Transcription
Hi there! Thanks for checking out our free course, "The Basics of Technical Analysis."
We put this course together for people who are brand new to technical analysis. Maybe you've got a basic working knowledge, maybe even made a few trades, or you're just plain skeptical about what we're doing here. This course is a place for you to start your own educational journey into technical analysis.
We're going to talk about what technical analysis is, what it isn't, and how we're actually using information presented to us to calculate the best possible outcome for a range of situations. We are shifting the odds in our favor using technical methods.
We're going to talk about some chart basics, different types of charts. We're even going to cover candles and how candles nest inside different time frames, and how that information is useful for you. We're going to talk about support and resistance and learn about how supply and demand actually creates different support levels.
On top of that, we're going to talk about trends and counter trends, how to identify trends. We're talking about patterns and pattern psychology, and most importantly, we're going to provide you with some basic trading strategies so you can utilize the information you learned about support and resistance, trends, and patterns, and get started on your journey through technical analysis.
Thanks for checking out this course, and I wish you the best of luck!
So, who is this course for? Like I said, it's for people who are brand new to technical analysis. Maybe you have been interested in the stock market, you've been doing a little bit of research, poking around. You've seen some charts that have been posted in different communities, and you're wondering what exactly all of these lines and all these words mean, and you don't know where to get started.
This course is going to help introduce you to some of the concepts of what we're doing with these charts, what our goals are, and how you can utilize technical analysis for your own trading. Maybe you're someone who has spent a little time doing some investigations. You've learned about moving averages, you have an understanding of support and resistance, or maybe you've even made a few trades, but you're finding yourself lost in the sea of information, and you don't quite know what to do with what you have at your disposal.
There are some people who are even skeptical about technical analysis. They spent time trading, they've been burned by making some bad trades using technical analysis, or maybe you just don't believe in technical analysis at all, and you're a total skeptic. That's okay! I am going to address some of the concerns that skeptics have with technical analysis, and I'm going to try and convey to you how we actually use this tool to make trades.
For people who are looking for a place to start, I hope this course becomes the cornerstone of your technical analysis education and helps you establish an amazing foundation for your own trading education.
So, the goal of this course is to introduce the general concept of technical analysis to people, like I said, who have a little bit of understanding or are skeptical about what exactly we're doing with all this information. We want to give you a truthful, solid introduction to the entire concept and allow you to walk away feeling a little bit informed and having the foundation that you need to continue your own education into this very, very interesting market, if you so choose.
We want to provide a basic knowledge of some of the foundational aspects of technical analysis and give you a couple of strategies that you can walk away from this course with and apply to your own trading, to your own review of the markets, and try to look and see if you can pick out what's actually happening on some of these charts.
We want you to understand how technical analysis helps the individual. We are competing against algorithms, robots, hedge funds, very experienced traders, and the entire market is designed to extract money from individual retail traders like you and I and give it to these larger players in the market. Technical analysis is really the only tool that we have that we can use to protect ourselves and find our own profitable trades.
We're also going to talk about the purpose and function of a chart. What is a chart? What does the information on the chart mean, and how can we use it? Continuing from that concept, we're going to talk about understanding support and resistance. We're going to look at what's happening behind the scenes at key levels that establish particular areas as support and resistance.
Why is 17 important, and why is 1725 not? What's happening at that key level that actually creates these important levels that we can use to trade? We're going to talk about the basics of trends. Trends are the backbone of the entire concept of technical analysis, and it is how we make money, so we need to understand what's actually happening when we're looking at a trend.
We're going to talk about patterns and how psychology ties into patterns and how we can use that information to our own end as well. Lastly, we're going to talk about continued education, where you can go from here following this course and continue your own quest for knowledge in technical analysis.
So, if you've made it this far, you probably have a pretty good idea about what technical analysis is. According to Wikipedia, technical analysis is a methodology for forecasting prices through the study of historical information, and we focus on price and volume.
Ultimately, technical analysis is a tool that we can use as a means for understanding what's happening in the market, why prices are moving in particular directions, and it allows us to develop a strategy for planning our own trades and forecasting price action.
We can take all of the information that's presented to us in one of these financial charts. We can look at what has happened historically, plan a best-case scenario for what's going to happen next, and make trade decisions based on that information that's presented to us.
Technical analysis is a methodology for analyzing huge amounts of data. There are thousands of indicators that incorporate price information and present it in different ways. We have EMAs, we have Bollinger Bands, we have reversal indicators, and there are countless custom indicators that people have developed over the years that all focus on the same thing. They're giving us visual information that we can use and apply technical analysis towards making our own trade decisions.
Technical analysis also incorporates all of the fundamental and news-driven information that's presented in the market. If you have a company that has a good news report, the price of the stock is going to move, and the movement of that price incorporates and digests and internalizes all of that social media or news-driven information and allows you to use it to your own end.
Lastly, technical analysis allows us to visualize when something is wrong. If we have taken all the information that we know about the market, we've developed a trading plan, we've decided on a strategy, we've got a forecasted price, and we're using our technical analysis to plan our trade, TA also tells us when we're wrong and we need to step back, get out of our trade, and reassess what's happening in the market.
Technical analysis is absolutely critical for anyone who wants to trade. In order to get the job done, technical analysis makes quite a few assumptions. One of those is that in a free market, prices are going to travel in predictable trends, just like a river flows to the ocean.
We know that a river in place, or a trend in place, should continue until there are reasons for it to change course. That is why the second assumption is that trends are going to continue until they're interrupted.
We also assume that history is going to repeat itself. If we're in a situation and we're looking at a chart, we can go back and find historical examples of what happened in similar situations and use the average of those outcomes to try and predict and inform our own trading decisions in the current context.
We assume that the same thing is going to happen time after time after time. We also assume that patterns exist in nature, and the free market is a natural entity; therefore, patterns can exist inside the market.
We also assume that human beings are able to see and act on visual patterns that are not easily picked up by algorithmic or robotic trading. We know that humans have an innate ability to pick out patterns, find faces, and look for familiar cues. We use that concept and apply it to technical analysis and say, "All right, we have the ability to recognize patterns." Humans are going to have a special skill, and it's going to be used to our advantage through technical analysis.
Technical analysis also assumes that prices are governed by psychology and emotion. At least originally, the entire market was buying and selling and trading between people, and people or companies. This has informed all of the indicators that we use today, and by and large, a lot of the trading that we see is based on fear and emotion.
It could be algorithms replicating fear and greed, but we see this happening when we have a major sell-off in the market. Even if ninety percent of that sell-off is being generated by algorithmic traders, they are still reacting to the cues and concepts that humans would have in similar situations.
For that reason, we have things like psychological support and resistance levels that actually play out for robotic trading. So, prices are governed by psychology and emotion.
Technical analysis also assumes that price action incorporates everything we discussed: how news moves prices. Therefore, prices incorporate news. Good companies will have value; their prices will be high, their charts will trend to the upside, and all this information is contained inside the price action on your chart.
Lastly, we assume that understanding technical analysis is going to provide you an edge for timing your investments and divestments. You're going to know when to get in or out of a trade. You'll be able to recognize good potential setups. You'll recognize when greed has taken over and you should not be entering a position.
All this information gets combined into a tool, technical analysis, that you can use for your own investments.
So, we've talked a little bit about what technical analysis is. Now, let's talk about what it's not. Above all else, technical analysis is not a crystal ball. We're not predicting the future. All we're doing is using historical information, price patterns, volume indicators, and we are trying to leverage all of that knowledge to gather an educated guess of what's going to happen.
It is not about predicting, and we are not providing concrete targets or predictions or expectations. Technical analysis is not foolproof, and it's not always even reliable. We are just trying to find the most likely outcome in a given situation.
There are many times when you're looking at a chart, and there is simply no way to discern possible direction or possible outcome. There are other instances where you have a very clear pattern, you have recognizable conditions that you have seen before and that have always been reliable for you, and you use that information with your technical analysis to say to yourself, "Yeah, I think it's more likely that the price is going to go up than it is to go down."
That is the difference between forecasting and predicting. If you're looking at market conditions and you recognize a lot of what's happening and you've seen it before, you can make a forecast based on that information.
That is a lot different than simply looking at a chart and saying, "I believe that SPY is going to go to 300." Prediction has no information to back it. Forecasts use the context, the current market conditions, and experiential knowledge to try and find the most likely outcome.
Potentialities and preparation are absolutely critical in technical analysis. We need to look at every possible outcome in a given situation. We need to be prepared for us being correct, the price moving in the direction that we want, but we also need to be prepared for the price going against our forecast.
Having a plan of action in place for both outcomes is absolutely vital to using technical analysis. We have to understand and react to market conditions. We are not simply using this crystal ball to make a decision based on pure speculation.
We are using information. We are ingesting, digesting, and understanding, and ultimately, we are going to be reacting to what is presented to us. Technical analysis is a means to understand the odds of a given trade.