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The essence of Technical Analysis : Dialogue with the market

Dialogue with the market

Before explaining the trading methodology, we must first consider the nature of technical analysis. Can we really use support resistance and technical indicators to profit from the unpredictable and unfathomable market? Let’s first talk about the fundamentals of market prices.

Tick Data in MT5

Market price is actually nothing more than a quotation chart like this. The candlestick in the chart itself is a illustration of price, and candlestick itself has actually lost a lot of price information.

Price is the most important information of the market. The price , is actually transactions that formed by a single dot at each time node, and it will be discrete or continuous points in response to the time. In advance, we will perform a periodic feature extraction on the price point, to find its opening, closing, high and low to form a candlestick.

The candlestick chart represents a price trajectory. All the indicators that exists, except for trading volume indicators, actually uses price information to do some algorithmic induction. Therefore we can say that all technical indicators are derived from price.

All technical indicators, whether they are lagging or not, are impossible to predict the future. Indicators are there for us to better describes how the market fluctuated in the past. Its role is to describe the movement of the market, not to predict the future of the market. Therefore, the purpose of technical analysis is a process where traders are having dialogue with the market. And with reasonable risk management strategies, traders can profit from the market with an edge in probability.

The essence of technical indicators is price, no matter how fancy is the name of the indicator, and no matter how complicated the indicator equation is, they are actually just derivatives of price. Trading enthusiasts should pay attention to the logic behind the indicator and how the indicator describes market changes. And get rid of “This new indicator is very accurate” “This indicator is not profitable” mentality!