Technical Analysis of the Financial Markets

The term "market action" includes the three principal sources of information available to the technician - price, volume, and open interest. (Open interest is used only in futures and options.)

There are three premises on which the technical approach is based:

• Market action discounts everything.

• Prices move in trends.

• History repeats itself.

As a rule, chartists do not concern themselves with the reasons why prices rise or fall.

Market price tends to lead the known fundamentals. Stated another way, market price acts as a leading indicator of the fundamentals

TECHNICAL CHECKLIST

• What is the direction of the overall market?

• What is the direction of the various market sectors?

• What are the weekly and monthly charts showing?

• Are the major, intermediate, and minor trends up, down, or sideways?

• Where are the important support and resistance levels?

• Where are the important trendlines or channels?

• Are volume and open interest confirming the price action?

• Where are the 33%, 50%, and 66% retracements?

• Are there any price gaps and what type are they?

• Are there any major reversal patterns visible?

• Are there any continuation patterns visible?

• What are the price objectives from those patterns?

• Which way are the moving averages pointing?

• Are the oscillators overbought or oversold?

• Are any divergences apparent on the oscillators?

• Are contrary opinion numbers showing any extremes?

• What is the Elliot Wave pattern showing?

• Are there any obvious 3 or 5 wave patterns?

• What about Fibonacci retracements or projections?

• Are there any cycle tops or bottoms due?

• Is the market showing right or left translation?

• Which way is the computer trend moving: up, down, or sideways?

• What are the point and figure charts or candlesticks showing?

After you've arrived at a bullish or bearish conclusion, ask yourself the following questions

• Which way will this market trend over the next several months?

• Am I going to buy or sell this market?

• How many units will I trade?

• How much am I prepared to risk if I'm wrong?

• What is my profit objective?

• Where will I enter the market?

• What type of order will I use?

• Where will I place my protective stop?