THEORETICAL METHODOLOGICAL JUSTIFICATION IN TECHNICAL ANALYSIS OF FINANCIAL MARKETS

Abstract

We live in strange times times of change, crises, pandemics, conflicts and even wars. Technology is developing at an incredible speed, and our ability to predict or react is narrowed by rapidly changing trends, market changes and more. Throughout millennia of written and unwritten history, humanity has learned to change, evolve and survive. Economists and marketers have long recognised the cyclical nature of events and their repeatability, thus creating theories and tools. In our attempt to predict future events, we often refer to past experience and historical lessons. In the field of finance, technical analysis is a methodology for analysing financial markets, the purpose of which is to predict likely price commute based on regularities deploy on similar price changes in the past under similar circumstances. For this purpose, historical market data such as prices and volume are used (Kirkpatrick, Dahlquist, 2006). At its core, technical analysis has many tools: time charts, support and resistance charts, Fibonacci analysis, Japanese candlestick chart and many other theoretical methods and methodologies with greater or lesser practical success. But while there are many instruments, the indicators that help correctly start the future investment or withdrawal are a few looking for changes in time and matching trends by comparing the lengths of their intervals: there are indicators reporting the involvement of the instrument in the trend Indicator ADL, McClellan Oscillator, the Index of McClellan Sherman (McClellan Summation Index) and indicators follow the change in prices Indicator %C (Percent Contraction Index), Indicator ADX (Average directional index), Index of the Commodity Channel (Commodity Channel Index), Indicator MACD (Moving Average Convergence / Divergence), Relative strength index (RSI), Relative vigor index (RVI), Stochastic oscillator and indicators based on market volume Accumulation/distribution index, Cash flow and Balance sheet volume. The purpose of the research is to draw attention to a theoretical hypothesis for the beginning of the trend wave itself, the beginning of the considered period supporting future investment or withdrawal from a given industry, the development of a trending product or service. The chosen methodology and corresponding tool formula are entirely author’s and would help to visualise the time intervals for investment or withdrawal from the market.