Assessment of the current direction of prices, that is, identifying the trend. It is possible the following options:
1. Moving up;
2. downward movement;
3. Flat.
2) Evaluation of the duration and period of validity of this direction. Maybe:
1. short-term trend;
2. the trend of long-term effects;
3. started the trend;
4. maturity of the trend;
5. death, the completion of the trend.
3) Evaluation of the amplitude of price fluctuations in the current direction:
1. little change of course;
2. strong change of course.
The classification of TA. All the variety of techniques of technical analysis can be divided into two large ??????? graphical techniques and analytical methods:
Graphic technical analysis is an analysis of various market graphic models generated by certain laws of motion of the price of plots, with the aim of assumptions or change the likelihood of continuing the current trend. Postulates of this kind of technical analysis are listed below the basic concepts of technical analysis: the trend lines, levels of market support and resistance levels correction current trend.
There are two types of graphical models:
1. Models of fracture ?????????? generated graphs model, which under certain conditions, can anticipate the change of the current market trend. These include such models as the "head of the shoulders," "double peak", "double-base", "tri-peak", "triple-ground."
2. Models continue ?????????? generated graphs model, which under certain conditions, show that there is a possibility of continuing the current trend. Perhaps the tendency to develop too fast and is entered in the state perekuplennosti or pereprodannosti. Then, after an intermediate correction, it will continue its development in the direction of the previous trend. In this group, provide such models as the "triangle", "diamonds", "flags, pennants and others.
Each model has a specific mechanism for education and a graphical form. The dynamics of the volume of transactions is a factor in confirming the existence of a model. All models find an explanation in terms of the psychology of market participants. Despite the seeming simplicity of this method, it is one of the basic techniques of technical analysis, and on the effectiveness of the application shows good results. A major shortcoming of this method is that it is very subjective. Every technical analyst should be a good chartist (English chart? schedule), as well as any graphical model ???????? is formed at the conclusion of the current price trends and the emergence of the likelihood of continuing or breaking the current trend.
On the analytical methods include techniques that use filtering or mathematical approximation of the time series. In technical analysis as the basic time-series uses the ranks of the share price for a certain period of time, the volume of trade and the number of open positions.
The main tool is an indicator of analytical methods, which in turn is a set of functions from one or more of the basic time series with time-window. Indicators can be divided into five categories:
1. Indicators of the trend. These indicators include indicators that serve to measure the trend ¾ its strength and duration. A classic example trendopodtverzhdayuschih indicator was a "rolling average". The same class includes such well-known indicators like MACD, Directional Movement, Parabolic, and others.
2. Indicators of variability. Indicators for the second category are used for measuring the variability of prices up an asset base. Variability ¾ this notion, describing the amount of daily, independent of the main lines, the price fluctuations. Such indicators are particularly important for the analyst to change the term market trend, or a side trend. Signals such indicators that were built with a small time window allows log and leave the markets during the day. These indicators include: Chaikin's Volatility, Standard Deviation, Bollinger Bands.
3. Indicators point. Representatives of the categories used to measure the speed of price changes over time. This, in turn, Momentum Indicator, Relative Strength Index (RSI) and the Price Rate-Of-Change (ROC). Also, under certain conditions, can be used, and MACD. But nothing prevents the use of signals as indicators of the time to confirm the trend, and to predict the time it ends, that the majority of specialists and makes.
4. LEDs cycle. These indicators are used to identify the cyclical component, and their length. This is Fibonacci Time Zones, MESA Sine Wave Indicator, and others. These indicators work well only on the side trends. It is very important, these indicators for futures traders, who work in the commodity markets, corn sugar or oil - in markets with very high cyclical component.
5. Indicators of market forces. The fifth category used as a base of independent variables, or the volume of transactions, or the number of open positions. Indicators in this category, based on the volume of data sets, give signals the strength of the current trend. Indicators for this category are On Balance Volume, Volume Accumulation, and others.
Brief history of development of TA. History of Western technical analysis has little more than a century. In the early nineties the nineteenth century, the Wall Street Journal an article by Charles Dow, where he presented a set of principles, which, in his view, could enter into a transaction to buy and sell without much risk. They have also been formulated, and now has become a classic theory of the direction of motion stock market. The principles of this theory is now used in almost all modern methods of technical analysis implicitly. Charles Dow never wrote a book, limiting their editorial articles for the magazine Wall Street Journal. After the death of Doe was replaced by B. Hamilton, who article "The End of tide" has raised the reputation of charts during the stock crash of 1929, he summed up the situation and the main Dow theory in the book market barometer ", and in 1932 the publisher of stock byulleteny Robert Rea brought it to its logical conclusion in the book "Dow Theory."
Times of the Great Depression of the thirties were the golden age of stock charts. After the collapse of 1929, many analysts has been little work and a lot of free time, and they spent it on the discovery of new theories of exchange of knowledge. That decade was marked by publications such as the legendary dealer Shabaker, Rea, Elliott, Vaykoff, Gunn and others. Their study were in two different directions. Some (Vaykoff and Shabaker) viewed as a graphic chart recording the exchange of supply and demand. Other (Elliott and Gann) were looking for "secret order" on the stock exchange. Proceedings Ralph Elliott led to the wave theory, open to the technical analysis of the magic of Fibonacci numbers. The main tenets of this theory argue that the price dynamics of a market is developing wave and there are certain patterns in the education market waves. William Gann created a complex combination of geometric, algebraic principles, which traders have used successfully on emerging futures markets. It is legendary thirties have created an entire galaxy of stars and technical analysis is not a surprise - so much was the influence of the "Great Depression" by brokers and analysts that the development of analytical prediction had been the best effect.
In 1948, Edwards and Magee have published the book "The technical analysis of stock trends." There, they identified the models such as triangles, rectangles, "head and shoulders, and other graphical models, as well as the trend line, support and resistance. Almost all of the classic technical analysis of the figures were discovered in the first half of this century, but their authorship is difficult to establish.
Since the beginning of the war and the subsequent recovery of world economy in need as such technical analysis, and again there was no longer only in the early sixties with the advent of a new crisis. In this period were systematized the basic concepts and rules of technical analysis, but also developed algorithms that reduce the labor of basic techniques. This period includes the emergence on the American stock markets moving averages (MOP), which according to the market veterans were perenyaty from antiaircrafters, which in turn used them to laying on the aircraft. The founders of the exchange of MOP were Richard Donchian and Dzh.M.Hrest. Donchian was serving firm Merrill Lynch, he developed a method of stock market games based on several SS and Hrest was an engineer in the book "Miracle profitability early deals with shares, which became classics, he described the principle of the SS in relation to transactions with the shares.
With the advent of computers has become a technical analysis to be more matematizirovannuyu form, started with great speed to develop analytical methods that use mathematical aproksimatsiyu and filtering. By that time, the creation of Dzh.Vels Uaydlerom grid system that can detect trends and to determine the appropriateness of the speed of their work in their direction. Indicators per cent variation Williams, balance the volume of Joseph Granville has also been established and used for the first time at this time as many other indicators of the founders of which history is silent.
In the late 70's with such financial instruments to reduce the risk of futures and options. It should be noted, the practice of trade with empty baskets of rice (futures in Japanese) has been known to indigenous Japanese carriers have three hundred years ago.
The beginning of the eighties glorified the emergence of such names as John Murphy and Robert Prihter that honor belongs to systematize the methods and presentation of technical analysis as a separate application of science.
Nineties also brought its own contribution to the history of technical analysis, but no longer at the world level: since ancient times in history, there were the so-called "guru" - is the market cult figure who, by making a loud name on a few successful predictions began to circulate for a reasonable fee newsletters, which provide advice to investors to buy or sell any shares. Based on these recommendations have been different types of forecasting, ranging from analytical methods to ugadyvaniem in the form of clouds signs the purchase or sale. Gradually, some investors began to rely on these letters, then the entire market in the mass hysteria began to follow the visions. And as soon as this happened, then there is not predicted such a "specialist", the collapse (or growth). At the same time, thousands of market participants ??????????, and now "former Guru" disappear from the market. Such a definition with some adjustments to fit, and Elliott, and Gannu, and Murphy and many others. More information about this phenomenon can be found in a remarkable book, Alexandra Eldera "Trading for a living."
A technical analysis. Technical ??????? this study the dynamics of the market, mostly through graphs to predict the future direction of the price. Technical analysis includes several different approaches to the study of evolution of prices, which are interconnected in a single coherent theory. This type of analysis is to study the price dynamics of the market by analyzing patterns of three changes of market factors: price, volume and if we study the market srochn s ??????????? open interest (the amount of open positions). And, for the primary analysis are prices and changes in other factors are studied to verify the accuracy of the direction of the price. This technical theory, as in any theory, there are basic tenets.
Three axioms TA. Three postulate of technical analysis as follows:
1. The market takes into account all. This postulate is the most important in technical analysis, it is necessary for an adequate understanding of the perception of all methods of analysis. Its essence is that any factor affecting the value of ??????? economic, political, psychological previously taken into account and reflected on the price chart. In other words, any change in prices is an appropriate change in external factors. The main consequence of this premise is the need to closely monitor and study the evolution of prices. By analyzing price charts and additional indicators, a technical analyst ensures that the market itself shows him the most likely direction of the movement.
This conflicts with the basic premise of the analysis, which focuses on studying the factors which appear after the analysis of findings on the movement of the market. So if demand exceeds supply, the fundamental analyst concludes increase prices. Technical analyst also concludes "the other way around: if the price increases, the demand exceeds the supply.
2. The movement of prices is subject to trends. This assumption has been the basis for the establishment of the techniques of technical analysis, as affected by market trends, as opposed to the chaotic market can be analyzed. Among the provisions that the price is subject to trends resulting two investigations. The investigation first was that the current trend is likely to grow further, but did not apply to its own opposite, that is a consequence of these excluded disorderly, erratic market movements. The investigation is the second said that the current trend will grow until the motion will not be running in the opposite direction.
3. History repeats itself. Technical analysis and study the market closely connected with the study of human psychology. So graphic pricing models that have been identified and classified in the last hundred years, reflect the essential features of the psychological state of the market. First of all, they point out what ??????????? bychi or Bear dominate at this point in the market. And if in the past, these models are employed, there is every reason to assume that in future they will work, because they are based on human psychology, which over the years does not change. It could be the last ????????? "History repeats itself" a few other words: the key to understanding the future lies in exploring the past.
The objectives of TA. Technical Analysis - Applied Social Psychology. His appointment - to identify trends in the behavior of crowds, and their changes with a view to taking stock of reasonable solutions. Technical analyst identifies market sentiment, placing a combination of the following purposes:
1) Assessment of the current direction of prices, that is, identifying the trend. It is possible the following options:
1. Moving up;
2. downward movement;
3. Flat.
2) Evaluation of the duration and period of validity of this direction. Maybe:
1. short-term trend;
2. the trend of long-term effects;
3. started the trend;
4. maturity of the trend;
5. death, the completion of the trend.
3) Evaluation of the amplitude of price fluctuations in the current direction:
1. little change of course;
2. strong change of course.
The classification of TA. All the variety of techniques of technical analysis can be divided into two large ??????? graphical techniques and analytical methods:
Graphic technical analysis is an analysis of various market graphic models generated by certain laws of motion of the price of plots, with the aim of assumptions or change the likelihood of continuing the current trend. Postulates of this kind of technical analysis are listed below the basic concepts of technical analysis: the trend lines, levels of market support and resistance levels correction current trend.
There are two types of graphical models:
1. Models of fracture ?????????? generated graphs model, which under certain conditions, can anticipate the change of the current market trend. These include such models as the "head of the shoulders," "double peak", "double-base", "tri-peak", "triple-ground."
2. Models continue ?????????? generated graphs model, which under certain conditions, show that there is a possibility of continuing the current trend. Perhaps the tendency to develop too fast and is entered in the state perekuplennosti or pereprodannosti. Then, after an intermediate correction, it will continue its development in the direction of the previous trend. In this group, provide such models as the "triangle", "diamonds", "flags, pennants and others.
Each model has a specific mechanism for education and a graphical form. The dynamics of the volume of transactions is a factor in confirming the existence of a model. All models find an explanation in terms of the psychology of market participants. Despite the seeming simplicity of this method, it is one of the basic techniques of technical analysis, and on the effectiveness of the application shows good results. A major shortcoming of this method is that it is very subjective. Every technical analyst should be a good chartist (English chart? schedule), as well as any graphical model ???????? is formed at the conclusion of the current price trends and the emergence of the likelihood of continuing or breaking the current trend.
On the analytical methods include techniques that use filtering or mathematical approximation of the time series. In technical analysis as the basic time-series uses the ranks of the share price for a certain period of time, the volume of trade and the number of open positions.
The main tool is an indicator of analytical methods, which in turn is a set of functions from one or more of the basic time series with time-window. Indicators can be divided into five categories:
1. Indicators of the trend. These indicators include indicators that serve to measure the trend ¾ its strength and duration. A classic example trendopodtverzhdayuschih indicator was a "rolling average". The same class includes such well-known indicators like MACD, Directional Movement, Parabolic, and others.
2. Indicators of variability. Indicators for the second category are used for measuring the variability of prices up an asset base. Variability ¾ this notion, describing the amount of daily, independent of the main lines, the price fluctuations. Such indicators are particularly important for the analyst to change the term market trend, or a side trend. Signals such indicators that were built with a small time window allows log and leave the markets during the day. These indicators include: Chaikin's Volatility, Standard Deviation, Bollinger Bands.
3. Indicators point. Representatives of the categories used to measure the speed of price changes over time. This, in turn, Momentum Indicator, Relative Strength Index (RSI) and the Price Rate-Of-Change (ROC). Also, under certain conditions, can be used, and MACD. But nothing prevents the use of signals as indicators of the time to confirm the trend, and to predict the time it ends, that the majority of specialists and makes.
4. LEDs cycle. These indicators are used to identify the cyclical component, and their length. This is Fibonacci Time Zones, MESA Sine Wave Indicator, and others. These indicators work well only on the side trends. It is very important, these indicators for futures traders, who work in the commodity markets, corn sugar or oil - in markets with very high cyclical component.
5. Indicators of market forces. The fifth category used as a base of independent variables, or the volume of transactions, or the number of open positions. Indicators in this category, based on the volume of data sets, give signals the strength of the current trend. Indicators for this category are On Balance Volume, Volume Accumulation, and others.
Brief history of development of TA. History of Western technical analysis has little more than a century. In the early nineties the nineteenth century, the Wall Street Journal an article by Charles Dow, where he presented a set of principles, which, in his view, could enter into a transaction to buy and sell without much risk. They have also been formulated, and now has become a classic theory of the direction of motion stock market. The principles of this theory is now used in almost all modern methods of technical analysis implicitly. Charles Dow never wrote a book, limiting their editorial articles for the magazine Wall Street Journal. After the death of Doe was replaced by B. Hamilton, who article "The End of tide" has raised the reputation of charts during the stock crash of 1929, he summed up the situation and the main Dow theory in the book market barometer ", and in 1932 the publisher of stock byulleteny Robert Rea brought it to its logical conclusion in the book "Dow Theory."
Times of the Great Depression of the thirties were the golden age of stock charts. After the collapse of 1929, many analysts has been little work and a lot of free time, and they spent it on the discovery of new theories of exchange of knowledge. That decade was marked by publications such as the legendary dealer Shabaker, Rea, Elliott, Vaykoff, Gunn and others. Their study were in two different directions. Some (Vaykoff and Shabaker) viewed as a graphic chart recording the exchange of supply and demand. Other (Elliott and Gann) were looking for "secret order" on the stock exchange. Proceedings Ralph Elliott led to the wave theory, open to the technical analysis of the magic of Fibonacci numbers. The main tenets of this theory argue that the price dynamics of a market is developing wave and there are certain patterns in the education market waves. William Gann created a complex combination of geometric, algebraic principles, which traders have used successfully on emerging futures markets. It is legendary thirties have created an entire galaxy of stars and technical analysis is not a surprise - so much was the influence of the "Great Depression" by brokers and analysts that the development of analytical prediction had been the best effect.
In 1948, Edwards and Magee have published the book "The technical analysis of stock trends." There, they identified the models such as triangles, rectangles, "head and shoulders, and other graphical models, as well as the trend line, support and resistance. Almost all of the classic technical analysis of the figures were discovered in the first half of this century, but their authorship is difficult to establish.
Since the beginning of the war and the subsequent recovery of world economy in need as such technical analysis, and again there was no longer only in the early sixties with the advent of a new crisis. In this period were systematized the basic concepts and rules of technical analysis, but also developed algorithms that reduce the labor of basic techniques. This period includes the emergence on the American stock markets moving averages (MOP), which according to the market veterans were perenyaty from antiaircrafters, which in turn used them to laying on the aircraft. The founders of the exchange of MOP were Richard Donchian and Dzh.M.Hrest. Donchian was serving firm Merrill Lynch, he developed a method of stock market games based on several SS and Hrest was an engineer in the book "Miracle profitability early deals with shares, which became classics, he described the principle of the SS in relation to transactions with the shares.
With the advent of computers has become a technical analysis to be more matematizirovannuyu form, started with great speed to develop analytical methods that use mathematical aproksimatsiyu and filtering. By that time, the creation of Dzh.Vels Uaydlerom grid system that can detect trends and to determine the appropriateness of the speed of their work in their direction. Indicators per cent variation Williams, balance the volume of Joseph Granville has also been established and used for the first time at this time as many other indicators of the founders of which history is silent.
In the late 70's with such financial instruments to reduce the risk of futures and options. It should be noted, the practice of trade with empty baskets of rice (futures in Japanese) has been known to indigenous Japanese carriers have three hundred years ago.
The beginning of the eighties glorified the emergence of such names as John Murphy and Robert Prihter that honor belongs to systematize the methods and presentation of technical analysis as a separate application of science.
Nineties also brought its own contribution to the history of technical analysis, but no longer at the world level: since ancient times in history, there were the so-called "guru" - is the market cult figure who, by making a loud name on a few successful predictions began to circulate for a reasonable fee newsletters, which provide advice to investors to buy or sell any shares. Based on these recommendations have been different types of forecasting, ranging from analytical methods to ugadyvaniem in the form of clouds signs the purchase or sale. Gradually, some investors began to rely on these letters, then the entire market in the mass hysteria began to follow the visions. And as soon as this happened, then there is not predicted such a "specialist", the collapse (or growth). At the same time, thousands of market participants ??????????, and now "former Guru" disappear from the market. Such a definition with some adjustments to fit, and Elliott, and Gannu, and Murphy and many others. More information about this phenomenon can be found in a remarkable book, Alexandra Eldera "Trading for a living."
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