Stock analysis. Technical analysis. Happy investing everyone

Hello, dear readers of the blog site! This article will introduce you to technical analysis— the most effective tool for predicting price behavior.

You will learn why the vast majority of traders use technical analysis in stock trading. Technical analysis — a set of tools for predicting price changes based on historical data. For analysis, indicators, various graphical constructions on the chart and volume are used.

The basic postulate of technical analysis is: the price takes everything into account. All economic and macroeconomic events, market expectations and any other news are already included in the price. At first, it is difficult and uncomfortable for beginners to come to terms with this postulate, but it is so. That is why, in technical analysis, work is carried out exclusively with the price chart, without taking into account any fundamental and economic data.

The main emphasis when predicting the behavior of an asset in the future is on visual work with the price chart. This is connected with another postulate: history repeats itself.

Traders analyze the chart and look for repeating patterns that can be used to predict where the price will go next.

Depending on the tools and methods used, technical analysis can be divided into subgroups:

candlestick analysis;
figure analysis;
analysis using indicators;
wave analysis;
volume analysis.

All subgroups can act separately or complement each other. It is not uncommon to see traders using different analysis methods at the same time.

Candlestick analysis

It is called candlestick because the chart is depicted in the form of Japanese candles. This method was invented by Japanese rice traders in the 18th and 19th centuries. There are many candlestick patterns that can tell a trader about an upcoming market reversal or continuation of movement.

For example, there is this model:

Learn to trade. Go ahead.

Notice how, after non-stop growth, a black candle appears with a long upper shadow. This model warns the trader that the buyer’s strength is running out, and it’s time to take a closer look at sales. The market begins to fall and completely covers the previous growth.

Figure Analysis

They have very good predictive power for future price behavior. Using them you can find out quite accurately where the price will go, which is very important when closing a transaction.

Example of a descending triangle pattern:

Descending triangle figure

Positions when trading using technical analysis figures are opened after a breakout. We strongly recommend that you pay attention to the pattern analysis. With their help you can trade very successfully.

To identify shapes, you can use a program that will detect them automatically. This program is called . Install it and it will give you signals when there are good times to open a trade.

Price analysis using indicators

This analysis uses technical indicators that are available in every trading terminal. In the most famous trading platform, indicators are very conveniently divided into groups:

Groups of indicators in the MetaTrader trading terminal

The screenshot shows indicators from different groups. The role of a trend indicator is , the oscillator is , and volumes are also presented.

Beginners make a big mistake when they use too many indicators on the chart. This looks terrifying :)

Agree that it is very difficult to analyze a chart when the price is not visible due to such an abundance of indicators. This comes from uncertainty in trading. Most beginners think that the more indicators on the chart, the more accurately they can predict the price. This is wrong.

A large number of indicators significantly complicates visual analysis. All indicators contradict each other, and there is nothing left in the head but porridge. We recommend that you do not use too many indicators. One from each group is sufficient.

Wave analysis

A separate group are the so-called “wave traders” - traders who use the Elliott wave theory as the basis of their analysis. According to this theory, the market moves in cycles and has a certain wave structure that always repeats itself.

Elliott waves

The main difficulty of this type of analysis is that it is difficult for a trader to determine which wave the market is in at the moment. The theory of waves is quite complex and involves different interpretations.

Using volume analysis, traders try to determine the prices at which the volumes of large trading participants passed. There are different types of volume analysis, but the most popular is cluster analysis.

Volumes are collected into clusters according to certain configurable parameters. As you have already noticed, in this type of analysis, volumes are displayed not in the usual vertical form, but in a horizontal one.

Which analysis to choose is up to you, but we recommend studying everything and then deciding what is closer to you.

If you have questions, welcome to the comments :)

Good luck in trading!

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What is technical analysis? Something without which it is impossible to predict price movements. For several hundred years now, it is thanks to him that millions of traders pretend to be smart and try to understand where the price will go.

How else? If you're a rice trader on an ancient stock exchange, you need a way to predict when you can profit and when you should avoid the market. And it doesn’t matter that it’s the 18th century, the toilet is on the street, and there are still 200 years before the invention of the telephone.

The first obstacle – the word “technical” – often scares away. The name is very unfortunate. Because when you dig under the hood of a car, isn’t this less of a “technical analysis” of a certain mechanism? He is the one.

But with technical analysis in binary options, forex or the stock market, everything is different. Here the analyst works with the price movement according to the chart and learns to find all the necessary patterns of this process.

In the West they are also called chartists, from the word “chart” - graph. In general, replace the word “technical” with “graphical” and it will be less scary.

Technical analysis is when you poke a pen into the screen (just kidding).

Why does technical analysis work at all? How can lines on a chart determine price movement? All that is on the chart is just the balance of supply and demand. When demand greatly exceeds supply, or vice versa, trend.

In other words, in technical analysis we do nothing more than study the life of the market, its emotional state, optimism and pessimism of traders.

So technical can be safely replaced with “behavioural”, “graphic” or even “emotional”. And whoever came up with the idea of using “technical stuff” to scare newcomers should be spanked.

History of technical analysis

This is a much older thing than you might imagine. For example, some provisions of technical analysis were developed by Joseph de la Vega in the 17th century for trading in the Dutch markets.

In the 18th century, Homma Munehisa, a Japanese rice merchant, developed what would become modern Japanese candles. Just imagine - these candles have been working for over 200 years.

In the 1920s, Richard Schabacker published several books on technical analysis, which developed the work of Charles Dow and Peter Hamilton in their books “Stock Market Theory” and “Technical Analysis of Markets.”

Finally, in 1948, Robert Edwards and John Magee published the legendary book “Technical Analysis of Stock Trends,” which is still being republished by Amacom and has taken pride of place in my electronic library.

Early technical analysis was based exclusively on graphical methods, since computers and statistics were, to put it mildly, strained. And Charles Dow – he actually started with point-tac-toe charts.

At the end of the 19th century, Charles Dow developed what was then called "" and which became the basis for modern technical analysis. The Dow Theory still works today, just as it did on day one. , William Gunn, Richard Wyckoff - all these guys at the beginning of the 20th century created something that is still used today. Over the past decades, many new technical tools and theories have emerged as computer technology has made incredible leaps forward.

Industry

The main industry organization is the International Federation of Technical Analysts (IFTA), of which, by the way, he was chairman for several years. In the USA there is the Association of Technical Analysts (Market Technicians Association, MTA) and the American Association of Professional Technical Analysts, AAPTA.

There are similar organizations in the UK, Canada, Australia, etc. You can also take the MTA's 3-level Chartered Market Technician (CMT) exam.

Basics of Technical Analysis

Technical analysis is very multifaceted. These are charts and models, technical indicators and oscillators, a combination of various techniques and methods. This is volume data. But in all its diversity, there are only three key postulates:

all factors influencing the price are already included in the schedule;
the price always moves in trends;
history repeats itself.

Let's go over them.

Everything is included in the price

The price and its movement, which we see on the chart, already contain all the factors that influenced it.

That is why it is possible to predict the price movement of FB (Facebook shares) without having the slightest idea about the economic state of the company, its balance sheet, what its financial indicators are.

In fact, the price includes the ratio of supply and demand for a certain asset, be it a stock or a currency pair - and this, it would seem, is enough for a technical analyst.

However, we must strive for universality. It is important to combine methods. It is not necessary to delve into the depths of fundamental analysis, but you need to know what important news is coming out today.

This is what different ones are used for. One of them is located under my . News with “three heads” usually gives the market an impulse that is very difficult to predict with “naked” technical analysis.

The price is trending

Second important aspect. The price, one way or another, always moves in a certain, obvious direction - a trend. It is on trends that money is made. That is why all these proverbs in books like “trend is your friend”, etc.

The vast majority of strategies are based on trends. Moreover, each trend consists of small microtrends. But we'll talk about this in more detail a little later.

History repeats itself

What happened before will happen again. This is why candlestick patterns and reversal patterns work. Price has a cyclical nature because market participants have a similar psychology and repeat their actions over and over again.

This is why many models that were developed in ancient times work. Let’s say, this pattern of trend reversal “ W” is more than 100 years old - and the screenshot was taken a few days ago. This is such a time machine.

Assets

Technical analysis works for any asset (example):

currency pairs (EUR/USD);
shares (AAPL);
indices (S&P 500);
futures (CL);
raw materials (UKOIL).

Technical or fundamental analysis

There are 2 schools of market analysis - technical and fundamental. Although there are some oddities like, mom help, “ ” (trading according to the phases of the moon; no, no, I’m not even joking). Adherents of these methods like to argue, but, in reality, for a successful forecast you need to be friends with both.

In technical analysis, only price movement matters. How it moves, with what speed and amplitude, what is the impulse of its growth or fall, what candles are formed and so on.

Fundamentalists love economic factors. In the case of shares, this is the company’s balance sheet, the balance of working capital (the movement of money into and out of the company, also known as cash flow), profit and loss statements, and the like.

In fundamental analysis, they prefer large time frames, sometimes even for a year. In technical analysis, you can successfully work even on a 5-minute chart.

For us, in binary options, technical analysis with the addition of fundamentals is just what the doctor ordered. We work according to the canons of technical analysis, look at important news and this will be quite enough.

Trends

The basis of technical analysis is trend. This is a price movement in a certain direction.

Uptrend:

Downtrend:

Between trends, the price likes to rest in a sideways movement when there is no trend as such:

Wave-like trends

Unfortunately, if trends were straight as an arrow, your cat could make money too. However, trends rarely follow a straight line. Typically it is a combination of highs and lows that make up a trend.

For example, an upward trend can often be decomposed into the following micro-waves:

At the same time, in reality the waves, of course, are not as beautiful as in the diagram, and in a smooth, beautiful trend the price rarely moves (although sometimes it does happen).

Trend duration

All trends can be divided into:

short-term;
mid-term;
long-term.

To determine the duration of a trend, you need to use higher timeframes. In classical theory, trends are divided into annual, monthly and daily. But this is relevant, in general, for stock trading.

In binary options, as a rule, we only need:

determine the long-term trend on a 1-day chart;
medium-term ones will be at 1-4 hours;
short-term at 5 and 15 minutes.

Thus, we see an oil painting when one long-term trend consists of several medium- and short-term ones.

This is often a mistake newbies make. They set one frame, like 5 minutes, identify trends, but forget to identify medium- and long-term trends. And then they wonder why the price suddenly reversed within 5 minutes. Yes, because on another frame the picture looks different.

Let's say what do you see in these 5 minutes? Is the price abnormally falling down after a sideways movement? Undoubtedly.

However, let's look at the same pair at 4 o'clock.

It turns out that our “sustained downtrend” at 5 minutes is just one red candle. And the medium- and long-term trend has been going up for several weeks. Therefore, our 5-minute “trend” is temporary and short-lived.

Trend lines

This is a simple and effective technique for identifying trends. It is enough to draw a line along the maximum candles to determine the further price behavior. Trend lines help determine not only the trend, but also its reversal.

For a downward trend, the line is drawn at the top:

For an upward trend, accordingly, the line is drawn below:

Price behavior immediately becomes more orderly. It will either rebound from the next contact with the line, or it will break through it, after which the trend can be considered complete.

Channels

The channel is a development of the trend line idea, which is very popular. Prices often follow these channels and give us a lot of trading opportunities.

The channel can go up, down or horizontal flat(the most delicious). Trading in the channel continues until the price breaks through it.

There are a lot of advantages - the direction of the trend is immediately visible, the channel walls act as points of “rebound” for the price, in general, everyone is happy.

Pay attention to the shadows of the candles - they tell you where in the channel it is best to enter.

You can and should use the channel according to the trend.

Two main thoughts about trends that you will find in books:

trend is your friend;
don't work against the trend.

Support and resistance

After the trend and channels, the next important question is the lines (levels) of support and resistance, abbreviated as “p/s”. These are conditional lines from which the price previously “bounced”.

Resistance is the line that is drawn at the top. She “resists” and does not allow the price to rise.
Support, on the contrary, does not allow the price to fall lower and “supports” it.

Why? This is a matter of psychology, as well as the balance of supply and demand. There are no people willing to buy at such a high price? This means that the price does not rise above a certain level. For the time being, for the time being. Until a buyer comes who has seen enough positive news and begins to buy and buy again. Result? The price is going up.

If the price confidently “breaks” the line, it means the market psychology has changed, this is a breakout. And soon the market will find new support and new resistance.

The magic of round numbers

The psychology behind these lines can also be judged by how often these lines form on round numbers such as 10, 20, 35, 50 and especially 100. These psychological levels force traders to buy and sell again and again.

Let's say the stock price is $120, it falls and approaches $100. Many traders begin to buy, despite the fall, being confident that the price will not be able to break through such an important psychological barrier with the number 100. This often happens.

As a result, the price reaches a flat number and “bounces” from it, being unable to cope with it. The support line works in such a way that it seems to “support” the price from below.

The opposite picture is also true, when the price rises, reaches 100 and bounces down. The resistance line has worked in such a way that it “resists” and does not allow the price to move further.

Role reversal

Sooner or later, the support or resistance level will be broken. Price will inevitably have enough strength for this. Then their roles change. What was resistance will become support and vice versa.

Any price always has its own level of support and resistance. Sometimes a so-called “false breakout” occurs when the price tried to break through the p/s, but failed.

Many traders trade only along support and resistance lines. This is the most important concept in technical analysis, perhaps even the most important. The more often the price bounces from a certain price level, the more reliable it is, especially on higher frames.

However, a breakout of the line will happen sooner or later - so don’t expect the price to always bounce off the lines like a ball.

In addition, important news gives the market such an impulse that it breaks even the most reliable p/s. Therefore, you must stay up to date with major economic news. Even in order not to trade at the time of the announcement of, say, economic indicators (those “3-headed” news).

Channel of support and resistance

It would be a mistake to always wait for an exact rebound. Usually the price hangs around the support and resistance lines in a small channel. That is why, instead of lines, they often draw a channel that covers the shadows of the candles that “felt” the line, but were unable to break through it.

Focusing on such a channel, it is easier to understand where it is better to enter on a rebound in binary options and with what expiration.

Volumes

Price movement is displayed by various types of charts, the main ones of which are only 3:

candle;
linear;
bars.

Candlestick chart

The candlestick chart was invented by the gloomy Japanese man from the picture at the beginning of this article. A candlestick is a very effective indicator that shows the selected period of time over which the price moved.

The structure of a candle looks like this:

Candlestick analysis

Since a candle is an indicator, it means it must show something more than just price movement over a time frame. This is true. That is why there is such a discipline as candlestick analysis.

It has been studying the types of candlesticks and their combinations for decades, which allows us to judge changes in the nature of price movement.

Both candles of a certain shape and their combinations are used.

Candlestick combination “bearish engulfing”:

There are hundreds of candlestick combinations. There is no need to cram them. In practice, when contemplating a chart, you need to select several combinations that attracted your attention and learn to find them in different conditions and on any time frames.

The classic of candlestick analysis, the book “” by Steve Nison can be downloaded from the forum.

Price action

There are a colossal number of candlestick combinations. There are several hundred of them in Neeson's books alone. However, here's the thing. All these books, being classics of technical analysis, were sometimes written several decades ago.

But the markets have changed a lot since then. Now 70% of trades that we see on the charts are carried out by high-frequency robots. Millions of traders trade from home, without leaving their chairs.

That is why price action is becoming more and more relevant. This is cutting-edge candlestick analysis for the fast markets of the 21st century.

Well-known Western traders, such as , and many others, have developed their own price action systems, which should be studied only after you have learned the basics of technical/fundamental analysis.

An example of price action translation from Neil Fuller with his comments:

Line graph

Linear is the simplest chart, just a line, which allows you to quickly determine the direction of price movement. The line is formed by combining closing prices for the selected timeframe.

As a result, on a linear one you cannot see the highest price for the selected time period (timeframe) or the opening price. However, the closing price is considered a more important indicator.

A line chart is only suitable for quickly determining a trend.

Bars

Western traders love bars, and many strategies are focused specifically on their use. The principle is the same as candles, but the visualization method is different. We see the opening and closing prices, the maximum and minimum prices for the selected timeframe.

In general, it doesn’t matter what you use – the main thing is that it helps in your forecasts.

The most popular is, naturally, the candlestick chart. As for exotic charts, such as Renko, Kagi or tic-tac-toe, they are very rare and are used by experienced stock traders.

Technical analysis figures

History repeats itself - this is how we started this article, remember? It is on this concept that the theme of price figures is built. These figures are repeated constantly, and many of them signal the same thing.

Of course, there is no figure that will always, 100% indicate the correct price movement. However, they are extremely useful in analysis. If you find them patiently, they will show excellent results.

All figures are divided into:

trend figures;
reversal figures.

There are many figures and we will consider only the important ones.

Remember, this is important. Reversal patterns work mainly from the 15-minute time frame and after a fairly strong trend.

In the sideways low-volatility movement of the figure, it is almost useless.

Head and shoulders

This is the most popular figure in technical analysis. It is very old, it is described in thousands of textbooks. First of all, you should learn to find it.

The figure consists of a head – the maximum price value – and two “shoulders”, also known as intermediate peaks. Scheme:

In reality, the price will not be as beautiful as in the diagram, so it is enough to simply focus on the peak values to determine the shoulders and head.

Shoulders can be different sizes, that's okay. The main thing is that the head should be higher than the shoulders.

For the figure you need to draw the so-called “neck line”. As soon as the price goes beyond this line, a trend reversal begins.

By the way, on the live chart for drawing the head and shoulders there is a special Head & Shoulders tool (like the famous shampoo). This is exactly how they were depicted in the examples:

Head and shoulders is a basic reversal pattern that has been around for many years. You definitely need to know it.

Figure “Cup”

A coffee cup with a handle is quite common. Super precision in drawing it is not required, we are not artists here. The main thing is to catch the shape of the price movement by drawing a line according to the rules of trend lines.

Double top: regular and inverted

A very popular figure indicating a trend reversal. Like “head and shoulders”, it is considered one of the most reliable.

It is formed when the price tries to break through the support or resistance line twice, after which optimism runs out and the price reverses.

Inverted double top

Triangle

It is also one of the main figures of technical analysis, which has been bringing money to traders for over 100 years. Triangles come in three types:

symmetrical;
ascending;
descending.

In fact, the triangle consists of trend lines. In a symmetrical triangle, both trend lines converge equally at one point.

In the other two cases, one of the lines will be horizontal and act as a support or resistance line.

Symmetrical triangle

Descending triangle

Breakout up, along the trend:

Ascending Triangle

The upper side of the triangle acts as resistance:

Figure “Flag”

Fairly common figures. The flag consists of an inclined channel with a “handle”:

Figure “Pennant”

A pennant can be imagined as a triangle with a “handle”. Breakout of the pennant along the trend:

Figure “Wedge”

As you know, we knock out a wedge with a wedge. The figure resembles a symmetrical elongated triangle, directed in a certain direction up or down. A wedge can either confirm a trend or refute it.

As a rule, if the price goes beyond its upper line, then we are talking about confirmation of the trend, if it goes beyond the lower line, it means a trend reversal. Do not forget, of course, to evaluate the situation on higher frames.

Triple top or bottom

Another example of a reversal pattern. There are no obvious heads and shoulders here, but there are clear three lower zones where the price bounced off the support line.

As a rule, after such a triple rebound, you should expect a trend reversal.

Saucer figure

It resembles a cup, just without a handle or the handle will be of a different shape. Typically, such figures indicate a long-term price reversal and perform well on higher timeframes - from 1 hour.

We've looked at some of the most popular figures. There are much more of them - but the article is not rubber.

Gap

A gap is an empty space between candles. It appears between trading periods, including between Friday and Monday. Another option is due to an excessive difference in price between two trading periods (relevant for stocks). Gaps also appear when there is a very strong “jump” in the price.

There are three types of gaps:

to rupture (accompanied by increased volumes);
to break away (in a very strong trend);
at the end (shortly before the price reversal).

Gap trading is another subsection of technical analysis, so I will describe it in more detail in a separate article (this one is already horse-sized).

In any case, gaps are needed, first of all, for the Forex and stock markets; they are rarely used in binary options.

Moving averages

Price rarely moves evenly. Usually this is a wave-like, and sometimes even chaotic movement, in which it is sometimes difficult to find a trend. To deal with this problem, moving averages are used.

This, in fact, is simply the average price level for a certain period of time, such as the “average temperature in the hospital.” Thanks to the sliding ones, chaos turns into smoothed, orderly movement, and the trend is there, right in the palm of your hand.

Types of moving averages

There are several types of moving averages, the main ones are:

MA (Moving Average) – moving average;
SMA (Simple Moving Average) – simple moving average;
WMA (Weighted Moving Average) – weighted moving average;
EMA (Exponential Moving Average) – exponential moving average.

However, you don't have to stress. The differences between them are not so pronounced. Here are three moving ones from the live chart. As we can see, the sky did not fall to earth:

In fact, some moving averages are simply a little faster than others, say the EMA is faster than the SMA, simply less smoothed. So, on short expirations, you can choose faster moving averages, and on long ones, slow ones.

For the more sophisticated, TradingView has an indicator CM_Ultimate_MA_MTF_V2, which uses 8 moving averages at once:

SMA (Simple Moving Average).
EMA (Exponential Moving Average).
WMA (Weighted Moving Average).
HullMA (Hull Moving Average).
VWMA (Volume Weighted Moving Average).
RMA (Moving Average in RSI).
TEMA (Triple Exponential Moving Average).
Tilson T3 (Tilson T3 Moving Average).

But it’s better not to get too carried away by sorting through their varieties.

Using Moving Averages

Moving averages are used to identify three key situations:

trend;
trend reversal;
support and resistance levels.

It is the moving average that allows you to quickly understand what is happening with an asset, whether it is growing or falling. Let's say we set MA 42 and the 4-hour chart takes on completely different shapes.

In this case, the moving average MA 42 worked as a reliable resistance line for EUR/USD for several months. Well, when the candles cross the line, the trend is complete.

Another method of determining the trend is paired moving averages, one short-term and the other long-term. For example, if MA 5 is located above MA 25, the trend is going up. And vice versa:

Moving price reversals are determined in two ways:

when candles/bars pass through the moving average;
when the moving averages intersect.

Let's say, after the candles crossed the MA 50 on the 1-hour time frame, it began to fall:

And of course, the most popular application, which you should already know about, is the intersection of moving averages. It is used in a wide variety of strategies.

For example, the intersection of MA 15 and 50, plus the already familiar marubozu reversals.

At the same time, the intersection of moving averages with fairly small values, such as 15 and 35, may indicate a short trend reversal. But when powerful MAs like 50 and 200 intersect, things start to get serious.

Of course, in a flat – when volatility is low – there is no need to focus on intersections.

What moving averages should I use?

There are a huge number of strategies with them. Some of them are already described on the site:

Often they are selected by hand. Change the values until the moving average becomes support or resistance, or shows the picture you want. You can also take a universal “long-playing” option, like MA 100 or 200.

Moving averages are a very popular technical tool that can be found on any professional chart. Therefore, its use is, in fact, mandatory.

Indicators

As you can see, I describe the indicators at the very end. Why? Because this is where they belong. Beginners do the opposite: instead of studying support/resistance lines and the basics of technical analysis, they wildly throw a bunch of indicators onto the chart and get this “beauty”:

Indicators are actually a useful auxiliary tool, nothing more. They help you see price movement and volatility from a variety of angles. Any indicator has two tasks:

confirm the trend;
confirm the reversal pattern/pattern.

All indicators presented on a live chart or in any terminal are lagging. This means that the indicator does not predict anything, always follows the price and simply displays the past.

Some of the most popular indicators are oscillators.

Oscillatory indicators

These are one of the most popular types of indicators. They are displayed on a conventional scale, usually from 0 to 100.

the closer the value is to 100, the more the asset is overbought (a fall is expected);
the closer to 0 – oversold (a rise is expected).

Intersections and divergences

These are another signals that indicators often give. We have previously talked about moving average crossovers. The same is true for other indicators, like ADX.

ADX crossover confirms trend reversal:

Divergence is another popular condition for many oscillators, when the direction of the indicator and the price diverge, indicating an imminent trend change.

Indicators provide a lot of useful information. They help calculate the strength of price movement, trend direction, volatility and many other indicators.

As a rule, professional traders use, at most, 1-2 indicators, but honed to perfection.

It’s easy to trade based on the indicator, however, it is forbidden, since this is just a mathematical abstraction carried out with living matter - price. Therefore, any indicators are used in conjunction with technical analysis, candlestick patterns, and sometimes with other indicators.

Popular indicators

Let's look at several popular indicators that are often used by professionals in technical analysis.

Accumulation/Distribution (A/D)

One of the most popular volume indicators, which compares price movement with trading volume over the same period.

This joy is only available for stocks and indices, so do not try to use it with currency pairs. Alas, there is no reliable data on volumes for currencies, what you want is an unregulated interbank market.

But for stocks, A/D is often used and is found in a wide variety of strategies.

A/D is used to identify trends. If the A/D line is trending upward, this is an indication that the buying power is becoming greater. At the very peak of A/D, we should expect a price reversal after a period of consolidation.

Average Directional Index (ADX)

An indicator for determining the strength of a trend. It does not indicate its direction, but how strong the current trend is.

On a live chart, ADX is called Directional Movement. It consists of several lines:

positive direction indicator +DI;
negative direction indicator –DI.

A plus sign shows the strength of an uptrend, a minus sign – a downtrend. The data is displayed next to the ADX line on a scale between 0 and 100.

You can understand the essence, naturally, by looking at the trend. That's how it is here. Steady downward trend, -DI after crossing above 40, +DI below 20, the ADX line tends to rise, indicating that the downward trend is strengthening.

Aroon

This is a relatively new indicator, created in 1995 (most were developed back in the 70s). The indicator is a trend indicator, its task is to show the presence of an outgoing or upward trend, as well as its strength.

Aroon is also used to identify a new trend. The indicator consists of two lines, red and blue.

The blue line displays the period of time that has passed since the price reached its maximum value during the specified period of time. Red, accordingly, is the opposite. In this case, the time period changes depending on the selected timeframe.

A classic example of using Aroon is a trend reversal. After a long period when blue was at the top and red was at the bottom, they cross and the trend begins to change. For example:

MACD

One of the most famous indicators in technical analysis, which I described in detail here:

Using the power of moving averages, MACD is usually used at intersections:

RSI

Also a very popular trend strength indicator, described here:

Used when overbought and oversold:

On Balance Volume (OBV)

Another well-known technical indicator for stocks and indices, it can be considered a trend indicator. Very simple and clear.

It works simply, the total volume for the trading period is taken and a positive or negative value is assigned depending on the price movement during this period.

When the price is up, the volume is assigned a positive value; when the price is down, a negative value is assigned. The total positive or negative value is then added to the total from the start of the measurement.

The main thing in OBV is not its value, but the trend of its line itself. If it shows steady growth, the same should be expected from the price. If the indicator line is sadly boring without a clear direction, the same thing happens with the price.

Stochastic

This is probably the most popular oscillator in the world. And it just so happens that he is very close and understandable to me, which is why he is often visible on my screenshots. Described here:

In general, this is an indicator of momentum - the strength of price movement. In a strong trend, the price approaches its trading “ceiling”, which hints at a subsequent reversal.

Therefore, the main thing they look at in stochastics is the overbought and oversold zones. This is my favorite indicator that complements the foundation of technical analysis.

He is also quite good at divergence, for example:

Technical analysis: summary

Pink ponies poop butterflies. Joke. This was a check to see if you had read the article to the end (probably just skipped it). Let's briefly summarize what technical analysis is.

All factors are included in the price, it moves with trends, and history repeats itself.
The price has everything you need to know.
Technical analysis must be combined with fundamental analysis.
The price moves in trends: upward and downward, or is in sideways movement (consolidation).
The trend line is the simplest technical analysis tool.
A channel is two trend lines that act as support and resistance.
Support keeps the price from falling, resistance keeps the price from rising.
Volume is the number of shares or contracts traded. The greater the volume, the stronger the trend.
There is no normal volume in Forex (currency pairs).
There are three main types of charts: candlestick, line and bars.
For binary options, timeframes of up to 1 day are used, for Forex and stocks – up to a year.
Technical analysis figures help you find price reversals.
Head and shoulders are the main price reversal pattern.
Cup, double/triple top, triangles, flags and pennants are examples of other patterns.
A gap is a gap between trading periods or during a sharp price movement.
The moving average helps identify trends and smooth out market noise.
The indicators are based on a formula that takes into account price movement and volume.
Popular indicators are A/D, Aroon, ADX, MACD, OBV, Stochastic, RSI.

As you can see, technical analysis is a very voluminous topic. It has been studied for months and years. But this should not be a theoretical discipline for you. Yes, in scientific circles technical analysis is tormented scientifically, and in magazines like Stock and Commodities you will see such examples of technical analysis that you will not sleep after them, but for you and me it is the most real, most practical thing in the world.

Little secret

The main thing I want to advise you is to avoid the mistake of a beginner who throws 10 indicators on the chart and tries to predict something like that. The market is a living mechanism; it is nothing more than the reaction of its participants. On the graphs we see the market balance of supply and demand. Indicators are ordinary mathematical formulas, very simple. They cannot predict the global market. Therefore, to achieve success, you need to competently use the entire arsenal of tools: from news, candles, trend lines and p/s to reversal figures, price action and certain indicators.

And a little secret from the future. You will go through a long, difficult path. You will try dozens of indicators and candlestick combinations until it dawns on you that they are all, in essence, equivalent. And it’s not they who are important – but you yourself and your trading psychology. This is why two traders can put the same moving average on the same chart, and then one will give the correct forecast, but the second will not.

After some time, when your head is bursting with knowledge, you will inevitably do the main thing - throw everything out of your head and begin to perceive the chart with fresh eyes. And then a small miracle will happen - you will see the good old tools with completely new eyes. Trend lines, reversal patterns, moving averages, and candlestick patterns will suddenly appear before you in a completely different light. Months of experience and thousands of deals will turn them into something amazing that you never saw when you started.

Trading is magic. In all aspects. The ability to work anywhere in the world with a laptop on your lap, the ability to earn more in an hour than you earned in a month while sitting on your last job. So become a wizard - and wave your magic wand of technical analysis so that this limitless reservoir of financial opportunities will share with you a drop of life-giving moisture. In this artistic finale, I walk off into the sunset *upbeat music plays*.

Technical analysis is the analysis of price changes using charts in order to determine the direction of price movement in the future. TA is based on 3 sources of information: prices, trading volumes and time. Unlike fundamental analysis, technical analysis does not contain information about the reasons for price behavior. It already takes into account price movement in one direction or another and, based on certain identified patterns in the past, makes it possible to more likely identify the occurrence of certain events, namely a rise or fall in prices in the future. TA has both many supporters who make money in the market, and many opponents who claim that TA is a pseudoscience invented by lazy people who do not want to conduct a detailed study and analysis of financial assets.

History of origin

Technical analysis originated in Japan back in the 16th century. Its ancestor is considered to be Munehisa Homa, a representative of the oldest Japanese dynasty of merchants. At that time, rice was the main commodity traded on the stock exchange in Japan. Munehisa approached the issue of trade so carefully that he studied the entire dynamics of price changes over the past hundred years. As a result, he derived certain patterns of price behavior under certain conditions. Based on his research, he developed a trading system that brought him fabulous profits and helped him become the richest man in Japan in a short time. Having appreciated his merits, the emperor awarded him the title of samurai and appointed him as his personal financial advisor.

His method of trading and market analysis became widespread after he published a book in the 1760s, which laid the foundation for the Japanese candlestick method, which is successfully used not only in Japan, but throughout the world. In Europe, they learned about Japanese candles only at the end of the 19th century.

The founder of classical technical analysis in the West is considered to be Charles Dow, one of the founders of the popular ones, who at that time worked as the editor-in-chief of the Wall Street Jornal. In 1890, the magazine published a series of articles on the possible prediction of price behavior based on certain patterns. Dow described the principles on the basis of which it was possible to enter into a sale or purchase transaction with reduced risk.

It is noteworthy that the Dow theory became widely known only after his death.

The beginning of the heyday of technical analysis is considered to be the end of the 70s of the last century, with the advent of computer technology, when the analysis of charts and their construction became simpler.

If previously players using TA had to manually draw graphs and carry out calculations on a piece of paper, then the use of computer technology has simplified this work as much as possible. It was this simplicity of analysis that gave impetus to its development to the masses. As a result, almost any trader, having studied the basics of TA in just a few days, could be considered a technical specialist. analysis and put forward your hypotheses about further price behavior in the future.

Laws or postulates of technical analysis

Technical analysis is based on 3 main rules:

1. The market takes everything into account

The basis is the principle that all events (economic, political, psychological) are already taken into account in the price. It doesn’t matter for what reasons there is growth, the main thing is that these reasons push the price up and that means you need to take the side of the majority, and not go against the market.

2. History repeats itself

Based on ordinary psychology and mass behavior of people in certain situations. Knowing how people reacted in the past when a particular market model emerged, one can more likely assume that in the future in the same situation they will behave similarly.

3. Price movements are subject to trends

When the direction of price movement is in one direction, it is logical to go with it. When demand exceeds supply there is an upward trend (upward trend), otherwise there is a downward trend (downward trend). Based on this postulate, two consequences follow:

A trend, at each point, is more likely to continue than to change its direction to the opposite.
Trends are never endless and end sooner or later.

Therefore, one of the main tasks of TA is to determine the beginning and end of a trend.

What does technical analysis study?

At the heart of those The analysis contains several sections or tools, the study of which allows the trader to make assumptions about the future behavior of prices.

Types of graphs or method of displaying them. The most widely used are 3 types: linear, bars and Japanese candles
Basic concepts without which studying technical analysis makes no sense. This is the concept of trend, flat, support and resistance lines, channels, levels.
Patterns or models are typical combinations that are formed on the price chart. There are trend continuation models and reversal trend models.
Japanese candlesticks - based on a set of several candles, sometimes even just one, certain assumptions are formed about the further development of events.
Technical indicators and oscillators. They are formed as derivatives of price, time and trading volumes (both in aggregate and separately) and displayed in the form of graphs, which are either superimposed on the price chart or used separately as additional information.
Trading strategies using the above tools, allowing you to identify favorable situations for entering and exiting a transaction in order to increase profits.
Risk management system. And although this point is not included in the study of technical analysis, it is the most important. Properly selected money management can bring almost any trading system to profit, and vice versa, a lack of understanding of risk management kills even the most effective trading strategy.

Example of TA on the stock exchange

Over the past few years, Gazprom shares have been traded in the channel. The upper limit is 148-150 rubles, the lower limit is 125-130 rubles, which act as strong support and resistance levels. Of course, sometimes prices tried to break through the channel, but came back.

By buying at the lower price level and selling at the upper price, a trader could easily make money on these predictable movements. The width of the channel is, even if we take the minimum, 18-20 rubles. This is approximately 12-14%. Over the past year, it was possible to make about 5-6 such transactions, which would bring profits in the amount of 60-80% profitability.

Why is TA so popular among traders?

There are a number of reasons for this:

Quick learning. Unlike fundamental analysis, which requires a lot of time to study, mastering TA will only take a few days. The basics can generally be mastered in a few hours.
Quick results. Trades made based on fundamentals tend to be very long-term. A position can be held for several months, years and sometimes even decades. Using only the technical aspects of analysis, you can achieve visible results in just a few days or even hours. There are even special trading strategies designed to carry out multiple transactions within one day.
There is no need to thoroughly study the instrument being traded. It only takes a few minutes to analyze almost ANY chart to make an assumption about the further price movement.
TA is applicable and works on absolutely any timeframe: monthly, daily, hourly and even minute (by the way, the smaller the timeframe, the more various “market noise” it contains, so the effectiveness of analysis for short periods is reduced).
Massive use of automated trading algorithms or simply trading robots, which in most cases trade using knowledge from technical analysis.
Massive information almost everywhere about the possibility of beating the market many times over using technical analysis methods. Moreover, they are advised to make transactions as often as possible. What can I say to this? As they say: “Look for who benefits from it!” And it is beneficial for brokers and trading exchanges, who receive their small penny from each trader’s transaction. Therefore, the more transactions, the more profit. No “buy and hold” strategies. Only active trading. So the newcomers are led in, in the hope of getting rich quickly.

Why tech. analysis works

The effectiveness of technical analysis is explained quite simply. A huge number of traders around the world who use technical analysis in their trading see the same charts, models, figures, using the same indicators and oscillators. And as soon as a signal appears that the TA interprets as a buy signal, the majority begins to buy. As a result, the price starts to go up. If according to those analysis needs to sell, then many begin to sell, which pushes the price to the bottom. And the stronger the signal, the more players join the game.

There are several hundred (if not thousands) of different indicators in the world, on the basis of which one can make an assumption about the further movement of prices. And the more people use this or that indicator, the more effective it is. Therefore, over time, the number of traders spreads across these indicators, which ultimately reduces the effectiveness of everyone.

Therefore, the simplest (but powerful) models and only a few basic indicators that are used by most players in the market are considered the most effective. The explanation is also quite simple. Most traders only learn the basics. analysis, which is quite enough for them to trade.

Technical analysis is akin to statistics and public opinion polls. Its main purpose is to identify the mood of the crowd or the balance of power and take the side of the majority. When there is a buy position, when it is bearish - to sell. And as soon as the balance of power begins to change, exit the deal.

Maximum trading efficiency is achieved by combining two methods of analysis: technical and fundamental. With the fundamental method, stocks are selected that have a high growth potential and are currently, for one reason or another, undervalued by the market. Technically, you need to look for the right entry point into the transaction, using the maximum opportunity to buy these shares at an adequate price, at the moment they begin to grow.

Technical analysis of the securities market is a price forecasting system based on information obtained as a result of market trading. In contrast, based on the study of the production activities of an enterprise, it is based technical analysis lies in identifying and studying certain patterns in the movement of the quote chart.

In other words, when using technical analysis, a trader, when performing a trading operation, is guided only by a graphical image, while he may be completely unfamiliar with the activities of the company whose securities he is trading.

Technical analysis of stocks is relevant for short-term trading of securities.

Technical analysis of the investment properties of securities uses many tools, but the main factors on which it depends are trading volume, price dynamics and historical data.

The theory is built on three basic rules:

The movement has already taken into account various factors influencing price changes. Therefore, it makes no sense to separately study the dependence of prices on political or economic news.
Price changes do not occur randomly, but are influenced by certain trends. That is, by dividing the chart into time intervals, you can see the price change in one direction.
Market cyclicality. When certain situations arise, the reaction of market participants is always the same. Therefore, when they reappear, similar graphical patterns appear on the quote chart, recognizing which you can predict further price movements.

To evaluate information, technical analysis of the stock market has several methods. They are based on mathematical calculations () and graphic drawings (). And the very first tool for forecasting prices was Japanese Keisen technique. It is successfully used to this day, under the name Japanese candles.

Japanese candlesticks as a method of stock price analysis

Japanese candlesticks are a type of chart that is used in technical analysis of the stock market. It consists of rectangular figures - candles, each of which corresponds to a specific time interval -

if the chart is on a minute timeframe (M1), then each candle has an interval of a minute
if this is a graph M5- then the candle has an interval of 5 minutes

A candle consists of two elements - body And shadows. The body boundaries show the opening and closing price levels for a given time period. And the boundaries of the upper and lower shadows show the maximum and minimum price for the same interval.

There are two types of candles - bullishAndbearish. A bullish candle reflects an increase in prices over a specified interval and its body is not shaded. On color charts, a rising candlestick is green and a falling candlestick is red.

At the ascendant (bullish) candles, the upper boundary of the body indicates the closing price, and the lower opening price.
Descending (bearish) the candlestick characterizes a fall in price and its body is painted in a dark color. On such a candle, the upper border of the body indicates the opening price, and the lower border indicates the closing price.

Price forecasting using Japanese candles is based on an analysis of the shape of individual candles, as well as their combinations. There are quite a few different candles that have names and give their own signals about a possible change in the market.

Technical analysis of the stock market is easy to do using candlestick patterns - all professional traders as market participants see this and act accordingly.

The most accurate forecast is provided by candles " hammer" And " hanged" They signal a chart reversal. Both candles have a small body and a long shadow. “” is located at the bottom of the chart and indicates an upward trend reversal, and “ Hanged" - at the top of the chart, indicates a downward trend reversal.

In addition to the “hammer” and “hanging man”, the main types of Japanese candlesticks include the “Morning Star”, “Evening Star”, “Harami”, various “Doji”, which also signal a reversal, and “Marubozu” - a candle, the appearance of which signals the continuation of the trend .

If you find an error, please highlight a piece of text and click Ctrl+Enter.

To analyze stock prices, we will use the Dow Theory, in which it is necessary to study six basic postulates, with which most analysts are already familiar:

1. The price takes everything into account. According to the Dow Theory, any factor that can in one way or another affect supply or demand will invariably be reflected in the price. Regardless of the nature and causes of events, they are instantly taken into account by the market and are reflected in price dynamics.
2. There are three types of trends in the market. The Dow's definition of trend is as follows: In an uptrend, each subsequent peak and each subsequent decline is higher than the previous one. That is, an upward trend should take the form of a curve with successively increasing peaks and troughs. Accordingly, with a downward trend, each subsequent peak and decline will be lower than the previous one. This trend definition is still fundamental and serves as the starting point for trend analysis. Dow also identified three categories of trends: primary, secondary and minor. He attached the greatest importance to the primary, or basic. The main trend lasts several years and can be either bullish or bearish. Second-order movements last from several weeks to several months and can go in the opposite direction to the main trend. Third-order movements are oscillations with a period of several days.
3. The main trend has three phases. A market trend has three phases. Phase one, or accumulation phase, when the most far-sighted and informed market participants begin to buy first. The second phase occurs when investors using technical methods of following trends join the price increase. Prices are already rising rapidly, and the perception of this market is becoming increasingly optimistic. The trend then enters its third or final phase when the general public gets involved and a media-driven frenzy begins in the market. It is at this stage that those informed investors who bought during the first phase, when no one wanted to buy, begin to “distribute”, that is, to sell when everyone, on the contrary, is trying to buy.
4. Indexes must confirm each other. In the original, the Dow meant the industrial and railroad indices. In his opinion, any important signal for an increase or decrease in the exchange rate on the market must pass through the values of both indices. In other words, we can talk about the beginning of an upward trend only if the values of both indices have covered their previous intermediate peaks. If this happens with only one index, then it is too early to talk about an upward trend in the market rate. If the indices show different dynamics, this means that the previous trend is still in effect. Currently, this principle of the Dow theory is expressed in the need to confirm signs of a trend change with additional signals.
5. The trading volume should confirm the nature of the trend. Trading volume, according to Dow, is an extremely important factor in confirming signals received from price charts. If the underlying trend is up, volume increases in line with rising prices. Conversely, volume decreases when prices fall. If the main trend is downward, then everything happens exactly the opposite. In this case, a decrease in prices is accompanied by an increase in volume, and during intermediate price increases, the volume decreases. However, it must be noted again that volume is only a secondary indicator. Buy and sell signals, according to the Dow Theory, are based solely on closing prices. Volume indicators have one main goal - to determine in which direction volume is increasing. And then this information is compared with price dynamics.
6. A trend continues until it gives clear signals that it has changed. This position, in fact, underlies all analytical methods of trend following. It means that the trend that started the movement will tend to continue it. Of course, identifying trend reversal signals is not so easy. But analyzing support and resistance levels, price patterns, trend lines, moving averages - all of this, among other technical tools, will help you understand that there is a turning point in the dynamics of the existing trend. And with the help of oscillators, signals that a trend is losing strength can be received even earlier. The likelihood that an existing trend will continue is usually higher than the likelihood that it will change. By following this simple principle, you will be right more often than not.