What is technical analysis?
A method for making an investment decision in the capital markets, which is based on market behavior. The graph is the final result of the decision-making equation of all investors in the market, thus embodying all the information relevant to the decision
The writer is a technical analyst at the Guideline Group
The local market also deserves a place in my analyses. For some reason we have a tendency to ignore it. The feeble excuses must be said, ranging from lack of marketability to lack of interest, when the independent trader flaunts the aura reserved for those who trade abroad. In my opinion, those who direct their resources only to exchanges overseas are missing quite a few opportunities. The statement that the American market offers many more opportunities, is Complete nonsense, for the very simple reason that sometimes many opportunities block the possibility of making a decision. Ask my daughter when she is standing in front of her wardrobe. What’s more, I will immediately show you that the local market is better than abroad.
If you follow my analyzes about the American market, you surely know that while there is no upward trend in the long term, and the high and low points representing the mindset of the two dominant groups – the buyers and the sellers – are not arranged in an ascending structure, the Tel Aviv 90 index is a model of an upward trend .
The index represents the 90 companies with the highest value traded in Tel Aviv, after the companies in the Tel Aviv 35 index (and together they make up the Tel Aviv 125 index). As you can see on the monthly chart representing the long term, buyers and sellers hold the same opinion about the direction of the market. The basis for decision-making is understanding the direction of the market, this is actually the strategy, and in BTA 90 the trend is a clear upward trend in the long term.
The basic and simple parameters that I use, and by the way among the few that have survived the test of time (don’t talk to me about oscillators and advanced analysis and toolboxes), concern the trend, the sequences that make it up and the time ratio between rises and falls, and that’s it. Make use of these three components in every decision you make – and your returns will improve beyond recognition. Just don’t forget to sell on time. A proper sell signal, I would point out, comes just in time or too early, but never too late. I don’t know anyone who lost from early selling, but I know many who lost from late selling.
The last descending sequence is shorter in duration than the ascending sequence
After the trend has been established as an uptrend, sequences must be dealt with. The sequences are the segments that make up the upward trend when the Stock Monkey system (the graph analysis system on which I am based, AG) marks them for you exactly at the click of a button. You can see that the current sequence is rising and this is good news,
A rising sequence makes it possible to understand what we should do, especially when we hold a position, since as long as the sequence is rising, the position remains open. It saves hesitations, anxiety attacks and pulling decisions from the hip.
And not only that, but the last correction stopped at a higher low than the previous one. And also the last correction was halted at a higher low than the previous one. This means that buyers are willing to pay for the exact same goods a higher price than the one paid last time. History has taught us that whenever a low point is set higher than the previous one, the chance of a high point being set higher than the previous one will be high. This will actually be the working assumption whenever this behavior is repeated. You can use it in any time dimension you want, just mark those high and low points in their right place.
Also pay attention to the next element in line – time. In an uptrend, the ascending sequences will be longer in terms of duration than the descending sequences. So in the attached graph The last descending sequence is shorter in duration than the preceding ascending sequence. Remember – trend, sequence, time.
The positive momentum was not damaged
In addition to the graph, I have included the moving averages that I use. This is not a tool for providing buy and sell signals, due to their excessive delay after the prices themselves. But they are excellent toolsJto understand the momentum in the market, when it can be seen that despite the correction that lasted several months, the averages remained arranged in ascending order. That is, the short average remains above the long average. This means that the positive momentum that was accumulated during the uptrend and the last uptrend, was not damaged. This increases the likelihood of setting a new record.
So, while the American stock market is brittle and fragile, the local market represented by the Tel Aviv 90 index is surging. The market here is full of energy, the corrections are met with a wall in the form of buyers, the trend and sequence are rising. So why are you running abroad? We have a great stock market.
What is an upward trend? | the operating table
Trading in shares or any other asset must always start from the same point – identifying the trend. Trading against the trend leads to losses of tens of percent.
So if you wondered why you sometimes have such losses in your investment portfolio, the answer is one – you are against the trend. Trading with the trend prevents huge losses. Profits in the capital market come first and foremost from our ability to control losses. Unlike dough, they are not left to rise. The main question is what is an upward trend, and I will give a clear answer to that.
When I ask my students “How many investor groups are there in the market?”, the answer remains the same over the years: “There are no end” – private, institutional, hedge funds, two-day traders, and the list goes on.
But the truth is that is simply not true. There are only two groups: buyers and sellers. Our goal in identifying the trend is to understand the mindset of both groups, what they think about the market.
How do you recognize where the market is going?
Basically, the “trend” is the direction of the market, that is, where it is sailing. A series of waves in a specific and clear direction that creates a defined route. But to motivate operative action we will dive into the details.
An uptrend is defined as “an ascending and continuous series of high points and low points. Each high point must be higher than the previous one, and each low point must end at higher levels than the previous one.”
The peak points belong to the sellers, since if there was no excess supply left, there would not have been a peak point. The low points belong to the buyers. Every time a low point is created that is higher than the previous one, the buyers send a clear message about their willingness to purchase the same goods at a higher price.
And when each high point is higher than the previous one, it is clear to us that both groups hold the same opinion about the direction of the market, and we can act with relative confidence.
Eyal Gurovich