{"id":31362,"date":"2011-11-09T19:52:44","date_gmt":"2011-11-09T14:22:44","guid":{"rendered":"index.php\/2011\/11\/09\/technical-analysis-of-the-financial-markets-ch-1\/"},"modified":"2011-11-09T19:52:44","modified_gmt":"2011-11-09T14:22:44","slug":"technical-analysis-of-the-financial-markets-ch-1","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2011\/11\/09\/technical-analysis-of-the-financial-markets-ch-1\/","title":{"rendered":"Technical Analysis of the Financial Markets: Ch 1"},"content":{"rendered":"

This is the review of the first chapter of John J. Murphy\u2019s Technical Analysis of the Financial Markets.<\/font><\/em><\/p>\n

Philosophy of Technical Analysis<\/h3>\n
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Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.<\/p>\n<\/blockquote>\n

It is based on the rationale that:<\/p>\n

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  1. Market action discounts everything<\/strong>. Anything that can possible affect the price \u2013 fundamentally, politically, psychologically, or otherwise \u2013 is actually reflected in the price.\n
  2. Prices move in trends<\/strong>. The purpose of charting price action is to identify and follow trends. Once a trend is setup, it is more likely to continue than to reverse.\n
  3. History repeats itself<\/strong>. Much of technical analysis is based on the study of human psychology, which tends not to change. The key to understanding the future lies in a study of the past.<\/li>\n<\/ol>\n

    Market price tends to lead the known fundamentals. Fundamental analysis is more of an explanation of why<\/em> the price action occurred while technical analysis tries to predict<\/em> that price action.<\/p>\n

    Technical analysis is rooted in statistics. It is a combination if descriptive statistics<\/em> (graphical representation of data: a candlestick chart<\/a>, for example) and inductive statistics<\/em> (generalizations or predictions extrapolated from that data: indicators<\/a>, for example). <\/p>\n

    Stay tuned for more!<\/em><\/p>\n

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