{"id":4316,"date":"2020-04-08T03:36:16","date_gmt":"2020-04-08T03:36:16","guid":{"rendered":"https:\/\/trade-malaysia-option.com\/analisis-teknikal-primer\/"},"modified":"2023-02-11T19:12:51","modified_gmt":"2023-02-11T19:12:51","slug":"analisis-teknikal-primer","status":"publish","type":"post","link":"https:\/\/trade-malaysia-option.com\/en\/analisis-teknikal-primer\/","title":{"rendered":"Technical Analysis: A Primer"},"content":{"rendered":"

Technical analysis is the study of past market data to predict the direction of future price movements.\u00a0This methodology is considered a subset of security analysis along with fundamental analysis.\u00a0Here we look at how to use technical analysis in day trading.<\/span><\/p>\n

It often differs from fundamental analysis, which can be used at both the microeconomic and macroeconomic levels.\u00a0Micro-level fundamental analysis includes the study of revenue, costs, income, assets and liabilities, capital structure, and “soft” elements (quality of management team, competitive position).<\/span><\/p>\n

Macro-level fundamental analysis involves the study or forecast of economic growth, inflation, credit cycles, interest rate trends, capital flows between countries, labor and resource use and cyclicality, demographic trends, central bank and political policy and behavior, geopolitical matters, consumer trends and business, and “soft” data (eg, sentiment or confidence surveys).<\/span><\/p>\n

Some traders may specialize in one or the other while some will use both methods to inform their trading and investment decisions.\u00a0Most large banks and brokerages have teams that specialize in fundamental and technical analysis.<\/span><\/p>\n

In general, the better quality information is taken to improve the correct odds, the better trading results are possible.<\/span><\/p>\n

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Technical analysts are often called chartists, which reflects the use of charts that display price and volume data to identify trends and patterns to analyze securities.\u00a0Price patterns can include support, resistance, trendlines, candlestick patterns (eg, head and shoulders, reversals), moving averages, and technical indicators.<\/span><\/p>\n

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Assumptions in Technical Analysis<\/span><\/h2>\n

Although some traders and investors use both fundamental and technical analysis, most tend to fall into one camp or the other or at least rely on the other more heavily in making trading decisions.<\/span><\/p>\n

Technical analysts rely on the methodology due to two key beliefs \u2013 (1) price history tends to be cyclical and (2) price, volume, and volatility tend to move in different directions.\u00a0Let’s go through each one individually:<\/span><\/p>\n

Market Cyclicality<\/span><\/strong><\/p>\n

Human nature being what it is, with shared behavioral characteristics, market history has a tendency to repeat itself.\u00a0The sequence of events is not exact to repeat them perfectly, but the pattern is generally the same.\u00a0This can take the form of long-term or short-term price behavior.<\/span><\/p>\n

In the long run, business cycles naturally tend to repeat themselves, such as those driven by credit booms where debt rises inexorably above income for a period and eventually causes financial pain when there is not enough cash to pay off this debt.\u00a0This tends to produce slow progressive gains in stocks and other “risky” trades (for example, carry trades) during expansions and sharp falls during recessions.\u00a0Technologists implicitly believe that market participants tend to repeat past behavior due to their collective nature.<\/span><\/p>\n

If the behavior is indeed repeatable, this suggests that it can be recognized by looking at past price and volume data and used to predict future price patterns.\u00a0If traders can find opportunities where the behavior is likely to be repeated, they can identify trades where the risk\/reward is improved.<\/span><\/p>\n

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Therefore, there is an assumption built into technical analysis that market prices cut out all information that affects a particular market.\u00a0Although fundamental events affect the financial markets, such as news and economic data, if this information is already or will soon be reflected in the price of the asset when it is released, technical analysis will focus on identifying price trends and the extent to which market participants value certain information.<\/span><\/p>\n

For example, if the US CPI inflation data reaches a tenth of a percent higher than what the market bought before the news release, we can return the market’s sensitivity to that information by looking at how asset prices react immediately.<\/span><\/p>\n

If US futures move down X%, the US dollar index increases Y%, and the US 10-year Treasury yield increases Z%, we can get a sense of how those economic inputs affect certain markets.\u00a0Knowing this sensitivity can be useful for stress testing purposes as a form of risk management.<\/span><\/p>\n

For example, if inflation is not expected to increase by 1%, we can use data points on the surprise inflation reading to determine how the portfolio might be affected.<\/span><\/p>\n

Price, Volume, and Volatility Run in Different Trends<\/span><\/strong><\/p>\n

Another assumption behind technical analysis (and all securities analysis more broadly) is that prices do not move along a “random path”, or do not follow a clear or logical pattern.\u00a0Instead it moves in an explainable and predictable trend.\u00a0For example, if we look at the EUR\/USD chart from mid-2013 to mid-2017, we can see how technical analysis plays a role by looking at support and resistance in the context of a trend.<\/span><\/p>\n

After the euro began to depreciate against the US dollar due to monetary policy divergence in mid-2014, technical analysts may have shorted a pullback to a resistance level in the context of a downtrend (marked by an arrow in the image below).<\/span><\/p>\n

After the trend fades and the market enters consolidation, a technician may choose to play a range and begin taking support at the close of any previous short positions.<\/span><\/p>\n

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Characteristics<\/span><\/h2>\n

Originally, technical analysis was largely about \u201creading the tape\u201d or interpreting the successive trends and magnitudes of price and volume data through stock tickers.<\/span><\/p>\n

As computers became more widespread in the 1970s, data was organized into chart form and became the technician’s standard reference.\u00a0Graphical pattern recognition and bar (or later candlestick) analysis are the most common forms of analysis, followed by regression analysis, moving averages, and price correlation.<\/span><\/p>\n

Today, the number of technical indicators is much greater.\u00a0Anyone with coding knowledge related to software programs can transform price or volume data into specific indicators of interest.<\/span><\/p>\n

Although technical analysis alone cannot fully or accurately predict the future, it is useful for identifying trends, behavioral patterns, and potential mismatches in supply and demand where trading opportunities may arise.<\/span><\/p>\n

Analytical approach<\/span><\/h2>\n

There are several ways to approach technical analysis.\u00a0The easiest method is through the basic candlestick price chart, which shows the price history and the dynamics of buying and selling prices in a certain period.\u00a0Others use price charts along with technical indicators or use specialized forms of technical analysis, such as Elliott or harmonic wave theory, to generate trading ideas.<\/span><\/p>\n

.\u00a0Some use some of several different methods.\u00a0At the same time, traders must resist the idea of \u200b\u200b”information overload” or a chart that is reduced to so many indicators and lines that it begins to adversely affect one’s ability to read the chart.<\/span><\/p>\n

Traders may take a subjective assessment of their trade calls, avoiding the need to trade based on a strict rule-based approach given the uniqueness of each situation.<\/span><\/p>\n

Others can enter into trading only when certain rules are uniformly applied to enhance their trading objectives and avoid emotional bias from affecting their effectiveness.<\/span><\/p>\n

Chart Type<\/span><\/h2>\n

Candlestick<\/span><\/strong><\/p>\n

Candlestick charts are the most common form in software today.\u00a0Green (or sometimes white) is usually used to depict bullish candles, where the current price is higher than the opening price.\u00a0Red (or sometimes black) is common for bearish candles, where the current price is below the opening price.\u00a0It shows the distance between the opening and closing prices (candle body) and the range of the daily volume (from the top of the wick to the bottom of the wick).<\/span><\/p>\n

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(Candlesticks show up and down movements in the S&P 500 index)<\/span><\/p>\n

Open Low Open<\/span><\/strong><\/p>\n

A candlestick chart is similar to a close-low low chart, also known as a bar chart.\u00a0But instead of the candle body showing the difference between the open and close prices, this level is represented by horizontal quotation marks.\u00a0The price of the opening dot is on the left (to show that it comes from the past) while the price of the other price is to the right.<\/span><\/p>\n

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Area<\/span><\/strong>
\nAn area chart is basically the same as a line chart, with the area underneath shaded.\u00a0This is done more easily to visualize price movements than line charts.<\/span><\/p>\n

Heiken-Ashi<\/span><\/strong><\/p>\n

The Heiken-Ashi chart uses candlesticks as a plotting medium, but takes a different mathematical price formula.\u00a0From the candle standard procedure translated from the low open base criteria, the price has been diluted to show the price increase according to the formula:<\/span><\/p>\n