Introduction to Technical Analysis and Assumptions

  1. Technical Analysis
    1. How Technical Analysis Can Help You Make Informed Decisions in Mastering Stock Trading
    2. Technical Analysis Setting Realistic Expectations
    3. Introduction to Technical Analysis and Assumptions
    4. Technical analysis for Profitable Trades Analyzing Open, High, Low, and Close
    5. Candlestick Charts How Line and Bar chart Enhance Market Analysis
    6. Japanese Candlesticks History, Anatomy From Ancient Japan to Global Trading Phenomenon
    7. Time Frames in Technical Analysis Unlocking the Power of Choosing the Right Interval for Successful Trading strategy
    8. Candlestick Patterns How to Identify and Interpret Trading Signals
    9. Marubozu and Bullish Marubozu Understanding What is Essential Single Candlestick Patterns for Traders
    10. Marubozu Candlestick Setting Stop Loss The Ultimate Guide to Trading Patterns
    11. Spinning Top Candlestick Navigating Downtrends A Trader’s Guide to Identifying Reversal Signals
    12. Spinning Top and Doji How to Interpret and Navigating Market Uncertainty
    13. Paper umbrella and hammer candlestick pattern Unlock Profitable Trades
    14. Hanging man candlestick pattern Profitable share market trading Strategies
    15. Shooting Star Candlestick Pattern Boost Your Trading Success Guide
    16. Engulfing Patterns and Bullish Engulfing Signals Unlock Trading Opportunities
    17. Bearish Engulfing and Doji for Trading Success Profitable Strategies with Candlestick Patterns
    18. Multiple Candlestick Patterns Insights and Strategies Boost Your Trading
    19. Bullish Harami Candlestick Pattern for Trend Reversal Strategies
    20. Shorting Guide using the Bearish Harami Pattern Trade Reversals with Confidence
    21. Morning Star Candlestick Pattern and Gap Analysis To Maximise Your Profits
    22. Evening Star Candlestick Pattern Learn How to Identify and Trade to Boost Your Trading Success
    23. Support and Resistance Basics A Comprehensive Guide to Setting Targets and Navigate the Markets with Confidence
    24. Support and Resistance Learn How to Draw and Identify Key Levels Unlocking Trading Opportunities
    25. Support and Resistance Advanced Trading Strategy Analysing Reliability and Optimisation
    26. Volume Trends How to Leverage for Successful Trading Strategy
    27. Volume Analysis A Key Checklist for Successful Stock Trading
    28. Moving Averages A Comprehensive Guide for Trend Analysis in Stock Trading
    29. How to Use Moving Averages for Profitable Trading Strategy and Potential Opportunities
    30. Moving Average Crossover Boost Your Trading Success with A Reliable Strategy
    31. Technical indicators How to Use Technical Tools for Better Decision-Making Unlocking the Power of Trading
    32. Relative Strength Index RSI Analysing Overbought and Oversold Signals to Boost Your Trading Strategy
    33. MACD How to Interpret and Utilize Moving Average Convergence and Divergence for Profitable Trading
    34. Bollinger Bands The Power of Indicators in Trading and checklist
    35. Fibonacci Retracements Unravelling the Power in Stock Markets
    36. Mastering Fibonacci Retracement A Step-by-Step Guide for Effective Trading
    37. Dow Theory Decoding Unveiling the Principles of Technical Analysis
    38. Dow Theory Patterns Unlocking Trading Opportunities with Double and Triple Formations
    39. Trading Range Explained chart indicator example strategy Profit from Market Ranges
    40. Flag Pattern and Range Breakout How to Capitalise Trading Beyond Boundaries
    41. Risk reward ratio Understanding RRR in Dow Theory
    42. Technical Analysis Tools for Traders Charting Software Guide Enhance Your Trading
    43. How to Select Stocks for Trading Success and Building Your Opportunity Universe
    44. Short Term Trading Unleashing the Power of Scalping Strategies
    45. ADX Indicator and 7 more indicator tools for Trend Strength Analysis
Marketopedia / Technical Analysis / Introduction to Technical Analysis and Assumptions

Technical Analysis (TA) has an advantage that it can be used on any asset class with past price trend data. The data that is required is related to price information, i.e. open high, low, close, and volume information.

This analogy can be applied to how to learn and apply technical analysis. Just as driving a vehicle does not require much effort once you learn it, the same goes for TA. 

TA is especially advantageous due to its applicability to multiple assets. As opposed to other stock market research methods, such as fundamental analysis of equity, which requires the study of the profit and loss, balance sheet, and cash flow statements, TA can be applied regardless of the asset type. 

Once you master the process, you will be able to apply it to any type of asset, such as stocks, commodities, foreign exchange, bonds or other investments.

However, the fundamental analysis of commodities follows a different approach.

When analysing an agricultural commodity like Coffee or Pepper, the fundamentals are quite different to those of a metal or energy commodity. Therefore, it is important to consider rainfall, harvest, demand, supply, and inventory when making an investment decision as these factors can vary from one type of commodity to another.

No matter which asset is being examined, the fundamentals of technical analysis will remain constant. For instance, indicators such as ‘Moving Average Convergence Divergence (MACD) and ‘Relative Strength Index (RSI) are utilised in the same fashion for stocks, commodities, or foreign exchange evaluation.

The assumption in Technical Analysis

Unlike fundamental analysts, technical analysts pay no attention to the company’s worth. They only focus on the stock’s past trading data like price and volume. This is done to gain an understanding of its future movements.

Technical Analysis is based on several foundational assumptions, and knowing them is necessary to make the most of this analytic tool.

  1. Markets take into account all publicly available and unknown information in their stock prices. For example, an insider may buy up a large amount of shares in private prior to the release of positive quarterly earnings, which will be revealed through the stock price. This enables the technical analyst to recognize that something is about to happen with regards to the share values.
  1. It can be concluded that the ‘how’ is more important than the ‘why’. Going ahead with the same example, a technical analyst would rather focus on the stock price reaction to the insider’s action, as opposed to inquiring why they purchased it.

Price movements in the market occur as part of a trend. Technical analysis is built on this concept. Ultimately, when a trend is established, the price follows it.

History tends to repeat itself in the world of technical analysis as well. This is because market participants tend to interact with price movements in similar ways regardless of the price’s direction. 

For instance, when prices rise, people become greedy and seek to buy even at a high cost. In contrast, when prices decrease, traders quickly offload their stocks regardless of how low the cost may be. Such consistent behaviour has been mirrored for years. History indeed repeats itself.