| Technical analysis is concerned with
what has actually happened in the market, rather than
what should happen. A technical analyst will study the
price and volume movements and from that data create
charts (derived from the actions of the market players)
to use as his primary tool. The technical analyst is
not much concerned with any of the “bigger picture”
factors affecting the market, as is the fundamental
analyst, but concentrates on the activity of that instrument’s
market.
Technical analysis is based on three underlying principles:
1. Market action discounts everything
This means that the actual price is a reflection
of everything that is known to the market that could
affect it, for example, supply and demand, political
factors and market sentiment. The pure technical analyst
is only concerned with price movements, not with the
reasons for any changes.
2. Prices move in trends. Technical analysis is used
to identify patterns of market behaviour which have
long been recognised as significant. For many given
patterns there is a high probability that they will
produce the expected results. Also there are recognised
patterns which repeat themselves on a consistent basis.
3. History repeats itself. Chart patterns have been
recognised and categorised for over 100 years and
the manner in which many patterns are repeated leads
to the conclusion that human psychology changes little
with time.
List of categories of the technical analysis theory:
· Indicators
(Oscillators, eg: Relative Strength Index RSI)
·
Number theory (Fibonacci numbers, Gann numbers)
·
Waves (Elliot wave theory)
·
Gaps (High-Low, Open-Closing)
·
Trends (Following Moving Average)
·
Chart formations
(Triangles, Head & Shoulders, Channels)
|
