1. Basic assumptions and elements of technical analysis

(1) The meaning of technical analysis

Technical analysis is based on the past and current market behavior of the securities market. Analyze objects, apply mathematical and logical methods, explore some typical change patterns, and use technical methods to predict future changes in the securities market. Because technical analysis uses a wide range of data and adopts various data processing methods, it has been valued and favored by investors. Technical analysis methods are not only used in the securities market, but also widely used in foreign exchange, futures and other financial markets.

(2) Basic assumptions of technical analysis

As an investment analysis tool, technical analysis is based on certain assumptions. These assumptions are: market behavior encompasses all information; security prices move in trends; and history repeats itself.

1. Market behavior covers all information. This assumption is the basis for technical analysis. The main idea is: any factor that affects the securities market will eventually be reflected in changes in stock prices. External, internal, fundamental, policy and psychological factors, as well as all other factors that affect stock prices, have been reflected in market behavior. Technical analysts only need to care about the impact of these factors on market behavior, and do not have to care about the specific causes of these changes.

This assumption has certain rationality, because the impact of any factor on the securities market will inevitably be reflected in changes in security prices, so it is the basis of technical analysis.

2． Security prices move in trends. This assumption is the most fundamental and core condition for technical analysis. The main idea is that the price of securities changes according to certain rules, that is, the inertia of the original direction of movement is maintained, and the direction of movement of security prices is determined by the relationship between supply and demand. Technical analysis believes that the movement of security prices reflects changes in supply and demand within a certain period of time. Once supply and demand are determined, security price trends will continue. As long as the relationship between supply and demand does not fundamentally change, the trend of security prices will not reverse. This assumption also has certain rationality, because it is common in market economies for supply and demand to determine prices. Only the technical analysis method that recognizes that security prices follow certain regular changes and uses various methods to discover and reveal these regularities and guide securities investment activities has value.

3. History will repeat itself. This assumption is based on human psychological factors. People are the ones who carry out specific buying and selling in the market, and it is people who decide the final operating behavior. This behavior must be restricted by certain laws in human psychology. In the securities market, if a person succeeds in operating according to one method under certain circumstances, he will operate according to the same method when encountering the same or similar situation in the future; if he failed the previous time, he will fail this time. It won't be done the same way as last time. The shadow or joy left by a certain market behavior in the securities market will last for a long time on investors. Therefore, the technical analysis method believes that the rules summarized based on historical data already include all future trends in the securities market, so the future can be predicted based on history. This assumption also has certain rationality, because investors' psychological factors will affect investment behavior and thus affect security prices.

The three assumptions of technical analysis are both reasonable and unreasonable. For example, the first hypothesis states that market behavior includes all information, but after all, the information reflected by market behavior is somewhat different from the original information, and information loss is inevitable. Because of this, while conducting technical analysis, some basic analysis and other aspects of analysis should also be appropriately conducted to make up for the shortcomings. As another example, some basic factors do affect security prices and trading volumes through supply and demand, but security prices are ultimately affected by their intrinsic value. For another example, the third assumption is that history will repeat itself, but the market behavior of the securities market is ever-changing, and it is impossible for exactly the same situation to reoccur, and differences always exist to a greater or lesser extent. Therefore, the technical analysis method has caused different opinions and debates due to its insufficient persuasiveness and insufficient logical relationship.

(3) Elements of technical analysis

In the securities market, price, trading volume, time and space are the elements for analysis. The specific situation and interrelationship of these factors are the basis for correct analysis.

The most basic manifestations of market behavior are transaction price and transaction volume. Past and present transaction prices and volumes cover past and present market behavior. Technical analysis is to use past and current trading volume and transaction price data to analyze and predict future market trends with graphics and indicator analysis tools. The price and volume at a certain point in time reflect the same market behavior of buyers and sellers at this point in time, and is the temporary balance point of both parties. As time changes, the balance of power will continue to change, which is the change in the price-volume relationship. Generally speaking, the degree of agreement between buyers and sellers on the price is confirmed by the size of the trading volume. If the degree of agreement is small, the disagreement will be large, and the trading volume will be small; if the degree of identification is large, the disagreement will be small, and the trading volume will be large. This kind of market behavior of both parties is reflected in price and volume, which often shows a trend: when the price rises, the volume increases, and when the price falls, the volume decreases.

According to this trend law, when the price rises, the trading volume no longer increases, which means that the price cannot be confirmed by the buyer, and the upward trend of the price will change; conversely, when the price falls, the trading volume shrinks to a certain extent and the price will no longer increase. Any further contraction means that sellers no longer agree that prices will continue to fall, and the price downward trend will change. This regular relationship between transaction price and transaction volume is the rationality of technical analysis. Therefore, price and volume are the basic elements of technical analysis. All technical analysis methods take the relationship between price and volume as the research object, and the purpose is to analyze, Predict future price trends and provide services for investment decisions.

Time plays a very important role when making market judgments. A trend that has been formed will not fundamentally change in a short period of time, and reverse fluctuations that occur midway will not have a major impact on the original trend. A formed trend cannot remain unchanged forever, and new trends will emerge after a certain period of time. The cycle theory focuses on the time factor, which emphasizes the importance of time.

In a sense, space can be considered as one aspect of price, referring to the limit that price fluctuations can reach.