Cannarek's trading

What is technical attitude and why it works

Technical analysis (TA) is a study of behavior of the market, by using charts, to predict future price trends. Technical analysis is based on three considerations:

1. The market discounts everything

Which means that every economic or psychological or any other aspect is already taken into and seen in the price.

2. Prices move in trends

Simply buy when price is higher and higher and sell when it forms lows one after other. Because it is much more probably the price will continue its way up (or down).

3. History repeats itself

Which means the price creates structures called formations which can be seen on any timeframe.

Advantages and disadvantages of TA.

TA is quite simple in fact, it is based on clear rules - and this is very good. Unfortunately there are a lot of these rules, even simple trend line can be drawn in several possible ways - and this is huge disadvantage: in order to use TA efficiently trader must have great experience. That's why technical analysis needs support in my opinion. We will use bollinger bands, probability based on average ranges and some 'extra' rules which will help us to filter only best patterns. What is also quite important we will not use all of TA formations/rules and some of them will be modified.

In general we will try to recognize patterns and lets remember this phrase. There is significant difference between 'formation' and 'pattern' - pattern is a kind of template which is created by several parts: price action, volume, support/resistance level, price analysis and technical formation. And there is no obligation that all of these parts must be seen in every pattern. Only price action and volume seen at support/resistance level are obligatory. This is why experience - read exercising - is the key to success.