Lesson 10: Understanding the principles of technical patterns

In my talk on understanding and applying technical analysis, I emphasized that understanding price behavior in relation to volume is important. While that sounds simple, not everyone can do it and most people tend to "remember" a picture instead of "see" the psychology of buyers and sellers on a chart. Skill.

That basic knowledge of price and quantity isn't really fundamental technical analysis, it's advanced technical analysis in the truest sense, if you understand it, of course. I have read many books on technical analysis, am also one of the originators of the newsletter and have done many courses on technical analysis from 2007-2008, enough to conclude that what So-called advanced in technical analysis are actually just special situations of price and volume trends. If you really understand the principle, everything becomes simple. And my goal has always been to make things simple.

In technical analysis, technical patterns are one of the three basic knowledge groups to know. The other groups are supply and demand, price and volume relations, which contain resistance, support and trend, and the other group are technical indicators which contain moving averages and trend indicators. Gap or candlestick patterns are the basics in group 1.

When analyzing technical patterns, don't let your brain get distracted by names like double tops, bottoms, head and shoulders, swings, flags that can make you feel it. too complicated (and so many people call it advanced). If you are observant, you will see that technical patterns all reflect a hesitancy, deadlock in trading, or rather hesitancy of both buyers and sellers.

For that reason, the range you see will always look like an oscillator, it can be even “=” (technically called a channel), it can be a bloom after “<” (funnel expands) or it can be closed “>” triangle, funnel), and it can also be upward “//”, downward “\\” or horizontal “=”.

So the principle to remember is this: anything that is in balance is usually trending forward unless it's at the end of the trend, and anything going up or down the next direction will be the opposite. To explain why this is so, you should remember another principle I mentioned: an uptrend is a higher high than the previous high and a higher low than the previous low, and vice versa.

With such an approach, you won't need to remember the names of the patterns, but just recognize the shape of the price movement. And always remember that volume will help you better understand what's going on. A technical pattern is for you to keep an eye on because it's special, but it doesn't mean you immediately act on it.

Attached to the article is "36 popular technical models" that I have compiled for your reference. But my advice is not to remember it, but to remember the principle I stated above.