Methods of technical analysis fall into a number of categories:
1. Graphical methods of technical analysis
In graphical methods, a conventional or transformed market image (different types of price and / or volume chart ) is used for analysis. Usually, these methods are based on any repetitive patterns (patterns) of price behavior. Most of them appeared before the rest of the groups, practically does not require the use of complex software and is fairly easy to use. Graphic methods usually include classical market models, trend lines, support and resistance, channels, Japanese candles, crosses, zeros, etc.
2. Digital filters and mathematical approximation
Methods using filtering or mathematical approximation of price series appeared long ago but actively began to develop only a couple of decades ago, which was due to the massive emergence of personal computers.
These methods are conventionally divided into a number of categories:
- Trend indicators. Trend indicators show the strength of the main trend of the market and its direction, for example, Moving Average, Directional Movement, Parabolic, Kaufman Efficiency Ratio, etc.
- Indicators of volatility (volatility). Indicates the strength of market volatility, the strength of movements not depending on the main trend, for example, Standard Deviation, Bollinger Bands, etc.
- Acceleration (torque) indicators. This very broad class of methods is used to determine the current rate of change in price (acceleration). These include most of the oscillators, for example, Momentum, Relative Strength Index (RSI) and Price Rate-Of-Change (ROC), Stochastic Oscillator, etc.
- Methods for determining the cycle. These include various indicators that use the basis of Fourier spectral analysis or the construction of trigonometric curves.
- Methods of volume research.This class of indicators uses the time series of the volume of trade as the main data and is used to determine the strength of the market movement since it is considered that the greater the volume of trading, the more investors “believe” in the movement, and therefore it is not false.
- Indicators of support and resistance levels. Methods that indicate that the current movement is likely to stop at a certain level, for example, Moving Average Envelopes, Fibonacci Retracements, etc.
3. Probabilistic methods of technical analysis
Methods using methods of probability theory and mathematical statistics to determine the strength of the trend, the probability of correction, etc., for example, the market profile.
4. Theories of market structure.
Methods that use as a basis the assertion that the price movement has a clear unchanged structure that allows one to predict its further behavior. These methods include Elliott waves, fractals, etc.
There is also a wide variety of methods that can not be considered a single group. Quite often there are trading systems that trade on the basis of data on the electromagnetic field of the earth, solar activity, lunar cycles. There are companies that supply this data in real time.
According to estimates, technical analysis is the most popular class of methods. To some extent, it is used by about 50% of traders.