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 technical analysts: candlesticks charts, bar charts, and line charts.
The less common chart types may provide information that isn't obvious in a bar or candle chart. For example, a Heikin Ashi chart can sometimes make the price trend obvious, while on the bar chart trend is ambiguous. Many of the online charting platforms offer Heikin Ashi, Renko, Kagi, Point & Figure, and others, in addition to the common chart types.
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
Support and resistance (S/R) levels occur when buyers and sellers come into balance with each other.
Support occurs when sellers are unable to push prices lower. Resistance occurs when buyers are unable to push prices higher.
Technical analysts pay attention to support and resistance levels because there is a high probability that price behavior will change when an S/R level is reached.
Note that support and resistance occurs along horizontal lines, at a given price level. Quite often S/R will occur at round-numbers like 100 or 1400.
S/R can also be found along slanted lines, which are usually referred to as trend lines or channel boundaries.
Loosely, a support price is a "floor" on the price of a 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 shows 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 stock, however, the resistance price is when the sellers are eager to sell. It is recommended that stock be bought and sold at support.
It is recommended that stock be sold or shorted at the resistance
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
Reversal patterns tend to occur when a price trend has reached its end.
These patterns often appear as sideways movements as buyers and sellers struggle for dominance of the price trend.
Trend traders can use reversal patterns as a warning sign that the trend may be over.
To a counter-trend trader, the reversal pattern is a sign that it may be time to enter the market for a new trade.
From a visual perspective, some of the Japanese Candlestick reversal patterns are easier to spot than patterns like the head and shoulders.
Common Reversal Patterns
These are a few of the more common reversal patterns:
- head and shoulders.
- double top/bottom
- triple top/bottom
Parabolic Reversal Pattern
Parabolic moves occur when price climbs relentlessly higher, with the rate-of-climb continuously increasing.
In other words, price forms a curve which becomes steeper and steeper as the price movement continues higher.
Ultimately, a parabolic move becomes essentially vertical as frantic buyers fight to enter the market at any price.
When the vertical move exhausts itself, price tends to collapse dramatically, giving us the parabolic reversal.
Continuation patterns typically occur as price consolidates, or rests, after making a big move.
While the price action pauses, time continues to elapse. Because of this effect, continuation patterns often appear on a chart as mostly sideways moves.
In contrast to reversal patterns, a continuation pattern suggests that price is likely to continue in the direction of the trend, once the consolidation is complete.
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
The Elliott Wave (EW) principle is a form of technical analysis that traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors.
The general guidelines for using EW are:
1. When price is moving in the direction of the dominant trend, the overall movement will subdivide into 5 separate waves
2. When price is moving counter to the dominant trend, the overall movement will subdivide into 3 separate waves
These 5-wave and 3-wave patterns can be seen in all timeframes
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