now let’s proceed to Technical analysis assumptions.
As we discuss, technical analysis
is a popular methodology used by traders and investors to analyses the financial
markets or securities. While technical analysis relies solely on price chart actions, it is
also based on three main assumptions.
First one is the market discount everything, (Read all)
Supply and demand are causes of the price movement.
Price action has considered all factors about the market/stock, both known and
unknown factors.
All things happening in the market that affect the market price, is ultimately
reflected in the market price.
meaning technical analysis assumes that, at any given time, a stock's price reflects
everything that has or could affect the company. This includes the company's
fundamentals, economic factors, market psychology, current earnings, potential growth,
inventories, sales and all known and unknown factors are priced into the stock. This
only leaves the analysis of price movement, which is a product of the supply and
demand for a particular stock in the market. Sinasabi dito when we used technical
analysis, tinitingnan lang dito ay ang stock price. Kahit Past, current and even future is
discounted into the markets and reflected in the prices of stocks. Yung price ang
nagiging basis ng mga technical analyst to interpret what the market is saying with the
purpose of forming a view on the future.
Second assumption, Price moves in trends (Read all)
Price movements are believed to follow trend.
Trend will continue unless the market proves otherwise.
This means that after a trend has been established, the future price movement is more
likely to be in the same direction as the trend until the major trend changes and a new
trend is established.
So kapag nabago yung price movement, mababago rin yung trend and magkakaroon
ng panibagong trend and kapag hindi naman nabago ung price movement so
magpapatuloy yung existing trend. Eto yung technique or approach na tinatawag na
trend-following in nature, meaning that their intent is identify and follow trends. And
karamihan sa mga Technical Trading strategies is based on this assumption. So,
makikita talaga na kung ikaw ay isang technical analyst ang magiging focus mo talaga
ay ang price movement para madetermine mo kung ano na bang nangyayari sa market
and ano ang magiging next steps mo to earn more profit.
The last assumption of technical analysis is History tends to repeat itself
Charts patterns were identified to have worked in the past, they are assumed to
work as well in the future.
So etong last assumption siguro pamilyar tayong lahat, maaaring naririnig at
nangyayari na ito sa ibang bagay. But in Technical analysis sinasabi na it is one of the
important factors especially in terms of price movement for the overall market and with
individual stocks as well. The repetitive nature of price movements can be attributed to
market psychology and even the underlying intrinsic value of a company. Technical
analysis uses chart patterns to analyze overall market movements and price history,
understand the trends, and allow the investor to more accurately determine the possible
future direction of not only an individual stock, but also the overall market as well.
Charts have been used for more than 100 years, and are still believed to be relevant
because they illustrate patterns in price movements that consistently repeat themselves.
So, sa pamamagitan ng mga charts patterns in the past, yung mga dating charts ay
maari pa rin pakinabangan at maging basehan para madetermine ng mga investors
yung stock’s price movement through technical analysis.
