CHAPTER 1 – INTRO TO TECHNICAL ANALYSIS

Question 1

Define Technical Analysis (TA)

Answer 1

TA is the study of market action (MA), which consist of price, volume and open interest through the analysis of price chart and oscillators to forecast future price trends and patterns

Question 2

What are some key points of Technical Analysis (TA)? 8

Answer 2

 The study of market action is the study of human psychology, i.e. behavioral finance.
 Is actionable and shows you how to make money .
 Is not a “Holy Grail” and does not guarantee the making money in financial markets.
 Is an another very useful tool to “have in your toolbox.”
 Under certain market conditions these tools may not work (i.e. trading ranges and long-term forecasting).
 Market (prices) always lead fundamentals.
 Technical analysis measures the emotions present in all markets.
 Need to have a profound knowledge of TA to be a successful trader and gain actionable ideas to build a consistent trading system.

Question 3

What are the assumptions of Technical Analysis (TA)?

Answer 3

 Humans behave in a similar manner: history repeats, if not it rhymes.
 Prices are determined by supply and demand.
 Price discounts all information: records transactions of all market participants.
 Prices develop acknowledged (recognizable) patterns.
 Prices trend; “the trend is your friend”.
 Patterns and trends are fractal in time and size.
◦ Trends act similar over different periods of time, shorter trends make up longer trends.

Question 4

What do technical analysts believe in?

Answer 4

“the market is always correct.”

Question 5

What are the 2 major ways that technical analysis is being used?

Answer 5

Predictive: use the analysis to make predictions about future market moves
Reactive: used to react to particular market conditions to make their decisions.

Question 6

What is the main objective of technical analysts?

Answer 6

making money.