Technical analysis is the study of past and present price movements and patterns to forecast future trends and identify trading opportunities.
Technical analysts use various tools and techniques, such as charts, indicators, oscillators, and trading systems, to analyze market behavior and find optimal entry and exit points.
In order to understand and get the most from technical analysis, make these three assumptions at all times: –
- The market price reflects all available information and the collective psychology of the market participants.
- The market moves in trends, which tend to persist over time until they are reversed by a significant change in the underlying factors or sentiment.
- History repeats itself: – the market history tends to repeat itself, as human emotions and reactions are often similar in similar situations.
If you get those three facts in your head, then you should not have any problems understanding technical analysis.
What’s new in technical analysis?
While technical analysis has been around for centuries, it has evolved significantly in recent years, thanks to the advances in technology, data, and artificial intelligence.
In this article, we will explore some of the latest developments and trends in technical analysis that are shaping the future of trading in the AI age.
Some of these trends include: –
1). Generative AI for Technical Analysis
Generative AI is a branch of artificial intelligence that can create new data or content from existing data or content, such as images, text, audio, or video.
It can be used for various purposes, such as enhancing creativity, generating novel ideas, or augmenting existing data.
One of the most promising applications of generative AI for technical analysis is the creation of synthetic financial data.
And what is synthetic financial data?
This is data that is artificially generated, mimicking the characteristics and patterns of real financial data, such as price movements, volume, volatility, liquidity, etc.
Synthetic financial data can be used for various purposes, such as:
- Testing and validating trading strategies and systems on realistic but unseen scenarios.
- Enhancing the quality and quantity of training data for machine learning models and algorithms.
- Generating alternative scenarios and simulations for risk management and scenario analysis.
- Exploring new markets and instruments that are not yet available or accessible.
Generative AI can also be used to create new indicators, oscillators, or trading systems from existing ones, by applying various transformations, combinations, or mutations.
For example, generative AI can create a new indicator by combining two existing indicators with a mathematical operation. Or it can create a new oscillator by applying a nonlinear function, such as a sigmoid or a tanh, to an existing oscillator.
Or better yet, it can create a new trading system by mutating the parameters or rules of an existing trading system.
Generative AI can help you, a new technical analyst discover new patterns and insights that are not obvious or visible with conventional tools and techniques.
If used well, generative AI can also help diversify portfolios and reduce trader exposure to market noise and biases.
2). Applied Observability for Technical Analysis
Applied observability is the practice of collecting, analyzing, and acting on data emitted by an organization’s systems, processes, and outcomes.
The use of applied observability can help traders monitor their performance, identify issues in their trading systems and anomalies, optimize their trades, and make better future trading decisions.
Using applied observability, and technical analysis, traders can
- Combine data from social media platforms to gauge the sentiment and opinions of the market participants.
- Technical analysts can use data from trading platforms to measure the volume, liquidity, volatility, and order flow of the market.
- Technical analysts can also use data from blockchain platforms to track the transactions, balances, and activities of the market participants.
Applied observability can help traders use technical analysis to gain a deeper understanding of the market behavior and dynamics.
It can also help technical analysts detect emerging trends and signals that are not captured by traditional tools and techniques.
Technical analysis is a powerful and versatile tool for trading and investing in the financial markets. However, it is not static or stagnant, but dynamic and evolving, as the market conditions and technologies change over time.
Some of the most significant trends in technical analysis for 2024 are generative AI, applied observability, and sustainable technology.
These trends can help you improve your trading results while also doing good for the environment.