Here's some key take aways from Chapter 1, titled "Philosophy of Technical Analysis". Technical analysis is defined as the study of market action, primarily through the use of charts, for the purpose of forecasting price trends. Market action includes price, volume, and open interest.
Technical analysis is built upon the following premises:
- Market action discounts everything
- cornerstone of technical analysis
- anything that can possibly affect the price (fundamentals, politics, psychology, etc) is actually reflected in the price of that market
- a trend in motion is more likely to continue than to reverse, i.e., a trend in motion will continue in the same direction until it reverses - basic Newton law of motion
- patterns have been identified to repeat in charts because they are shaped by human emotions and psychology, which tends not to change
- If the fundamentals are reflected in market price, then the study of those fundamentals becomes unnecessary.
- Technical analysis can be applied to virtually any market and time dimension
- Technical analysis can be used for economic forecasting - stock markets lead the economy