Three basic assumptions of technical analysis
(1), market behavior is inclusive and digests everything.
"Market behavior is inclusive and everything is digested" constitutes the basis of technical analysis. Unless you have fully understood and accepted this premise, it is meaningless to learn technical analysis. Technical analysts believe that any factor that can affect the futures price of a commodity-fundamental, political, psychological or any other aspect-is actually reflected in its price. Therefore, what we must do is to study the price changes. This sentence seems too arbitrary at first glance, but it does take time to deliberate. The essence of this premise is that price changes must reflect the relationship between supply and demand, and if supply exceeds demand, prices will inevitably rise; If the supply exceeds the demand, the price will inevitably fall. The law of supply and demand is the starting point of all economic forecasting methods. Turn it upside down, then, as long as the price rises, no matter what the specific reasons are, the demand will definitely exceed the supply, which is optimistic from the economic basis; If the price falls, it will definitely be bearish on the economic basis. In the final analysis, technical analysts only study fundamentals indirectly through price changes. Most technical experts will also agree that it is the relationship between supply and demand of a commodity, that is, the fundamentals determine whether the commodity is bullish or bearish. The chart itself can not lead to the ups and downs of the market, but simply shows the optimistic or pessimistic mentality popular in the market.
Charts usually ignore the causes of price fluctuations. In the early days of price trends or when the market is at a critical turning point, no one often knows exactly why the market behaves so strangely. It is at this critical moment that technical analysts can often find their own way and hit the nail on the head. Therefore, with your more and more rich market experience, the more you encounter the above situation, the more you can't resist the saying that "market behavior is inclusive and digests everything".
Naturally, since all the factors that affect the market price will eventually be reflected through the market price, it is enough to study the price. In fact, chart analysts only let the market reveal its most likely trend by studying price charts and a large number of auxiliary technical indicators, instead of analysts "conquering" the market with their own shrewdness. All technical tools discussed in the future are only auxiliary means of market analysis. Technical experts certainly know that there must be reasons for market fluctuations, but they think that these factors have nothing to do with analysis and prediction.
(2) The price evolves in a trend way.
The concept of "trend" is the core of technical analysis. The whole significance of studying the price chart is to reveal the trend in time and accurately at the initial stage of its development, so as to achieve the purpose of trading along the trend. In fact, technical analysis is essentially following the trend, that is, judging and following the established trend.
It can be naturally inferred from "the price evolves in a trend way" that for a given trend, the next step is often to continue to evolve in the direction of the existing trend, and the possibility of turning around and reversing is much less. This is of course the application of Newton's law of inertia. In other words: the current trend will continue until it turns around and reverses. Although this sentence is almost repeated in the same language, what I want to emphasize here is: unswervingly follow an established trend until there are signs to the contrary.
(3) History will repeat itself.
Technical analysis and market behavior are inextricably linked with human psychology. For example, the price pattern is expressed by some specific price charts, which show people's optimism or pessimism about a certain market. In fact, these figures have been widely known and classified in the past few hundred years. Since they have been effective in the past, we might as well think that they will be equally effective in the future, because they are based on human psychology, and human psychology has always been "a leopard cannot change its spots". "History will repeat itself" means that the key to the future is hidden in history, or that the future is a copy of the past.
Under these three assumptions, technical analysis has its own theoretical basis. The first article affirms that studying market behavior is to comprehensively consider all factors that affect prices, and the second and third articles enable us to apply the discovered laws to the actual operation of the futures market.