What is Technical Analysis?

Technical Analysis is a form of evaluation that is used to determine the probable change in stock prices in the future based on their past evaluation, taking into account all factors that have had or may have an impact on the formation of supply and demand.

 

What are the basic assumptions of technical analysis?

Technical Analysis is based on three basic assumptions:

• Demand and supply on the stock market reflect stock prices,
• Stock market processes – like history – like to repeat themselves,
• Changes in stock prices are subject to trends that persist over long periods of time.

What tools are used in Technical Analysis?

First of all, past stock price charts and technical indicators. They are the basis for estimating stock prices in the future, based on past patterns. They are called technical formations, characterized by a tendency to repeat themselves, making it possible to forecast the direction of stock prices in the future.

What trends are considered for Technical Analysis?

It is based primarily on three types of trends:

• Short-term trend (2-3 weeks) – this trend belongs to the components of higher degree price movements and complements them
• Medium-term trend (3-12 weeks)
• Long-term trend ( 3-12 months) – according to the Dow theory, it is a price movement along a straight line that lasts a minimum of 1 year. In practice, however, long-term trend means a period exceeding 3 months

What is the minimum number of points needed to draw a trend line?

The minimum value is 2, but it is worth using 3 points to confirm the reliability of the line.

How do you determine entry and exit moments?

One of the most effective tools are support and resistance levels. In classical analysis, a support level is defined as the level of the bottom of the previous decline, and a resistance level is defined as the level of the previous peak.

What formations herald a trend reversal?

• “V” formation
• “saucer” formation
• double bottom formation
• double peak formation
• head and shoulders formation
• inverted formation

What formations herald the continuation of the trend?

• rectangle formations
• wedges
• flags and flags
• Triangles – rising triangle, symmetrical triangle and descending triangle
• Head and shoulders formation, as a continuation of the upward trend

What is worth using in Technical Analysis?

• Relative Strength Indicators (RSI)
• Indicators of change (ROC)
• MACD indicators
• Oscillators
• A/D line (market breadth indicator)
• Moving averages