Three pillars of technical analysis. Anton Hanzenko.

Technical analysis is probably the main tool of the trader, because thanks to the technical analysis it is possible with a certain degree of probability to talk about this or that movement in the future. Of course, based on the fundamental factors, technical analysis may lose efficiency, but it should be noted that even some fundamental factors that cannot be predicted are sometimes predicted by technical analysis.

A logical question arises: How to predict the results of the event? To understand this will help three pillars, the rules, which rely on technical analysis.

Three pillars – Prices move in a trend

The market is always in motion and the price can move in three directions: up, down or sideways, thereby forming trends: ascending, descending and lateral or flat. Each liquid instrument on the market alternately changes these trends. Based on this statement, after a long upward or downward trend, one should expect correction, which is expressed either by reverse movement or by flat. So, a continuous flat always ends with an upward or downward trend. Also, a trading instrument cannot always move in one direction or not move at all.

So, relying on the rule “prices move in a trend,” you can always predict the reversal or its formation. Relying on this rule, let us point out computer analysis, namely trend indicators and oscillators. Trend indicators show themselves well in the market, where an upward or downward trend is clearly expressed. Oscillators are more suitable for lateral movement or flat.

Three pillars – History repeats itself

This or that event once could already take place in the market, so the behavior model can be repeated taking into account the existing realities. It is also possible to create unique events that did not happen before, such events on the market are called “black swan”. In this case, the event does not expect or do not know what to expect. But even in this scenario, there are a number of events that occurred in such cases and can happen again.

The rule “History repeats itself” is widely used in technical analysis. It formed sub-sections of technical analysis: figures or patterns that describe market behavior, and make a prediction with a certain degree of certainty.

Three pillars – Price takes into account everything

The rule implies that the current price takes into account the actual state of things, taking into account past factors and future ones. For an experienced trader, there is enough current price and history to build a forecast for the future.

So, relying on experience, before an important event, the market begins to adjust positions, thereby laying in the price some expectations regarding this event.

Technical analysis is an integral part of successful trading! But do not forget about the foundation, which, together with technical analysis, forms the basis for excellent earnings.

By the way, daily on the Ester website in the Technical Analysis section you can find out more about technical analysis of the most popular trading tools!

Hanzenko Anton