IMUGENE CHART. TA only, page-30450

A lesson in technicals - simplicity

It seems that many here appreciate the contributions of those who share their understanding of charts and all things of a technical nature even while not understanding it themselves. A lack of understanding, or perhaps a lack of explanation makes it challenging for those who appreciate the analysis and would like to know more. Many contributors post their analysis in a way that can make TA seem quite complicated, some even post with so little explanation that to those without the technical understanding it looks like the dark arts, especially when it works out. Others with ulterior motive or alter ego just make stuff up as they go and usually make a fool of themselves, tarring this field of analysis.

With that in mind, the aim of this post is to clear up a couple of possible misconceptions and for everyone who would like to understand TA better to understand the basic foundation of how and why it works in a very simple way. I hope that you can benefit.

Essentially, any technical analyst, commentator or technical trader is only trying to discerned two basic things:

• Support and Resistance areas and their strength
• Strength of the move

There really is nothing else to it. Knowing these two things arms anyone with the understanding they need to benefit from a price chart. With a limited understanding of these two metrics, one can see what has happened and be able to identify possible reasons why. With a moderate understanding, one can trade the ups and downs, taking advantage of the strength of the moves between the immediate Support and Resistance areas. With an advanced understanding one is able to look forward- to see how strong the move could be and compare that to the strength that would be required to negate the next S&R areas. Knowing these two metrics well enough allows one to be able to not only anticipate where a price is going but also to what extent. Strength of S&R + Strength of move.

The biggest challenge people face in trying to understand this whole TA charting thing, is that there are literally hundreds and hundreds of indicators available that provide information on these two metrics. An analyst then must find a combination of these indicators that works best for them, that isn't overly complicated and a combination that compliments each individual component rather than working against it. This is the reason why when an outsider looks at two different methods(complete combination of indicators) used, they can appear to be nothing alike even completely at odds with each other, and yet when used correctly they can both be accurate. Each method may be using entirely different indicators, but the goal is the exact same - identify the S&R areas and to ascertain the strength of the move.

If one is beginning, the easiest path forward is to find a few very reliable ways to identify Support and Resistance. Outside of fundamentals, this is what is going to have the biggest impact on the chart. There are many ways to do this, so start with the most reliable.

If you were to plot every single moving average on a chart and analyse how the price interacted with each one, across all time frames, you would find that some are consistently and reliably affecting the price when compared with others. If you were then to rate these on how consistent they work you then start to have a gauge of the strength of the S&R they provide. Fortunately, we do not have to do that study - it has been done for us. The main ones that price consistently responds to for S&R purposes are:

• s200 (simple)
• e21 (exponential)
• e55

And couple not as strong as above but still important:

• e200
• e100

There are also trend lines. These should be used in situations where there is defined price action over time. Seeing a couple of wicks and a close does not make a reliable trend line for S&R purposes. You want to see ongoing respect for the level comprising of multiple closes/opens and wicks over a sustained period

Fibonacci are potentially the most powerful, with the 61.8%, 38.2%, 50% and 0.00% being most powerful (in that order). Using Fibonacci requires a little more effort as it is user applied, so look one needs to look for "best fit" to find the fib that the market is observing, and be willing to adjust it if it is not quite right.

If someone had a blank chart and only put these indicators on it one at a time and watched price interact with them on multiple time frames, they would be leaps and bounds ahead in their understanding of charts and technicals. There are many other ways to identify S&R, many being used regularly on these threads. So find what works for you and don't overcomplicate it - just look for the most important ones.

The next step is to identify the strength of a moves. This is not as easy as S&R but still very achievable for those who want to know. There is no wrong answer here - find the indicators that work for you best, that you can relate to. It takes time to get to know it, so don't be quick to dismiss and move on. I won't recommend any particular indicator or method here due to the above reasons. I personally use the Moving Average method and know it well. In my analysis, I try to explain the reasons why I expect something to occur, so that anyone who wants to adopt some of the methods can pick it up. There are hundreds of different ways to work out a move and their strength, so play around and work it out.

One thing I will say, is that an indicator that provides information for both metrics is superior, as it won't overcomplicate or clog up charts. For example, I use the e55 and e21 (and to a lesser extend e200 and e100) in both S&R and in working out move strength. Fibs are also dual use - they provide robust S&R and a bounce off the key levels of 38.2 and 61.8 provides reliable data on the strength of the move.

The third step is to combine the two metrics above - S&R strength and Move strength. This simply takes time and experience. There may be shortcuts, but no substitutes. You need to see how your method calculates strength of the move and how that is relative to the strength of the S&R. Once you work this out, you begin to see that "the next move appears to have enough strength to push through the above resistance" or "the next move does not have enough strength so I will exit". Time and experience of the method you create so as to ascertain those two metrics is the best way to become advanced in your understanding. If the information your method provides on these two is reliable and probable, you have the key to working out high probability moves in the future.

So if you are somewhat confused on reading these charting threads, perhaps rather than trying to focus on the indicators themselves, look at what they are telling us about S&R and move strength. If you want to build your own method, the steps are:

1. Identify reliable S&R indicators and their relative strength.
2. Identify a method that indicates direction and strength of a move
3. Combine the two into a forward looking high probability system that works for you.