CHAPTER 1 – INTRO TO TECHNICAL ANALYSIS Flashcards
Define Technical Analysis (TA)
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
What are some key points of Technical Analysis (TA)? 8
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.
What are the assumptions of Technical Analysis (TA)?
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.
What do technical analysts believe in?
“the market is always correct.”
What are the 2 major ways that technical analysis is being used?
Predictive: use the analysis to make predictions about future market moves
Reactive: used to react to particular market conditions to make their decisions.
What is the main objective of technical analysts?
making money.