Technical Analysis abv:TA is study of "market action" (price action) to forecast future price with charts being used as a primary tool.
Technical Analysis is based on three premises
- Price discounting is all known information.
- Prices move in some Trend. (Reject Random walk theory, Discussed later)
- History repeat itself or Future is nothing but known past.
Price discounting is all known information
is the most important premises without which understanding of other two premises becomes difficult. price discounting is all known information means that price reflect true state of market. Shift in Demand and supply of a commodity affect price as well as volume then market always tend to move toward a stable state or stable price in other words a statistician would say "data tend to move to a central value" but a technician would rephrase this statement "if prices are rising then demand must exceed supply and fundamentals must be bullish likewise if prices are falling then supply must exceed the demand and market fundamentals must be bearish. this assumption also pertains to Efﬁcient Market Theory
Prices move in some Trend
Consider Price as force and Volume as mass, this premises exactly inherent Newton's first law of motion so more specifically a trend would continue until a reversal comes and change its direction, here trend mean any time span.
History repeat itself
Human factor is key factor in previous two premises too but here this assumption "history repeat itself" takes on more into the subject as human are greedy and afraid, they intend to repeat those actions that also worked in their past and don't repeat those actions (mistakes) if they never worked. you may relate this phenomena to "behavioral learning theory"
How to Add Contents (outline)
This course is being developed by consulting popular books available on TA, kindly be very specific about course outline, before adding any content or expending outline make sure your purposed content might be subheading of already created outline. Many professional certification on the subject follow standard outline.
Certainly this course is being developed to get a better understanding of technical Analysis NOT for improving your skills to invest or trade neither this course should claim such a thing. Technical Vs Fundamental analysis OR which indicator is best is NOT the theme of this course. however a fair comparison of topics (off the subject) maybe very much welcomed.
How to improve
Feel free to edit or improve this course, currently writing mathematical or algebraic expression is very much need anyone who uses scientific word processor or statistical package may include formulas or charts.
Submit:your own created custom indicators, Trading systems, Rule base trading, or your own created strategy or test already explored indicators /systems also do submit system testing results.
Open-source library of technical analysis functions. Available for Excel, Java, .NET, Perl, Python and C/C++
Role of Technical Analysis
Applying TA in Different Markets
the recognising of different trend patterns is the application of Technical analysis.
Random Walk Theory
this is the idea that stocks take a random and unpredictable path. A follower of the random walk theory believes it's impossible to outperform the market without assuming additional risk. Critics of the theory, however, contend that stocks do maintain price trends over time - in other words, that it is possible to outperform the market by carefully selecting entry and exit points for equity investments
Peak and Trough Analysis
Criticism of Dow Theory
Types of Charts
There are three types of charts commonly used by chartists: candlesticks charts bar charts and line charts.
the stock markets have two major trends i.e bullish and bearish. when buying is strong enough to lack sellers and takes price to higher levels the trend is said to be bullish and vice versa bearish trend.
support and resistance
Loosely, a support price is a "floor" on the price of security. When reviewing a chart of the price of the security over time, the security's price appears to have a minimum value - the price appears to bounce once it approaches the same price at several points in time.
Technical analysis are that the support price is a lower bound for the security's value. As the price approaches the support level, investors recognize the inherent value of the stock due to the value of its assets, earnings, or other issues. Psychologically, there is no way the value of the security should be that low. The support price is where buyers get eager to buy and buys at huge volume which causes stop to the down price movement.
If the value of the security ever falls below this support level, a breakout is said to occur. At this point, technical analysts would argue that, given the floor no longer remains, the market psychology has changed and the security will continue to fall. A piercing of the support level is viewed as a bearish signal to the market. submitted by nitin aneja
vice versa of support
Drawing The Trendlines
the line connecting the troughs in an uptrend is called the bullish trend line and the line connecting crests in and downtrend is the bearish trendline. a trend must significantly touch at least 3 linear crests or troughs. a trend shall not be thought to be reversed untill and unless it breaks up with a significant volume.
Types of Patterns
there are two types of patterns
the mode at which price starts to continue moving in opposite direction are reversal patterns and when prices show a little correction to a trend and start moving in the same trend are the continuation patterns. submitted by Nitin aneja, firstname.lastname@example.org
there are some common patterns called head and sholders and double top.
these patters compromises of discounts and premium in prices.
when buyers and sellers are not enough to take the prices to one direction there is doubt in the investors. the fight betwen bull or bear makes a patterns having one bullish or bearish trend line. triangle with one bullish trendline and a resistance is called descending triangle, a triangle with one bearish trend line and a support is called a ascending triangle and the triangle formed by connecting bullish and bearish trendline is called symmetrical triangle. submitted by Nitin aneja, email@example.com
Volume and Open Interest
Put Call Ratio
Averages versus Oscillators
Point and Figure Charting
List of Technical Indicators
Alternate Technical Indicators
Harami Candlestick Pattern
Engulfing Candlestick Pattern
Morning Star Pattern
Evening Star Pattern
Elliott wave Theory
Season and Time Cycle
Long Term Charts
Short Term Charts
Filtering Out Cycles
Stock Market Cycle
Basics of Building Trading Systems
Well all system flavors will share
- place to trade (market)
- your knowledge you using how to buy,sell (algorithms,technical analisis,or just intuition)
- periode of time
- strategie how to trade.
- platform to operate
- signal layer status
Principles of Trading System Design
Principles of your strategie should be aligned with your Trading System design
- Principles in a finance point of view
- type of investment
- level of the automatisation
- Principles in a system point of view
- classic approche
- AI. approche
- unique approche