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Few General Principles on Technical Analysis

 FEW IMPORTANT TECHNICAL ANALYSIS PRINCIPLES
  • Technical Analysis deals in probabilities and never certainties.
  • Markets rarely discount the same thing twice.
  • Technical analysis is applicable across all time frames, from minutes to several years.
  • Longer the time span of the trend the easier to identify reversal.
  • Following factors influence Price :- Physiological , Technical, Economic and Monetary.
  • Transition between rising and falling trend is usually signaled by price patterns.
  • Volume usually leads price.
  • Technical signal often fail more if it is taking in opposite direction to the main trend.
  • Trend-lines are dynamic areas of support and resistance.
  • Violation of the trend-line with sharp angle of ascent or descent is more likely to results in a consolidation than a reversal.
  • Significance of Trend-line is function of its length, number of times it has been tested (touched) and the angle of ascent of descent.
  • Oscillator's behave in different ways depending on the direction of the primary trend.
  • Divergences only warn of a weakening or strengthening of technical conditions, they do not represent actual buy or sell signals
  • Greater the number of negative divergences the weaker the structure and vice versa.
  • When Trend-lines on price & oscillator's are violated simultaneously signal is stronger.
  • Candlesticks given greatest emphasis on the opening and closing prices of trading range.
  • Support and resistance levels represent intelligent places for anticipating trend to reversed.
  • Time is concerned with adjustment as longer the trend takes to complete, greater is its logical & physiological acceptance greater the necessity for prices to move in opposite direction and adjust accordingly.
  • Greater the number of securities moving in the same direction, the strong the trend.
  • It is level of enthusiasm of buyers or sellers that determine the course of prices.

from  "Technical Analysis Explained" by Martin J. Pring.