📈 The World of Technical Analysis
Technical analysis is a trading discipline that dives into statistical trends, focusing on price movements and volume. Unlike fundamental analysis, which delves into a company’s financials, technical analysis uses past trading activity to predict future price movements.
🔍 How It Works:
- Analyzes supply, demand, and implied volatility.
- Assumes past activity and price changes indicate future movements.
- Often generates short-term trading signals.
💡 Understanding the Basics:
- Introduced by Charles Dow in the late 1800s.
- Evolved with contributions from researchers like William P. Hamilton.
- Uses various tools, including trendlines, moving averages, and oscillators.
📊 Indicators:
- Price trends, chart patterns, volume indicators, oscillators, moving averages, and more.
- Hundreds of patterns and signals developed over years of research.
🌐 Underlying Assumptions:
- Market Efficiency: Belief that all factors influencing price are already priced in.
- Trend Persistence: Prices are more likely to continue a trend than move erratically.
- History Repeats: Patterns in price movements tend to repeat, driven by market psychology.
🤔 Tech Analysis vs. Fundamental Analysis:
- Fundamental: Evaluates intrinsic value based on financials.
- Technical: Focuses on price and volume patterns, assuming all known fundamentals are in the price.
🛑 Limitations:
- Debate on the Efficient Markets Hypothesis (EMH).
- Criticism of patterns being self-fulfilling prophecies.
- Some argue that history doesn’t repeat itself exactly.
📜 Certification:
- Chartered Market Technician (CMT) designation for professional technical analysts.
Whether you’re a seasoned trader or just dipping your toes, understanding technical analysis opens up a world of insights into market movements.
Untill next time,
Santiago
