mev-toolkit/MEV_and_trading/day-trading/technical_analysis

technical analysis

tl; dr

• uses trading data to analyse and predict price patterns
• gives us data points to compare and contrast
• uses chart patterns, price data, trading volume and indicators
• allows us to follow a systematic strategy that can be improved
• cannot predict the future

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candlestick charts

• data rich trading analysis
• time and price details
• traders use candlestick chat patterns to antecipate the future
• show market high and low for a given time period
• each candle is a period in time
• tells: open/close (body) high/low (wick) for a period of time

hammer pattern

• bullish pattern
• sellers drove price lower during the day
• buyers came in and the price finished higher
• will continue tomorrow?
• where are open, close, high, low?

shooting star pattern

• bearish pattern
• buyers drove price high
• sellers won and price fell lower
• will this continue tomorrow?

bullish engulfing pattern

• bullish pattern
• bullish candlestick "engulfed" the bearish candlestick
• represents a strong reversal in the price action
• will continue tomorrow?

bearish engulfing pattern

• bearish pattern
• bearish candlestick engulfed the bullish candlestick
• represents a string reversal in the price action
• will continue tomorrow?

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chart patterns

• used in conjuction with candlestick charts
• longer-term analysis of market movements
• bullish and bearish patterns
• used with day trading and swing trading
• dont tell about longer term trends

double top

• bearish pattern
• buyers tried wtice to push price higher
• buyers unable to push price higher
• price has no moment at this level
• buyers run ot of steam
• sellers are in the market

double bottom

• bullish pattern
• sellers came in twice
• price found support of buyers twice
• buyers happy to pay up
• sellers may run out and buyers need to pay more
• buyers are in the market

asceding triangle

• charts never trade in a straight line
• charts trend
• highs and lows are important
• consolidation is imporant
• higher highs or higher lows is bullish
• narrowing of a range can preceed a breakout

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trends

• we can't trade from patterns all the time, they are quite rare
• trends patterns will guide us more often
• patterns can be housed within trends
• if we can find the trend, we can ride the trend for profit

asceding wedge - higher lows

desceding wedge - lower highs

consolidation

• give us a strong area of trade where traders have been before
• area in the chart moving sideways
• we can use consolidation as a guide for our entry/exit points
• sometimes preceed breakup
• where buyers/sellers are at equilibrium and can't last forever
• use these levels for our stop loss levels

support and resistance

• support and resistance are simply significant price levels
• resistance can become support if a price breaks through that level in an uptrend
• vice versa for a downtrend

moving averages

• SMA: arithmetic mean of prices over a given time period
• EMA: weighted and give more importance to recent prices

relative strength index (RSI)

• plots the relative strength of the price compared to previous prices
• momentum indicator
• above 70: price is relatively expensive (overbought)
• below 30: price is relatively cheap (oversold)
• can't predict how the price will change in the future

average true range

• measure of daily price volatility
• tell us the true amount the price could move in a given day
• largest probably move for one day based on previous data
• can be used to set our stop loss and give the trade some breathing room

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how to trade with trends

1. Identify the market trends
2. Ask where are the main areas of trade
   • where is support and resistance?
   • any chart pattern?
3. Make your entry based on the daily trade action
   • is the candlestick telling us that the trade will go in the direction of our trade?
   • is the trade bullish or bearish based of candlestick patterns?

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resources

• tradingview
• tokenmetrics