Principles of Technical Analysis

What is a technical analysis?

Technical analysis is a price movement which is forecasted for the nearest period of time. Technical analysis is based on the analysis of price changes in the past. To obtain a stable profit, it is necessary to determine the current trend and close the trading position for it.

Principles of technical analysis

When forming prices, all the factors that somehow may influence their formation are taken into account. All these aspects are necessarily taken into account by the market, and initially included in the exchange value.

Price moves according to some trends
Price changes are not random, but they move according to certain patterns.

All price movements tend to repeat
Price fluctuations may reflect the current market sentiment.

Key Concepts of Technical Analysis

Trend is a direction in which the price moves.

There are three main types of such directions:

"Bullish" trend
Such a trend means that the upward price movement is always greater than the downward price movement.

"Bearish" trend
The main condition of this trend is that the downward price movement exceeds the upward price movement. This trend has a cyclicity of low and high values.

Sideways trend (Flat)
There is no price movement. Sustained flat indicates that soon a big jump in prices will happen on the market.

This suggests that if there are trends, then the basic laws of movement may be applied to them:

The active trend in the market will continue to move. In most cases, the trend will continue to move until it becomes weaker.

Classification of Technical Analysis Methods.

Types of Charts

Linear This chart only shows the closing price for each subsequent period.

Japanese candlesticks. The rectangle between the opening price and the closing price is the body of a candlestick. The lines coming from this body to the highs and lows of the price is a shadow.

Bar chart (bars) This chart shows the maximum and minimum price, the opening price and the closing price.

Patterns of Technical Analysis

Confirming the trend reversal

Head-and-Shoulders Pattern
Triple and Double Top/Bottom Pattern

Confirming the continuation of trend

Flag Pattern
Pennant Pattern

Confirming the possibility of both a reversal and a continuation of trend

Converging Triangles Pattern
Divergent Triangles Pattern