Technical Analysis can be referred to as the study of market price activity. It can also be referred to as a way to monitor movement of price data, supply and demand, market trends and some others.
Technical Analysis is an approach to market forecasting that involves studying current and historical market price and volume. Without a good knowledge historical and current market activity, it is impossible to make good trading decisions.
Technical Analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.
Technical Analysis seeks to express crowd psychology/behaviour in a simple, clear and definite format usually through charts.
Some of those questions facing a chartist are:
- How is the crowd behaving?
- How am I going to position myself to take advantage of their behaviour?
What Is A Chart?
A Chart is a processed information in the form of tables, graph, pictorials or diagram.
Examples are; Bar Chart, Histogram, Graphs and Pie Chart among others.
The behavior of all market participants is reflected in charts. Technical Analysis is an understanding of charts.
Technical Analysis Tools:
There are many tools used in technical analysis and all of them are presented in the form of charts. For the purpose of this study we will only be looking at a few.
These Tools if used properly can be profitable in the market.
3 M’s of trading:
- Mind
- Method
- Money
Mind:
Are you ready to trade? Psychological balance holds the key to success.
- Be focused
- Be relaxed
- Don’t get carried away in the market
- Know who you are
- Know what you want to do
- Conquer fear
- Conquer greed
- Conquer ignorance
- Be patient, market will come to you
- Be at peace within
Method:
- These are the technical analysis tools we desire to use.
- Strategies that are proven to win in the market.
- As you grow develop your own strategy
- Be ready to read, research
- Knowledge rules in the market
Money:
- Money management.
- How do I deploy money in the market?
- Risk management.
- Be ready to loose, so that you can gain.
- Your first loss is your best loss.
- Preserve your money, so that you can survive for the long run in the market.
- Be very conversant with your broker interface.
- If you a not comfortable with your broker software.
- Be free to change broker or open another account with a different broker.
- Be relaxed. If you are not relaxed you will make mistakes.
Mistakes:
You can buy what you don’t want to buy. You can sell what you don’t want to sell. This is the reality. I have made many such mistakes. Market trades are irrevocable. While trading, be focused avoid any distraction.
Market Trends:
What is a Trend? A Trend represents the direction in which a market is going. Market price will move in a zig-zag fashion, creating peaks and troughs or tops and bottoms. The Trend will be determined by the overall direction of this tops and bottoms.
- Uptrend – Bullish.
- Downtrend- Bearish.
- Ranging Market- Sideways Market- Indecisive or Consolidating.
Trend Lines:
Trends are illustrated using trend lines. Trend Lines make prices movements very clear.
Trend Lines help to identify various chart patterns, Help predict strength of current trend and a possible reversal.
Price Charts:
These are charts that show price movements over a period of time.
Time Frame could be: minutes, hourly, daily, weekly, monthly or yearly. The time frame can be in any time period.
The chart could be
- Line Chart
- Bar Chart
- Candlesticks
Open-High-Low-Close or Bar Charts:
The chart is made up of a series of vertical lines that represent each price point.
The bar has a vertical line representing High and Low.
Candlesticks:
Similar to bar charts, but differs in the way it is visually constructed. A major difference is in the positioning of the open and close price.
It may be formated to different colours in proprietary software
A single candle stick does not tell a full story. They tell their story with a combination of many candle sticks to form a pattern.
Examples of candle stick are: Harami, Doji, hanging man, hammer, shooting star, cross, spinning top. Etc