Technical Analysis (lesson15)

Technical Analysis is the key component of your learning, but its very important to brgin by underlying the fact that if you put too much focus on technical analysis can worsen your trading results and keep you locked in cycle of switching.
Switching is where the focus is primarly on the system or strategy used for entering and exiting the market will little or no regard for external factors that are much more important to trading such as underlying fundamentals and sentimnet.

Mechanical systems never work because the market never mover, in the same way, all the time.
When volatility stikes prices move in tottaly irrational maner and the best action is to stay out of the unpredictable price action rather then blindly try to carry on and trade the system.
The result would just be losses and frustration and return to try to find a better system.
It is also important to understand why they seem to be the main focus by amateurs and retail traders.
The reason is not because they work the best because we can quickly prove that wrong by looking at what professionals do.
We do not pay thousands of dollars each month to for real time news feeds because we just enjoy looking at news. The simple reason is all technicals are basicly marketable and very easy to sell.

Most people that gravitate to trading are looking to get rich quick with no effort.
On the other side there are people who want create a product that would apeal to this mindset in order to make profit from it.
So whats easier? Trying to educate people about news feed and sentiment and all other things or showing people a chart or graph that gives you simple signals to buy and sell.
This marketers dont let little details that that stuff doesnt work in the real market, and people with get rich quick mentality are beilive its true.

Your technical analysis will positivly impact your results if you approach it correctly and use to your advantage.
Another important thing to remember is most technical analysis is the same, so if you have core understanding of certain methods there is very little to be gained by expanding your learning beyond that core concepts.
All technicals are lagging reflection what the price is already done and are used by traders to get an idea where the price may trade again and nothing more.
So again don't become over focused on them and techniques we will expand here will be exact the same thing I use.
First of all, they are what most professioanls use and a proven.
There is no benefit in trying to learn and understand all the other concept available because they will not improve your results.
Technicals show us where the price is already been and also what is recently done.

We will begin with Japanese candlesticks.
The concept of candelsticks originates from Japan, they are very effective at displaying exactly what the price did when it traded at certain levels and clues how the market was felling at that time.
Now this is how they look.

As you can see the candle is made up of 2 parts, the body, and the shadow, shadows are also known as wicks.
The candle on the left represents upper movement in price, the candle on the right shows down movement in price.
You can see where the price was at the open of the candle and how low and it got and where it closed.
Candelstick is measuring what the price did in certain time.
If you switch at 1hr timeframe this means each candlestick will represent 1hr of price action.
The longer the white candle is the more buying it was, on the other hand, the long black candle means there was a lot of selling.
The wick can show us where the most trading action took place

You can see the selling candle at the left is below its open but not before the market tried to push the price higher instead lower.

On the right, we see the buying candle closed above its open but not before the sellers tried to take the price lower first.

These wicks leave a trail where the price went and what it tried to do before eventualy closing.

You can see the battle going on between these buyers and sellers.

Now let's look at the chart.

Candlesticks show you the movement and direction of the price, you can see the price is heading up.

The white line shows us where the price is currently at.

This is why we use candlesticks they show us a visualization of a price.

Now we will look at wicks.

You can see as the price is heading higher the price formed a wick (pin bar) this candle coudnt push up and it closed below at the top of ressistance.
This tells us despite the market tried to push it up, sellers keep pushing it down.
You must use this in line with fundamentals and sentiment.

Trader Alen