Introduction
Technical analysis - the study of market dynamics, often by
means of charts, to forecast the future direction of price
movement.
We formulate three postulates, which, as the three pillars,
"is" technical analysis:
1. Price (rate) takes into account all
At each time the price effect, a
large number (fundamental) factors.
Some of them are "pressured" by the price
up, others down.
Price and factors acting on it
Factors of tens and perhaps hundreds.
And they all have different meanings,
different "weight" and a different meaning in the eyes of
market participants .... But the price is influenced by all
these factors have shown a certain value. That is the price
at a time already "took into account" all factors that have
already responded to them! Therefore, technical analysts
believe that the correctness of the chosen object of
analysis, not all are difficult to even accounting
fundamentals, as a result of their influence - the price
chart.
2. Price movement is subject to trends
(trend)
Trend is the main direction of
price movement.
The main objective of the
trader - is to identify the trend as early as possible and
trade in the direction of its motion.
3. There are three types of trend
Ascendant - the price goes up. This trend is historically
referred to as "bychim"
The downstream - the price goes
down.
This trend is historically referred
to as "bearish"
Side - the price fluctuates up and down without creating a
sustainable movement. This type of trend is called flat,
whipsaw, range
Dow Theory
Initially, the principles set out
in Charles Dow, were used for the analysis he created the
U.S. indexes, industrial and railway. But
with the same success, most analytical conclusions Dow can
be applied in the financial markets.
Main provisions of the Dow Theory:
1. Index takes into account everything. According to Dow
theory, any factor that can somehow affect the supply or
demand, always will be reflected in the dynamics of the
index. Of course, these events are not predictable, however,
they are immediately taken into account by the market and
affect the dynamics of the indices.
2. In the market there are three types of trends. With the
rising trend each successive peak and each subsequent
decline over the previous. If the downward trend each
subsequent peak and decline is lower than the previous one.
When a horizontal trend each subsequent peak and decline is
about the same level as the previous ones.
Dow also distinguished three
categories of trends: primary, secondary and minor.
The greatest value he attached to it a primary
or major trend that has lasted more than a year, sometimes
for several years. Secondary or intermediate trend
correction is relative to the main trends and usually lasts
from three weeks to three months. These interim amendments
ranged from one to two-thirds (often half) of the distance
traveled by the prices during the previous (major) trend.
Small or short-term trends do not
last more than three weeks and are a short-term fluctuations
in the intermediate trend.
3. The main trend has three phases.
Phase One, or the accumulation
phase, when the most visionary and knowledgeable investors
begin to fly, since all the poor economic information has
already been taken into account by the market. The second
phase occurs when the game includes those who use the
techniques of following trends. Economic
data is becoming more optimistic.
Trend is in its third or final phase, when the action takes
the general public and the market begins hype, fueled by the
media. Economic forecasts are optimistic.
Increases the amount of
speculation. Here there are informed investors who have
"accumulated" during the decline of the previous trend, when
no one wanted to "accumulate" and start to "distribute".
Trends come to an end.
4. Indices must confirm each other.
Here Dow was referring to the
industrial and railway indexes. He believed that any
important signal to increase or decrease in rate in the
market must pass in the values of both indexes.
5. The volume of trade must confirm a
trend. Volume should increase
towards the main trend.
6. Trend only
lasts as long as there has not filed an obvious signal that
she has changed.