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CLASS 1 & 2 What Is Technical Analysis

The document provides an overview of technical analysis concepts covered in TA 101. It discusses [1] using technical analysis to create an emotional trading strategy and gain charting confidence, [2] analyzing different time frames from day traders to position traders, and [3] using a top-down approach to analyze longer time frames to define primary trends and shorter time frames to refine entries and exits. The assignment is to identify different trader types and time frames suited to each using top-down analysis.

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Umar Hussaini
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© © All Rights Reserved
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120 views5 pages

CLASS 1 & 2 What Is Technical Analysis

The document provides an overview of technical analysis concepts covered in TA 101. It discusses [1] using technical analysis to create an emotional trading strategy and gain charting confidence, [2] analyzing different time frames from day traders to position traders, and [3] using a top-down approach to analyze longer time frames to define primary trends and shorter time frames to refine entries and exits. The assignment is to identify different trader types and time frames suited to each using top-down analysis.

Uploaded by

Umar Hussaini
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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TA 101 CONCEPTS

Overall Goals:
1. Create a strong trading and investment strategy to remove all
emotions.
2. Learn significantly more about charts – become comfortable
and then confident

Class 1 and 2 Overview

 Concept of technical analysis.


 Time frame analysis.
 Live examples.
 Assignment.

Concept Of Technical Analysis

Technical analysis in a very simple term is simply the study of


historical market data, including price and volume.

Technical analysts (such as you and I) aim to use past performance


to predict future market behaviour. The two most common forms of
technical analysis are chart patterns and technical (statistical)
indicators.

Technical analysis helps guide traders to what is most likely to


happen given past information. Most investors use both technical
and fundamental analysis to make decisions.
Key Takeaways

Technical analysis attempts to predict future price movements,


providing traders with the information needed to make a profit.

Technicians employ many techniques, one of which is the use of


charts. Using charts, technical analysts seek to identify price patterns
and market trends in financial markets and attempt to exploit those
patterns.

Technicians use various methods and tools, the study of price charts
is but one.

Technicians say that a market's price reflects all relevant information,


so their analysis looks at the history of a security's trading pattern
rather than external drivers such as economic, fundamental and
news events. Price action also tends to repeat itself because investors
collectively tend toward patterned behaviour – hence technicians'
focus on identifiable trends and conditions.

Prices move in trends Technical analysts believe that prices trend


directionally, i.e., up, down, or sideways (flat) or some combination.

Technical analysis is not limited to charting, but it always considers


price trends.

In general, technical analysts look at the following

 Price trends
 Chart patterns
 Volume
 Support and resistance levels
Time Frame Analysis
Here we dig deeper into multiple trading time frames.
A time frame refers to the amount of time that a trend lasts for in a
market, which can be identified and used by traders.

Primary, or immediate time frames are actionable right now and are
of interest to day-traders and high-frequency trading.

Other time frames, however, should also be on your radar that can
confirm or refute a pattern, or indicate simultaneous or contradictory
trends that are taking place.

These time frames can range from minutes or hours to days or weeks,
or even longer.

Top-Down Analysis In Technical Analysis

Top-down analysis in technical analysis is used to get a more


comprehensive view of price action by moving from wider time
frames to narrower ones.
Example….. A day trader may first analyze daily or weekly charts to
determine the longer-term trend as well as its significant support and
resistance levels, and then move to a smaller time frame to establish
a good entry point.
If prices is trending higher on the daily chart and there is bullish
momentum on the hourly chart, a trader who is using top-down
analysis could then move to a 15-minute chart and find a good entry
point for his or her long position.
In order to consistently make money in the markets, traders need to
learn how to identify an underlying trend and trade around it
accordingly.

Markets exist in several time frames simultaneously. As such, there


can be conflicting trends within a particular crypto currency pair
depending on the time frame being considered. It is not out of the
ordinary for a crypto currency pair to be in a PRIMARY
UPTREND while being mired in INTERMEDIATE and SHORT-
TERM DOWNTRENDS.

Typically, a beginner or novice traders lock in on a specific time


frame, ignoring the more powerful primary trend. Alternately,
traders may be trading the primary trend but underestimating the
importance of refining their entries in an ideal short-term time frame.

Now the question is what time frame should you use as a trader?

Firstly, you need to identify what kind of trader you are.

Secondly, a general rule is that the longer the time frame, the more
reliable the signals being given. As you drill down in time frames, the
charts become more polluted with false moves and noise. Ideally,
traders should use a longer time frame to define the primary trend of
whatever they are trading.

Once the underlying trend is defined, traders can use their preferred
time frame to define the intermediate trend and a faster time frame
to define the short-term trend.

 A DAY TRADER could trade off of 15-minute charts, use 60-


minute charts to define the primary trend and a five-minute
chart (or even a tick chart) to define the short-term trend.
 A SWING TRADER, who focuses on daily charts for decisions,
could use weekly charts to define the primary trend and 60-
minute charts to define the short-term trend.
 A long-term POSITION TRADER/INVESTORS could focus on
weekly charts while using monthly charts to define the primary
trend and daily charts to refine entries and exits.

Traders should use and would be using the long-term chart (Primary
trend) to define the trend, the intermediate-term chart to provide the
trading signal and the short-term chart to refine the entry and exit.

Key points

By taking the time to analyze multiple time frames, traders can


greatly increase their odds for a successful trade.

Reviewing longer-term charts can help traders to confirm their


hypotheses but, more importantly, it can also warn traders of when
the separate time frames are in disaccord.

By using narrower time frames, traders can also greatly improve on


their entries and exits. Ultimately, the combination of multiple time
frames allows traders to better understand the trend of what they are
trading and instill confidence in their decisions.

Assignment.

Identify the different types of traders and using the top down analysis
identify which timeframe is particular to the different traders.

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