Mr. Li, a master of technical flow, took me to a spacious conference room. The walls were covered with various stock market charts. He smiled and said: "The core of technical analysis is to understand the pulse of the market in order to predict future results. Today we will start with the most basic K-line chart.

Under Mr. Li's guidance, I stepped into a magical world of finance. On the huge display screen, K-line images are like flowing rivers, and each K-line records the pulse of the market. Mr. Li guided me and revealed the mysterious power of trend lines, like a shining silver line, leading the price direction. As support and resistance levels emerged, I felt the invisible barrier and push of market forces....

Technical analysis is an analytical method widely used in financial markets that attempts to predict future price trends by studying past price and trading volume data.

1. Basic principles of technical analysis

Technical analysis is based on the following three core assumptions:

1. Market behavior reflects everything : all factors that may affect the market, such as economic, political, social, etc., will eventually be reflected in price movements.
2. Price movement along the trend : Price movement is not random, but runs along a certain trend. Identifying and following these trends is key to technical analysis.
3. History repeats itself : Technical analysts believe that historical trends will repeat themselves because the behavioral patterns of market participants continue to repeat themselves.
   The famous American writer Mark Twain famously said: History does not repeat itself, but it does repeat itself in a similar way .

2. Technical analysis tools

1. Chart analysis

Charts are the basic tools for technical analysis. Common charts include K-line charts, trend lines, support and resistance lines, etc.

• K-line chart : K-line chart can visually display the opening, closing, highest and lowest price of the price, and judge the market trend through morphological analysis.
• Trendline : A trendline is a straight line connecting the highs or lows of price fluctuations and is used to confirm the direction of price movement.
• Support and resistance : The support level is the support point when the price falls, and the resistance level is the resistance point when the price rises. These points are usually the focus of investors.

The picture shows the daily downward trend line of BTCUSDT on July 12, 2024

3. Application of technical analysis

1. Trend following

The core of technical analysis is trend following, where investors develop trading strategies by identifying and following price trends. Commonly used methods include:

• Breakout Trading : Trading when price breaks through a support or resistance level with the expectation that price will move in the direction of the breakout.

Pictured is an example of a breakout trade

• Reversal trading : After the price reaches an important support or resistance level, predict that the price will reverse and trade accordingly.

The picture shows an example of reversal trading

2. Morphological analysis

Pattern analysis predicts future price movements by identifying specific patterns in price charts. Common patterns include head and shoulders, double top and double bottom, triangle, etc.

• Head and Shoulders Top : The head and shoulders top pattern usually appears at the end of an uptrend and indicates that prices are about to reverse downward.

4. Advantages and Challenges of Technical Analysis

Advantage

1. Intuitiveness and operability : Technical analysis intuitively displays market trends through charts and indicators, making it easy to operate.
2. Wide Applicability : Technical analysis can be applied to a variety of markets and time frames, suitable for short-term trading and intraday trading.

challenge

1. Ignoring Fundamentals : Technical analysis focuses solely on price and volume and may ignore a company's fundamentals and macroeconomic factors.
2. High market effectiveness requirements : Technical analysis relies on market effectiveness. When the market fluctuates violently or the news has a large impact, the accuracy may decrease.

After studying these contents, my head felt dizzy, and the weight of knowledge was dizzying.

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Last edited at：2024/12/16