Contrast with stone. Micro-fundamental analysis includes the study of sales, costs, income, assets and liabilities, capital structure and “smooth” factors (quality of management team, competitive position).

 

 

Fundamental analysis at the macro level includes economic growth, inflation, credit cycles, interest rate trends, capital flows across countries, labor and resource utilization rates and cyclicality, demographic trends, central bank and political policies and actions, geopolitical issues, and consumer and business trends. and “soft” data (e.g., sentiment or trustworthiness surveys).

Some traders specialize in one or the other, while others use both methods to inform their trading and investment decisions.

Most large banks and brokerages have teams specializing in fundamental and technical analysis. In general, the more quality information you get to improve your chances of being right, the better your trading results will be.

Technical analysts, often referred to as chartists, use charts to display price and volume data to analyze securities to identify trends and patterns. Price patterns can include supports, resistances, trend lines, candlestick patterns (e.g. head and shoulders, reversals), moving averages and technical indicators.

Assumptions in technical analysis

Some traders and investors use both fundamental and technical analysis, but most fall into one camp or another, or at least tend to rely much more heavily on making trading decisions.

Technical analysts rely on the methodology because of two main beliefs. – (1) Price history is cyclical and (2) price, volume and volatility have distinct trends.

Let’s look at each individually.

Market cyclicality

Market history tends to repeat itself because human nature is usually a shared behavioral trait. The sequence of events does not repeat perfectly, but the patterns are generally similar. It can take the form of long-term or short-term price action.

In the long run, business cycles tend to essentially repeat themselves, driven by credit booms in which debt grows in excess of income over a period of time, and financial distress when there is not enough cash to cover these debts. results in This tends to result in a gradual increase in stocks and other “risk trade” trades (e.g. carry trades) during capacity expansions and a sharp decline during recessions.

Technologists implicitly believe that market participants tend to repeat past behavior due to their collective and patterned nature. When an action is truly repeatable, it means that it can be recognized by looking at historical price and quantity data and used to predict future price patterns. If traders can find opportunities where an action is likely to repeat, they can identify trades with favorable risk/reward.

Therefore, technical analysis assumes that market prices discount all information affecting a particular market. Where fundamental events affect financial markets, such as news and economic data, but this information is reflected in asset prices already or immediately upon release, technical analysis identifies price trends and focuses on the extent to which market participants evaluate particular information. Align.

For example, if the US CPI inflation data is 10% higher than the price the market hit the market prior to the news release, you can see how sensitive the market is to that information by observing how asset prices react instantaneously.

When U.S. stock futures fall below X%, the U.S. Dollar Index rises Y%, and the 10-year U.S. Treasury yield rises Z%, you get a feel for how those economic inputs affect a particular market. Knowing these sensitivities can be useful for stress testing purposes as a form of risk management. For example, if inflation unexpectedly rises by 1%, you can use the data points around that surprising inflation measure to see the impact on your portfolio.

Another assumption of technical analysis (and the broader scope of all securities analysis) is that prices do not move according to “random walks” or according to indiscernible or logical patterns. Rather, they are driven by explainable and predictable trends.

For example, if you look at the chart of EUR/USD from mid-2013 to mid-2017, you can see how technical analysis played a role by looking at support and resistance in the context of a trend. After the euro started to depreciate against the US dollar in mid-2014 due to differences in monetary policy, technical analysts may take a short trade with the decline towards the resistance level in the context of a downtrend (shown by the arrow in the image below). . After the trend has dissipated and the market has consolidated, technicians may have chosen to play range and started investing long hours in support while closing existing short positions.

characteristics

Originally, technical analysis was primarily a matter of “reading the tape” or interpreting the continuous flow and magnitude of price and volume data through stock tickers. As computers became widespread in the 1970s, data was compiled into chart form, which became the standard point of reference for technicians.

Chart pattern and bar (or later candlestick) analysis was the most common form of analysis, followed by regression analysis, moving averages, and price correlation. The number of technical indicators today is much greater. Anyone with coding knowledge associated with a software program can convert price or volume data into a specific indicator of interest.

While technical analysis alone cannot fully or accurately predict the future, it is useful to identify trends in supply and demand, likely actions, and potential mismatches that could create trading opportunities.

 

 

analytical approach

There are many ways to approach technical analysis. The simplest way is through a basic candlestick price chart, which shows the price history and the buying and selling dynamics of the price within a specific time period.

(Weekly Candlestick Price Chart for S&P 500)

Others use price charts with technical indicators or special forms of technical analysis such as Elliott wave theory or harmonics to generate trade ideas. Some use parts of several different methods. At the same time, traders have to resist the idea of “information overload,” or complicated charts with too many indicators and lines, which begins to negatively affect their ability to read charts.

Traders can make subjective judgments about trading situations and do not have to base their trades on a rules-based approach that is limited by the uniqueness of each situation.

Others may enter trading only if certain rules are applied uniformly to improve the objectivity of trading and avoid emotional biases affecting its effectiveness.

Types of charts

Candlestick

Candlestick charts are the most common chart form in software today. Green (or sometimes white) is commonly used to indicate bullish candles where the current price is higher than open. Red (or sometimes black) is common during bearish candles when the current price is below open.

It displays the distance between the opening and closing prices (body of the candle) and the full daily range (top of wick to bottom of wick).

(Candlestick moving up and down on the S&P 500 Index)

open high low close

A candlestick chart is similar to a public high close chart, also known as a bar chart. However, instead of the body of the candle showing the difference between the opening and closing prices, these levels are displayed as a horizontal scale. The opening price tick points to the left (to show that it came from the past) and the other price tick points to the right.

선

꺾은 선형 차트는 일반적으로 각 기간의 종가에서 선을 사용하여 데이터 요소를 연결합니다.

region

Area charts are essentially the same as line charts, with the area below them being shaded. This is mostly done to make price movements easier to visualize compared to line charts.

Hey Ken Ashi

Heiken-Ashi charts use candlesticks as a plotting medium, but take a different mathematical formula for price. Prices are adjusted to better represent trend price action according to this formula instead of the standard procedure for candles translated from the underlying open high close standard.

  • Open = (Open previous bar + Close previous bar) / 2
  • Close = (open + high + low + close) / 4
  • high = highest, highest or closed
  • low = lowest of low, low or closed

Common Terms

Average true range – The range over a specific time period (usually daily).

Breakout – When price breaches an area of support or resistance, often followed by a surge in buying or selling

Cycle – The period over which price action is expected to follow a specific pattern.

Dead Cat Bounce – When prices fall in a down market, the price may rise if buyers believe the asset has been sold cheaply or oversold. However, when sellers force the market further, temporary buy orders are referred to as dead cat bounces.

Dow Theory – studies the relationship between the Dow Jones Industrial Average (an index of 30 American multinationals) and the Dow Jones Transportation Average. Proponents of the theory say that if one of them trends in a certain direction, the other will follow. Many traders track the transportation sector, where they can gain insight into the health of the economy. Volumes of shipments and trades of goods indicate that the economy is in a healthy state. A similar indicator is the Baltic Dryness Index.

Doji – A type of candle characterized by little or no variation between cigar and cigar.

Elliott Wave Theory – The Elliott Wave Theory proposes that markets periodically go through cycles of optimism and pessimism, making them predictable and therefore suitable for trading opportunities.

Fibonacci Ratio – A number used as a guide to determine support and resistance.

Harmonics – Harmonics trading is based on the idea that price patterns repeat themselves and turning points in the market can be identified through the Fibonacci sequence.

Momentum – The rate of change in price over time.

Price Action – The movement of prices graphically represented through charts in a particular market.

Resistance – The price level at which there can be a sell order advantage, causing the price to move lower. Sufficient purchasing activity, usually through bulk purchases, is required to breach it.

Reversal – A reversal in the direction of a general trend that is expected to be transient, usually at a level of support or resistance.

Support – The price level at which more buy orders can be placed, causing the price to rebound as it rises. If there are enough selling activities outweighing buying activities, the level will not be maintained.

Trend – A price movement that stays in one direction for an extended period of time.

Technical analysis indicators

Technical Indicators contain some statistical or arithmetic transformation of price and/or volume data, which can be used to determine up/down movements, support and resistance levels, momentum, trends, deviations from the central trend, ratios, correlations, among other depictions. Some indicators describe emotions such as short-term interest, implied volatility, put/call ratios, “fear” or “greed”, etc.

Technical indicators fall into several main categories including price-based, volume-based, breadth, overlay, and non-chart-based.

Price-based

Square Average Index (ADX) – A measure of trend strength based on absolute values.

Average Directional Movement Rating (ADXR) – Measures the rate of change of a trend.

Commodity Channel Index (CCI) – identifies emerging trends or cyclical conditions.

Coppock Curve – Momentum Indicator: Intended to identify a bottom as part of a long-term trading approach in early stock trading.

MACD – Displays the relationship between two separate moving averages. Designed as a momentum tracking indicator.

Momentum – The rate of change in price over time.

Moving Average – A weighted average price that represents a trend over a series of values.

Relative Strength Index (RSI) – The Momentum Oscillator has been standardized on a 0-100 scale designed to determine the rate of change over a specified period of time.

Stochastic Oscillator – Displays the current price of a security or index relative to a user-defined range of highs and lows. It is used to judge overbought and oversold market conditions.

Trix – Shows trends and momentum.

Volume-based

Money Flow Index – measures the money flow of a stock over a specified period of time.

Loudness Index – designed to understand when “smart money” is active. It is assumed that smart money is most active on low-volume days and inactive on high-volume days. When volume is lower than the previous day, the indicator focuses on the daily level.

On-balance volume – Uses volume to predict future price movements. Proponents of this indicator lend credence to the idea that stocks are weakly responsive, meaning that price movements will follow when volume changes.

Quantitative indices – Usually used in conjunction with negative indices, indicators are designed to indicate when institutional investors are most active, under the premise that they will sell or buy the most when volume is low. Focus on days with higher volume than the previous day.

Williams Accumulation/Distribution – A look at the difference between security (or index) price and volume flow. It is designed to help traders determine when to accumulate (buy) or distribute (sell). For example, if the price lowers the new price and the indicator fails to lower the new price, it can be taken as an indication that an accumulation (buy) has occurred.

width

The breadth indicator determines how strong or shallow the market is.

Advance-Decline Line – Measures the number of stocks that have declined and the number of stocks that have declined (losses) in the index. If the index has risen in value, but only 30% of the stocks have risen, but 70% have declined or is neutral, it indicates that buying is likely to occur only in certain sectors rather than positive for the overall market.

If 98% of the stock market is up but only 2% is down or neutral, it indicates that the market may be trending more and a “return to the mean” trading strategy may be more effective. However, if the unilateral decline/progress continues, the market may be trending.

Cancer Index (aka TRIN) – Combines the number and quantity of stocks increasing or decreasing according to the formula:

(Stocks / Stocks #) / (Stocks / Stocks)

Values less than 1 are considered strong. Values greater than 1 are considered bearish. Volume is measured in number of shares traded, not dollar amounts. This is a key flaw in the indicator (the lower the stock price, the higher the volume). Nonetheless, it still appears on the floor of the New York Stock Exchange.

McClellan Oscillator – Takes the ratio of stocks minus declining stocks in the index and uses two separate weighted averages to arrive at the value. Best used when prices and oscillators diverge. For example, a new low in price but a new high in the oscillator could be a buying opportunity. Conversely, a new increase in price but a new lower oscillator could be a selling opportunity.

Overlays

An overlay indicator is placed over the original price chart.

Bollinger Bands – Form a range by using a simple moving average and plotting two standard deviations above and below it with two lines. It is often used by traders who use the average retracement strategy where they expect price to move above or below the band and then move back inside the band.

Channels – Two parallel trend lines set up to visualize consolidation patterns in a specific direction. A breakout above or below the channel can be interpreted as an indication of a new trend and potential trading opportunity.

Fibonacci Lines – A tool for creation and support, usually by displaying high and low indicators of a recent trend.

Ichimoku Cloud – designed to be an “all-in-one” indicator that provides support and resistance, momentum, trends and creates trading signals.

Moving Average – A trend line that changes based on new price inputs. For example, a 50-day simple moving average represents the average price over the past 50 days. An exponential moving average weights the line more against recent prices.

Parabolic SAR – Used to find short-term reversal patterns in the market. Generally recommended for trending markets only.

Pivot Points – Support and resistance levels determined from yesterday’s open, high, low and close. It is commonly used by day traders to find potential reversal levels in the market.

Trendline – A slanted line made up of two or more peaks or troughs on a price chart. A breakout above or below the trend line may indicate a breakout.

Non-chart-based

Not all technical analysis is based on charts or arithmetic arithmetic conversions of charts. Some technical analysts rely on sentiment-based surveys of consumers and businesses to gauge where prices are going.

When investor sentiment is more or less strong, surveys can act as an opposing indicator. If the market is very bullish, this can be taken as a sign that almost everyone is fully invested and few buyers are keeping the sidelines to drive prices higher. This suggests that the price tends to fall. Or at least the risks associated with buyers are higher than if sentiment were tilted the other way.