General Principles Of Technical Analysis

SCHOOL BEGINNINGS Trader Lecture 5. Technical analysis.

3.1. General principles

3.1.1. Essence of technical analysis

Technical analysis in general can be defined as a method of forecasting prices, based on mathematical, rather than economic layout. This method was created for purely applied purposes, the income at the beginning of the game in the securities markets, and then at the futures. All methods of technical analysis were created separately from each other, and only 70-years were combined into a single theory of general philosophy, axioms and fundamental principles.

Technical analysis - a method of predicting price movements through the consideration of the market for the previous periods. Practical use of technical analysis implies the existence of axioms.

Axiom 1. Movement of the market take into account all (or account for all prices). Any factor influencing the price (ie market price), - economic, political, psychological - previously taken into account and reflected in its schedule.

Axiom 2. Prices are moving direction.
This assumption was the basis for the establishment of the techniques of technical analysis. The main task of technical analysis is to determine the directions of movement in prices (or the trends or trends) for use in trade.

Identifying trends, which gives the Dow, as follows: in the ascending trend (bull trend) for each subsequent peak and decline in each successive higher than the previous. In other words, the bull trend is to be consistent with the contour curve of rising peaks and recessions. Accordingly, the downward trend (bearish trend) for each subsequent peak and decline will be lower than the previous one. This definition of trend is a fundamental and is the starting point of the analysis of trends.

There are three types of trends - bullish (upward movement of the price), bearish (downward price movement) and lateral (the price of almost not moving). All three types of trends do not occur in pure form, since the movement in a straight line on the price schedule can be found very rarely.

The trend is valid until not give obvious signals that she has changed.

Axiom 3. History repeats itself.
Analysts suggest that if a certain type of analysis employed in the past, it will work in the future, because this work is based on sustainable human psychology.

Technical analysis - the study the dynamics of the market, often through the schedules, to predict the future direction of price movement.

The term "market dynamics" includes three main sources of information in the possession of technical analysis, namely: price, volume and open interest (in relation to futures markets).

Formulate three postulates, which, as the three pillars, is a technical analysis:

Course (price) takes into account everything. Any factor influencing the price (economic, political or psychological) has already taken into account the market and included in the price. Therefore, all that is needed to predict - to examine the schedule price.
Movement of prices is subject to trends (direction of movement of prices). The main objective of the dynamics of price charts is to identify these trends in the early stages of their development and trade in accordance with their direction.
History repeats itself. Those rules, which operated in the past, act now, and will act in the future.

3.1.2. Three types of trends (trend):

"Bullish" - prices are moving up
"Bear" - the prices are moving downwards
Lateral (flat, whipsaw) - there is no specific direction of the price

The basic laws of motion price:
The current trend is more likely to continue than to change the direction of
The trend will move in the same direction until you weaken

3.1.3. Basic types of graphs

1. Linear - on a linear graph indicate only the closing price for each subsequent period. Recommended for short intervals (up to several minutes).
2. Schedule of segments (bars) - on the bar graph represent the maximum price (top center column), minimum price (the lower point bar), the opening price (dash left of the vertical bar) and the closing price (dash right of the vertical bar). Recommended for periods of 5 minutes or more.
3. Japanese Candles (constructed by analogy with bars).
4. Graphs of volume.

3.1.4. Dow Theory

Initially, the principles set forth by Charles Dow, were used for the analysis of them American-created index, industrial, and rail. But with the same success, most analytical findings can be applied and Dawe in the financial markets.

The main provisions of Dow Theory:

1. The indices take into account everything. According to Dow theory any factor that can in some way affect the demand or offer, has consistently reflected in the dynamics of the index. Of course, these events are unpredictable, however, they are immediately taken into account the market and affect the dynamics of the indices.

2. On the market there are three types of trends. When upward trend for each subsequent peak and decline in each successive higher than the previous. When downward trend for each subsequent peak and decline is lower than the previous one. When horizontal trends for each subsequent peak and decline is approximately the same level as the previous ones.
Dow also provides three types of trends: primary, secondary and minor. The most important, he gave it a primary or major trend, which has lasted more than a year, sometimes several years. A secondary or intermediate trend is a corrective to the basic trends and lasts normally from three weeks to three months. These interim amendments ranged from one to two-thirds (often half) the distance traveled by the prices during the previous (major) trend. Small or short-term trends last for no more than three weeks and are a short-term fluctuations in the intermediate trend.

3. The primary trend has three phases. Phase one, or the accumulation phase, when the most visionary and knowledgeable investors begin to buy, because All adverse economic information has already been taken into account market. The second phase occurs when the game are those who use technical methods are following the trends. Economic data is becoming more optimistic. The trend is in its third or final phase, when the operation enters the general public, and the market begins to boom, a heated media. Economic forecasts are optimistic. Increasing amount of speculation. That's something that informed investors that "accumulated" during izleta previous trend, when no one wanted to "accumulate" and start to "distribute". Trends come an end.

4. Indices should confirm each other. Here, Doe was referring to the industrial and railway Indexes. He believed that any important message to raise or lower rates in the market should be in the values of both indices.

5. The volume of trade must confirm the trend. The volume should grow in the direction of the main trends.

6. The trend is valid until not give obvious signals that she has changed.

3.1.5. Trend analysis. Key Concepts

Trend or a trend - a movement of prices in a given direction. In real life, no market is not moving in any direction is strictly straight. The dynamics of the market is a series of fortunes: the rise, the fall, then rise, then fall. That is the direction of the dynamics of these ups and downs form the trend of the market.

The basic rule: "Trend - your friend." Corollary: Do not work against the trend. "

Lines of Resistance (Resistance):
Connect the major peaks (peaks) market, can arise when more buyers either can not or do not want to buy this product at higher prices. The pressure exceeds the pressure of sellers by buyers as a result of the growth stops and is replaced by the fall

Line Support (Support):
Connect important minima (bottom) market arise when sellers more or can not or do not want to sell this product at lower prices. At this price level the desire to buy a strong and can resist pressure from the vendors. The drop is suspended, and prices begin to rise again.

In support of Perforation down the line it turns into resistance. With upwards of Perforation line resistance, it turns into a support.

Channel Lines:
If the prices fluctuate between two parallel straight lines (line feed), you can say that there are ascending, descending or horizontal channel.

CARLO, FOREXTRADER.RU
SUCCESSFUL SCHOOL Trader
trader_karlo@mail.ru