Why are decisions based on technical analysis?
Technical analysis is a smart tool that can help you decide when to invest and where to invest, and when and where to leave the market, so you keep your capital safe.
How can you use technical analysis?
This analysis is based on the theory that the markets are chaotic, which means nobody knows what will happen for sure, but at the same time, price movements are not 100% random. In a few words, the Chaos Theory in mathematics proves that there are identifiable patterns that tend to repeat within a state of chaos.
We can mention here the weather forecast, a type of chaotic behavior. Like the weather forecast, most traders will say that they cannot predict the exact price movements. As a result, being successful at trading is not being right or wrong. It is about determining probabilities and placing the positions when the conditions are in favor. Determining probabilities includes forecasting the market direction when entering into action, opening the positions, and determining the risk/reward ratio.
With all we said above, there is no specific formula to unlock the secret of trading strategy. The keys to success are a smart risk management plan, self-discipline, and the ability to control emotions. Anyone can guess right and win every once in a while, but it is virtually impossible to remain profitable over time without risk management..
Bullish and Bearish Flags
Bull flags form after a price spike that peaks out and slowly forms a short-term reversion downtrend. The trend lines' starting points should connect the highest highs (upper trend line) and the highest lows (lower trend line) to represent the flag portion.
Bear flags form after a massive price collapse that attempts a short-term uptrend reversion. These are the opposite of bull flags. The trend lines connect the lows and highs starting from the bottom.