Technical Analysis schools

The major of technical analysis schools

- The Price Action
- Elliott Wave
- Gann levels
- Harmonic Patterns
- Wyckoff Theory

- The Price Action

Price Action is the basis for all types of technical analysis of stock or goods. Many short-term traders rely entirely on price action and price patterns and trends extracted from them. to make trading decisions.

Technical analysis is came from price action; Because it uses historical prices in the calculations that are made to make the decision to enter or exit trades. Several shapes can be applied to the chart to make the price action trends more visible to the traders. Price and chart patterns from price action. Technical analysis tools such moving averages are aimed from price action.

- Elliott Wave

Elliott discovered the secret of wave patterns in the 1930. Elliott constructed his theory on the basis of the constant change in the behavior of investors from optimism to pessimism and vice versa, and this leads to the movement of prices in waves of dissimilar characteristics. The theory divides selected waves as impulse waves setting up the main pattern, and corrective waves against the greater trend.

For each group of waves is entwined within a larger group of waves that follow as is direction, the motive/corrective one. Brainish waves are numbered from 1 to 5, and corrective waves are announced by the letters: A, B, C. To fully study Elliott waves, they must be joined to Fibonacci ratios. Elliott Waves adopt the psychology of investors in waves, as human nature is explosive.

 

The structure of ideal Elliott waves within an upward motive impulse wave
(This picture from Technical analysis: the complete resource for financial market technicians / Charles D. Kirkpatrick and Julie R. Dahlquist, p.487)

- Gann levels

Gann is more interested in the relationship of time to price changes, as all his trades have focused on the fact that time is the main element in changing prices.

Gann had a genius gift for forecasting, particularly his financial predictions, which were so profound and exact. In early 1929, Gann predicted that markets would probably continue to rise on conjecture to reach new record price levels, until early April, through his daily post. Gann allowed financial forecasts focused on stock and goods markets, and when this publication acquired notoriety, Gann published many books, most notably "The Truth", which was praised by the Wall Street Journal as his best work. Lastly he began releasing the techniques he used to make these forecasts: Gann studies.

 

This picture from Gann Lines and Angles, by Robert Pardo, in Stocks & Commodities V. 3:5, pp. 177-183.

Gann bases his prediction of price movement on three rules:
Price, time, and range, which are the three elements to consider.

Markets are cyclic in nature.
Markets are engineering in design and in affair

- Harmonic Patterns

Harmonic is the most significant type of technical analysis, which focuses on price reverse points in price patterns or shapes, based principally on Fibonacci ratios. A Fibonacci sequence beginning with 0 and 1 and then each subsequent number consists of the sum of the two former numbers. This sequence can then be parted into ratios that some believe provide a anticipation about where future prices will go. Meaning that the harmonic patterns focus on price reverse points, that's, they consist primarily of corrective waves, whether they're bullish or bearish.

Trading in harmonic patterns depends on the idea of the rapport in the direction of stocks or assets, as it can be divided into little or big waves, and through these waves the future direction of prices can be anticipated. The most famous harmonic patterns are: the Betterfly patern and the Bat patern.

 

Harmonic Patterns (Butterfly pattern)
(This picture from Full Trading Circle: The Complete Underground Trader System By Jea Yu, p. 247)

- Wyckoff Theory

Wyckoff or Richard Wyckoff was a famous trader and investor, who acquired market theory established on price cycles. Uykoff's theory is based chiefly on price action and the various cyclical phases in which the market falls. It is necessary to discourse two important rules observed in his book “Stock Market Drawing”; These two rules have been redeveloped as follows:

The constatations of Wyckoff's theory:

Price movements are not the same, the market is unique and has its own mindset, making different price movements each time. Since Wyckoff assumed that each price movement is unique and non-recurring; Consequently, he says that the implication of each price movement seems when compared to the former price behavior of that movement.

The price cycle, as discovered by Wyckoff's theory, occurs in four stages:

Accumulation
Markup
Distribution
Markdown

Related Pages:

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Price Channels
Trend is your Friend
Japanese Candlesticks, an Introduction