Let’s begin with a quick recap of what we have learned so far. We learned the process of opening a trading a D-mat account. How to trade with a quantitative edge and how to build a trading system.
Do you know there is a psychology involved when it comes to practicing technical analysis, and we can anticipate emotions like fear and greed, and this is only possible once we understand the psychology behind candlestick charts and patterns, and that’s what we are gonna learn today. Today’s episode will be a pack full of knowledge that is something you are going to be carrying for the rest of your life.
PRICE AND TRENDS
First of technical analysis is study of money movement, So there are few things you know about price action: HISTORY TENDS TO REPEAT ITSELF let’s look at a cycle, every winter you can buy air conditioners at lower price and in summer you can sell it on higher price because the demand is higher, it is a human mentality that is not going to change, a normal person will go to buy an air conditioner in winters, people would probably say that but they won’t, A trader would probably do that. The same thing causes fear and greed no matter the time frame you are in.
Second price action is MARKET TRENDS there are 2 types of market trends, lets understand with some pictures
UPTREND : When the graph scales and shows upward movement of assets.
DOWNTREND : The movement of coin/stock towards a lower price from previous state
when you look at the uptrend, every time there is a dip that is higher than previous, it becomes the higher low.
This picture above is a candlestick chart. If you want to study some companies' charts you don't have to see every detail, just mark the higher lows and the lower high to figure out, Is it an uptrend or a downtrend ?
with some examples: Let’s, divide this chart in parts, so from June till mid-August, you can clearly see that there is a downtrend, but from mid-August to September the higher lows are approximate same, let’s call it as a side-trend, from September till end the chart is clearly in an uptrend, by just marking the higher and lower points you can determine the type.
The third price action is MARKET DISCOUNT EVERYTHING which means, If there is some news or analysis that the market knows is going to happen it will already be reflected in price. Why is that? Because they suck genius, smart people reading news, understanding everything, listening to management calls, they will make inferences and they’ll think this is going to happen in 3 or 6 months which the retail investor cannot know. So, if there is an analysis, that’s going to happen after 6 months in a company, and retailers don’t know but a group of big investors know and let’s say they sell. That is the signal for people to be like there is something going to happen.
Once the news is broadcasted, it’s probably already been there for a while, so if you are following the news, you will probably be really late. An example: in June 2020 a big company called reliance said we will become debt free. There is a lot of debt, millions of dollars and the market was like damn, and the market gapped up. It was positive news and favored Reliance but now the market knew, analysts started following it. The deal was gonna happen and much later Facebook invested, Google invested. Approx. 20 million dollars were invested. In the annual general meeting, Mukesh Ambani (CEO of Reliance) said “we raised so much money and claimed to be debt-free, partnered with Google and Facebook, now the common people will think, it is great and they probably buy Reliance on that news, but that is when reliance fell. Because that news was already priced in, When news is out most of the time, The market already knows what’s happening. SO, THE TRUTH IS ONLY VISIBLE IN PRICE CHART. FOLLOW PRICE CHART NOT NEWS.
TECHNICAL IS THE READING OF PRICE MOVEMENT THOUGH THE USE OF CANDLE STICKS AND UNDERSTANDING PATTERNS, TRENDS TO GAUGE DEMAND AND SUPPLY.
In the next part we will be studying the structure of candle chart types of candle charts.
If you want to learn trading so must read earlier one trading> technical analysis#1 > technical analysis#2
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