Technical analysis
Substantive provisions
Essence of the technical analysis.
The technical analysis as a whole can be defined, how a method of forecasting of the price, based on mathematical, instead of economic calculations. This method has been created for cleanly applied purposes, namely reception of incomes at game in the beginning on securities markets, and then and on future. All techniques of the technical analysis were created separately from each other and only in 70th years have been incorporated in the uniform theory with the general philosophy, axioms and main principles.
The technical analysis is a method of forecasting of the prices by means of consideration of schedules of movements of the market for the previous periods of time.
Practical use of the technical analysis means existence of axioms.
Axiom 1. Movements of the market consider all (or the prices consider all).
Any factor influencing the price (for example, a market price of the goods), - economic, political, psychological – is in advance considered and reflected in its schedule.
Axiom 2. The prices move targeted.
This assumption became a basis for creation of all techniques of the technical analysis. The main task of the technical analysis is definition of directions of movement of the prices (or tendencies or trends) for use in trade.
Definition of tendencies which gives Dow, looks as follows: at the ascending tendency (the bull trend) each subsequent peak and each subsequent recession above previous. In other words, at the bull tendency should be a curve with consistently increasing peaks and recessions. Accordingly, at the descending tendency (the bear trend) each subsequent peak and recession will be below, than previous. Such definition of the tendency is establishing and serves as a starting point in the analysis of tendencies.
There are three types of trends – bull (movement of the price upwards), bear (movement of the price downwards) and lateral (the price practically does not move). All three types of trends meet not in the pure state as movement « on a straight line » on the price schedule can be met very seldom.
The tendency operates until will submit obvious signals that it has changed.
Axiom 3. The history repeats.
Analysts assume, that if certain type of the analysis worked in the past will work and in the future as this work is based on steady human psychology.
The technical analysis is subdivided into two methods:
Graphic
Mathematical - the computer analysis.
Graphic method
The method is based on the analysis of price schedules - drawings on the schedule of change of the price for the certain time interval. Generalized name CHARTS.
Time intervals:
1. A monthly grouping of given – Monthly (M)
2. Week Weekly (W)
3. Day time Daily (D)
4. Intraday time data:
Hour Hourly (H)
- Half-hour Semihourly
15-Minute Quarterly
5-Minute
Types CHARTS:
a) Line – linear
b) Bar – for each period of a grouping four prices are defined:
High (top price); Last, Close (the price of closing); Open (the price of opening); Low (the lowest price)
c) CandleStick (the Japanese candles) – if the price of opening below the price of closing, a body of a candle white. If the price of opening above the price of closing – a candle dark
The line which the price cannot punch upwards, refers to as a line of resistance (Resistance – res), and a line which the price cannot punch downwards, refers to as a line of support (Support – sup). These lines are drawn either on ends Bar or under the prices of opening (Open), closings (Close). They enable purchases-sales, anticipate events, and allow distinguishing a situation in the market.
The channel formed as a result of carrying out of parallel lines (sup, res), is an optimum range of trading changes. The direction of the channel downwards or upwards defines the tendency of the market (Trend). At the ascending tendency a trend raising, at descending – going down.
Figures (Reversal Patterns)
Head and Shoulders - a head-shoulders.
Left the Head Right the Line
Shoulder a shoulder of a neck
Left the Head Right the Line
Shoulder a shoulder of a neck
Breakdown by a line of a neck is a signal of the beginning of strong movement of the market against the previous tendency. Usually the prices pass distance from a point of breakdown not less than distances from top of a head up to a line of the neck, measured on verticals.
Double Top - double top (bottom)
The first bottom; the second bottom; a line of a neck.
Triple top (bottom) – threefold top (bottom)
The first second third line
Top top top of a neck
Figures of continuation (Continuation)
Flag
Pendant
Wedge
Triangles
H–Price base.
The price punches at least on price base H. In a triangle not less than four waves.
Math method
TECHNICAL INDICATORS – mathematical functions constructed on the basis of the price or volumes.
Indicators can be divided on two groups:
confirm tendencies;
prompt turns of trends
Indicators of tendencies:
Sliding averages (Moving Average)
Sliding averages is the tools of the technical analysis smoothing fluctuations of the studied size by averaging on some historical period. Serve for revealing trends. Lack of sliding averages is delay of the average values in relation to a rate of the studied size. Sliding averages differ with a method of averaging.
Simple Movings (Simple Moving Average)
Pays off by summation of the prices of closing for the certain number of the individual periods (bars or candles).
Р1, Р2, Р3, Р4, Р5... Р10
Рi - the prices of closing of bars or candles
МАn = (Р1 + Р2 + Р3 +... + Рn)/n
Where n - the time period of calculation sliding average.
This sliding average refers to simple and is used more often. It possesses inertness. Two sliding averages usually use:
МА9 = 9
МА14 = 14,
Where 9 and 14 – the time period.
The point of crossing of two Moving МА9 and МА14 is a signal of change of the tendency.
Lack is a regular delay of a signal.
Advantage – is easy to define a direction of a trend, also it is possible to use them as lines of support and resistance.
If we study all three trends, we choose threefold Moving:
4– 13 – 34
Weighed Movings (Weighted Moving Average)
Р1, Р2, Р3
Exp. Movings (Exponential Moving Average)
Р1, Р2, Р3
Most close reflect the prices, but badly work in consolidation.
Oscillators
The basic signal at oscillators is divergence.
Divergences
Situation when the direction of movement of the price and technical indicators does not coincide. Divergence it is considered a strong attribute of a turn of a trend. Distinguish divergence bull and bear. Examples divergence are resulted in further.
Oscillator (Price Oscillator - OSC)
One of the most widespread methods of the technical analysis. Calculate simple sliding averages with long and short the periods of averaging to reveal natural fluctuations by means of averaging with the short period, on a background of more long-term tendencies. Testifies to resale when the average with the short period is less a than average with the long period and on the contrary.
Gives a signal to purchase when the size of parameter OSC exceeds the established percent S from long period an average, and a signal to sale at negative OSC.
Parameters: the periods of averaging n> m, factor S.
The formula:
OSC = МАn - МАm
Buy: OSC> S*Man
Sell: OSC <-S*MAn
It is necessary to consider the following moments at use oscillator:
Oscillators are used, as a rule, in trend less sites of the market. At the developed trend in attention signals on a trend (are accepted only i.e. at an ascending general trend - only signals on purchase).
Crossing with a zero line as a signal is weak and takes into consideration only in the event that does not contradict the basic tendency of movement of the price.
Critical values oscillators speak only that current change of the prices occurs too quickly and, hence, it is possible to expect fast correction. From this also that oscillator can reach a zone over-long before the termination of a trend (if in the beginning of a trend of the price changed considerably), however, follows, and long to remain there in process of the further development of a trend. Hence, especially strong signal arises in the event that in a zone over-oscillator makes some fluctuations and only then leaves it.
Essence of the technical analysis.
The technical analysis as a whole can be defined, how a method of forecasting of the price, based on mathematical, instead of economic calculations. This method has been created for cleanly applied purposes, namely reception of incomes at game in the beginning on securities markets, and then and on future. All techniques of the technical analysis were created separately from each other and only in 70th years have been incorporated in the uniform theory with the general philosophy, axioms and main principles.
The technical analysis is a method of forecasting of the prices by means of consideration of schedules of movements of the market for the previous periods of time.
Practical use of the technical analysis means existence of axioms.
Axiom 1. Movements of the market consider all (or the prices consider all).
Any factor influencing the price (for example, a market price of the goods), - economic, political, psychological – is in advance considered and reflected in its schedule.
Axiom 2. The prices move targeted.
This assumption became a basis for creation of all techniques of the technical analysis. The main task of the technical analysis is definition of directions of movement of the prices (or tendencies or trends) for use in trade.
Definition of tendencies which gives Dow, looks as follows: at the ascending tendency (the bull trend) each subsequent peak and each subsequent recession above previous. In other words, at the bull tendency should be a curve with consistently increasing peaks and recessions. Accordingly, at the descending tendency (the bear trend) each subsequent peak and recession will be below, than previous. Such definition of the tendency is establishing and serves as a starting point in the analysis of tendencies.
There are three types of trends – bull (movement of the price upwards), bear (movement of the price downwards) and lateral (the price practically does not move). All three types of trends meet not in the pure state as movement « on a straight line » on the price schedule can be met very seldom.
The tendency operates until will submit obvious signals that it has changed.
Axiom 3. The history repeats.
Analysts assume, that if certain type of the analysis worked in the past will work and in the future as this work is based on steady human psychology.
The technical analysis is subdivided into two methods:
Graphic
Mathematical - the computer analysis.
Graphic method
The method is based on the analysis of price schedules - drawings on the schedule of change of the price for the certain time interval. Generalized name CHARTS.
Time intervals:
1. A monthly grouping of given – Monthly (M)
2. Week Weekly (W)
3. Day time Daily (D)
4. Intraday time data:
Hour Hourly (H)
- Half-hour Semihourly
15-Minute Quarterly
5-Minute
Types CHARTS:
a) Line – linear
b) Bar – for each period of a grouping four prices are defined:
High (top price); Last, Close (the price of closing); Open (the price of opening); Low (the lowest price)
c) CandleStick (the Japanese candles) – if the price of opening below the price of closing, a body of a candle white. If the price of opening above the price of closing – a candle dark
The line which the price cannot punch upwards, refers to as a line of resistance (Resistance – res), and a line which the price cannot punch downwards, refers to as a line of support (Support – sup). These lines are drawn either on ends Bar or under the prices of opening (Open), closings (Close). They enable purchases-sales, anticipate events, and allow distinguishing a situation in the market.
The channel formed as a result of carrying out of parallel lines (sup, res), is an optimum range of trading changes. The direction of the channel downwards or upwards defines the tendency of the market (Trend). At the ascending tendency a trend raising, at descending – going down.
Figures (Reversal Patterns)
Head and Shoulders - a head-shoulders.
Left the Head Right the Line
Shoulder a shoulder of a neck
Left the Head Right the Line
Shoulder a shoulder of a neck
Breakdown by a line of a neck is a signal of the beginning of strong movement of the market against the previous tendency. Usually the prices pass distance from a point of breakdown not less than distances from top of a head up to a line of the neck, measured on verticals.
Double Top - double top (bottom)
The first bottom; the second bottom; a line of a neck.
Triple top (bottom) – threefold top (bottom)
The first second third line
Top top top of a neck
Figures of continuation (Continuation)
Flag
Pendant
Wedge
Triangles
H–Price base.
The price punches at least on price base H. In a triangle not less than four waves.
Math method
TECHNICAL INDICATORS – mathematical functions constructed on the basis of the price or volumes.
Indicators can be divided on two groups:
confirm tendencies;
prompt turns of trends
Indicators of tendencies:
Sliding averages (Moving Average)
Sliding averages is the tools of the technical analysis smoothing fluctuations of the studied size by averaging on some historical period. Serve for revealing trends. Lack of sliding averages is delay of the average values in relation to a rate of the studied size. Sliding averages differ with a method of averaging.
Simple Movings (Simple Moving Average)
Pays off by summation of the prices of closing for the certain number of the individual periods (bars or candles).
Р1, Р2, Р3, Р4, Р5... Р10
Рi - the prices of closing of bars or candles
МАn = (Р1 + Р2 + Р3 +... + Рn)/n
Where n - the time period of calculation sliding average.
This sliding average refers to simple and is used more often. It possesses inertness. Two sliding averages usually use:
МА9 = 9
МА14 = 14,
Where 9 and 14 – the time period.
The point of crossing of two Moving МА9 and МА14 is a signal of change of the tendency.
Lack is a regular delay of a signal.
Advantage – is easy to define a direction of a trend, also it is possible to use them as lines of support and resistance.
If we study all three trends, we choose threefold Moving:
4– 13 – 34
Weighed Movings (Weighted Moving Average)
Р1, Р2, Р3
Exp. Movings (Exponential Moving Average)
Р1, Р2, Р3
Most close reflect the prices, but badly work in consolidation.
Oscillators
The basic signal at oscillators is divergence.
Divergences
Situation when the direction of movement of the price and technical indicators does not coincide. Divergence it is considered a strong attribute of a turn of a trend. Distinguish divergence bull and bear. Examples divergence are resulted in further.
Oscillator (Price Oscillator - OSC)
One of the most widespread methods of the technical analysis. Calculate simple sliding averages with long and short the periods of averaging to reveal natural fluctuations by means of averaging with the short period, on a background of more long-term tendencies. Testifies to resale when the average with the short period is less a than average with the long period and on the contrary.
Gives a signal to purchase when the size of parameter OSC exceeds the established percent S from long period an average, and a signal to sale at negative OSC.
Parameters: the periods of averaging n> m, factor S.
The formula:
OSC = МАn - МАm
Buy: OSC> S*Man
Sell: OSC <-S*MAn
It is necessary to consider the following moments at use oscillator:
Oscillators are used, as a rule, in trend less sites of the market. At the developed trend in attention signals on a trend (are accepted only i.e. at an ascending general trend - only signals on purchase).
Crossing with a zero line as a signal is weak and takes into consideration only in the event that does not contradict the basic tendency of movement of the price.
Critical values oscillators speak only that current change of the prices occurs too quickly and, hence, it is possible to expect fast correction. From this also that oscillator can reach a zone over-long before the termination of a trend (if in the beginning of a trend of the price changed considerably), however, follows, and long to remain there in process of the further development of a trend. Hence, especially strong signal arises in the event that in a zone over-oscillator makes some fluctuations and only then leaves it.
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