Technical analysis

Technical analysis (also chart analysis ) is a form of financial analysis. She tries out the price and volume history of the Underlying to find out the cheapest to buy and sell points in time, that is, the performance - or at least their probability - to predict.

Both the technical as well as fundamental analysis are contrary to the efficient market hypothesis, according to which it would be possible with either of the two methods to systematically perform better than the market.

  • 5.1 Gaps
  • 5.2 Spike
  • 5.3 Trend Lines and Trend Channels
  • 5.4 Other patterns
  • 6.1 Trend following indicators
  • 6.2 oscillators
  • 6.3 List of technical indicators

Generally

Technical analysis takes into account only the price history and, if the trading volume of the underlying assets. In contrast to the fundamental analysis of business data of the company or the economic environment (eg economic indicators ) are not included.

The fundamental axiom of technical analysis is that all decision-relevant information is contained on the past and future is already in the price development and help forecast expected price developments. This assumes that the capital markets are not efficient, because otherwise it would not be possible by analysis of the price development these to predict and even to arbitrate. Therefore, diffusion of information must be available in the market, that is, price-sensitive information may not be priced only with a time delay.

Allen chart technical analysis models, the assumption is common that there are recurring, observable events, each with similar probable future courses. Thus - depending on which discipline is followed by a chart analyst - certain geometric patterns or purely statistical, quantitative indicators are used as a " direction indicator ".

The Professional Association of Technical Analysts in Germany is the German Technical Analysts Association.

History

In the Western world the American Charles Dow ( the developer of the eponymous Dow Jones index) is considered the founder of technical analysis. He published his Dow Theory on the chart analysis in a series of articles in the Wall Street Journal from 1884. Dow never raised this claim to have developed a scientific theory, which would be suitable to predict future prices of individual stocks. He looked at his findings rather as a tool for analysts to define general market trends better. Dow assumes that financial markets behave cyclically and run in the short-, medium -and long -term waves.

The U.S. mathematician Ralph Nelson Elliott built in the 1930s and 40s on the findings of Charles Dow and founded the theory of Elliott Wave. His model also describes trend cycles, but they are much more defined mathematically as the Dow theory.

Richard Schabacker, one of the most influential financial journalists of his time, published in 1932 his first published book, " Technical Analysis and Stock Market Profits: A Course in Forecasting " the still valid summary of the fundamentals of geometric patterns based on chart analysis.

Maybe market affecting the purely quantitative analysis models of technical analysis but were only with the wide availability of computer technology. Since the 1980s, technical trading models can be calculated in real time and can be applied to action huge sums invested in international financial markets.

Criticism

Whether you can actually make statements about the future price development of a security with the help of technical analysis, is not scientifically proven and controversial. Representatives of the traditional financial market theories ( efficient market hypothesis, random walk ) are approximately in stark contrast. Quantitative studies that deal since the 1980s with the explanatory power of different technical forecasting models ( see Related links: " To measure success of technical trading approaches " ), are rare and arise (at least in 2005), no clear picture in favor of or against the assumption that technical analysis models would provide a better way to anticipate market developments, as pure chance would be expected.

An argument for the inclusion of technical analysis in the course analysis is the wide dissemination and popularization on investment magazines. The fact that out of the belief in the chart analysis out much capital is moved, there arises the known from psychology phenomenon of self-fulfilling prophecy, which complicates a meaningful statistical Validitätsuntersuchung. Then actions are (in this case corresponding limit orders, stop - buy- and stop- loss orders ) executed from the belief in the arrival of the expected price movements out, which then can be the root cause of the actual occurrence of these price movements in the mass itself.

In the final analysis, is at least to be seen as debatable whether, as it implies that technical analysis, price movements inherent recurring mechanisms underlie from which future developments can be derived with reasonable certainty. How can both be interpreted as an indication of a trend confirmation as well as a signal of a nascent trend reversal, for example, depending on the time of observation certain chart patterns.

Charts

Generally

A chart is a chart showing the performance of an underlying asset. Typically, the time is plotted linearly on the horizontal X -axis and the rate in the vertical Y-axis. In order to represent price movements proportionate - in case of long -term periods - the price - axis are scaled logarithmically. The two time parameters of the chart are the observation period and the size of the individual time intervals. Usually one chooses the time interval, the larger the larger is the total observation period - and vice versa.

As a rule uses the following three or four display options for charts.

Bar chart

In the bar chart (also OHLC for open, high, low, close ), each interval is shown as a vertical line that extends from the lowest to the highest price within the interval. The opening is represented as a horizontal line on the left and the closing price as waagerechet line on the right side.

Line chart

In Line charts only the closing prices of the respective intervals are shown and connected by a line. Due to the lack of high and low price the price fluctuations within an interval are not apparent, the chart contains therefore less information than the other display types. Some charts can also be represented only as a line chart, for example, intraday charts, which each tick (that is, each individual transaction ) as a separate value represent. Tick ​​charts have a non-linear timeline, because per unit time results in many different ticks, depending on how often a security in the jeweilen time unit is traded.

Candlestick chart ( candlestick chart )

Candlestick charts are a variation of the bar chart, where smaller trends are easier to see. The Japanese rice traders Munehisa Homma ("God of the markets ", born 1724) was the first to the representation form of candlestick charts developed from a long-standing record of the prices at the Japanese rice market and the analysis of candlestick charts to forecast price trends for rice used. The span between the opening and closing price is displayed (body) as a small rectangle. This is white ( hollow) or green, if the closing price is higher than the opening or black or red if the closing price is lower. About this rectangle is a line up to the high of the interval ( the so-called wick or upper shadow ). From the bottom edge of the rectangle to the low is also a line drawn ( the so-called fuse or lower shadow ). Thus this form of presentation has a certain similarity with a candle.

Point and figure chart

An alternative form of representation is the point and figure chart, which has no (linear) time axis, but only the price movement maps.

Comparison Charts

In comparison charts the price trends underlying shares are presented in a chart. This is applied ( optical ) comparison of price developments easier.

Chart Patterns

There exist in the chart analysis, a variety of patterns, their meanings also contradict each part.

Gaps

A Gap (English, in German: gap) is a gap in the chart, which was caused by a jump in price between two successive time intervals. Here, the low point of the following section is higher than the high of the previous (gap up) or the high of the current section is lower than the low of the previous (gap down). Gaps are very visible especially in bar charts.

  • As Common Gaps Common Gap or smaller price jumps within the movement are called.
  • As a breakaway Breakaway Gap or a larger price jump is called, which marks a new high or low.
  • As Runaway Gap one or more price jumps after another in the direction of the trend are called.
  • As Exhaustion Gap a price gap is called, which is the endpoint of a price movement. You can not be distinguished from a Runaway Gap at the beginning, make it, however, no new highs or lows below from.

Spike

A spike is a price pattern in which, in contrast to the previous and the following day a strong high and a clear depth has formed and the closing price is at the other end of the previous movement, and thus resembles in a bar chart of a spearhead. It is assumed that such a spike marks the culmination of the current purchase or sales pressure and it is for this reason a trend reversal. This should be supported by significantly increased volume. The probability that a spike plays a high importance increases, the stronger this stands out from the current chart development.

Trend lines and trend channels

In order to identify trends, so-called trend lines are drawn to local extrema of a chart. An upward trend line is drawn at least two adjacent local minima are not too tight of an uptrend. A downward trend line is drawn at least two adjacent local maxima are not too tight of a downtrend.

Trend channels are obtained if one inscribes two possible parallel lines run to each other at different distances in the chart. A tight trend channel includes short-term price fluctuations, a growing trend channel includes long course cycles.

Trends can be stable over long periods, but it is often within this short-term trend channel, also quite opposite trends exist. You then place in a stable, long -term upward a short-term downtrend that, as expected, turns again to the lower limit, which results in a potentially highly suitable entry point. Similarly, a market participant indicate the approach to the upper trend channel boundary as a possible exit points.

When trend lines and trend channels should be noted however, that they can be reliably drawn more or less as an afterthought. Trend lines for current trends are often re-draw, since it is possible that a movement is misjudged. There are different opinions about how many highs and lows are needed to draw a trend line usable as possible.

There is also the approach of the internal trend lines where not the highest highs or the deepest lows are to be interconnected, but as many points where extreme price spikes are not considered.

More patterns

The following patterns are to a trend reversal signal:

  • Dual high- and -low,
  • Triple high - or low,
  • (reverse ) Saucer,
  • Shoulder -head-shoulder,
  • Triangle.

The following patterns are intended to signal a continuation of the trend:

  • Rectangle
  • Triangles and wedges
  • Flags and pennants

Technical indicators

A technical indicator is used for alternative representation of the price development of an underlying asset. It is used to quantify price trends and to reduce them to the information relevant with respect to certain properties.

Technical indicators represent basically timing indicators, for they shall determine the schedule for buying or selling decision, or at least information about the condition of a value type (eg whether a trend is present ). In contrast to economic indicators technical indicators are not based on external data, but only the price and possibly even volume data.

In general, a distinction is made between so-called trend-following indicators and oscillators.

Trend following indicators

Trend following indicators will indicate whether a security is currently in an up or down trend. As the name suggests, these indicators follow a trend, ie they react always delayed on the share price. Often a trend will only appear if such a piece has proceeded already and the end or the trend reversal is signaled delayed. Furthermore, it also does not provide forecasts for the future price development.

One of the most popular trend-following indicator is the so-called MACD. It indicates whether an upward or downward is and provides signals when a trend has been established. The trend focused training always new extreme values ​​on the courses that are no longer reflected in the indicator ( called divergence), is intended to indicate the weakening of a trend.

Another popular trend-following indicator is the moving average (MA English or MA for short). The GD- 38 is, for example, the average of the last 38 courses. A stock is now in an uptrend, the moving average is also rising. Share prices subject to variation, which can make it difficult to identify the current trend. The moving average is a smoothing of the current course and the course allows to read the prevailing trend easier.

In periods where there is no clearly dominant trend exists (eg in a sideways motion) provide trend-following indicators frequent false signals.

In addition to trend-following indicators exist trend strength indicators. The ADX is this one of the best known. It indicates only whether a trend exists or not. The trend direction must be determined otherwise.

Oscillators

Oscillators should anticipate potential turning points in the price development or merely confirm, thus they represent the counterpart to the trend-following indicators dar.

In oscillators one speaks sometimes of overbought and oversold. By this is meant that the indicator ( overbought ) at the top or bottom ( oversold ) is range of values.

List of technical indicators

Price -based:

  • MACD ( Moving Average Convergence / Divergence indicator)
  • Moving Average
  • Average Directional Movement Index ( ADX )
  • Advance Decline Line
  • Momentum
  • Parabolic Stop and Reversal System, including Parabolic SAR
  • Relative Strength Index (RSI )
  • Keltner Channel
  • Stochastics
  • Williams% R
  • Stochastics (indicator)
  • Williams% R ( PCR)
  • DSS Bressert

Volume -based:

Overlays: Overlays (English, German on overlays ) are called indicators that are included in the price window of the chart specified ( in the form of lines, for example ) about the prices.

Elliott wave principle Bias (statistics) Flag and pennant patterns Advance–decline line Williams %R Ichimoku Kinkō Hyō Trading strategy Money Management
163374
de