Course index:
- Basic Concepts of Money and Personal Finance
Introduction to the value of money, the importance of saving, and spending control. - Budgeting and Financial Planning
Create a personal budget, manage income and expenses, and set financial goals. - Inflation and Purchasing Power
Explanation of how inflation affects the value of money over time. - Interest Rates and Time in Finance
Differences between simple and compound interest rates and their importance in investments. - How to defend your savings
How to protect your money from the scams that abound today. - Basic Savings Instruments
Explanation of savings accounts, term deposits, and how they work. - Introduction to the Stock Market
Basic concepts of the stock market and its role in the global economy. - Actions: What They Are and How They Work
Explanation of stocks, types (common and preferred), and how to invest in them. - Bonds: What They Are and How They Work
Differences between corporate and government bonds, and their importance in diversification. - Risk vs. Return on Investments
Concept of risk and how it affects investment choices. - Diversification and Creating a Simple Investment Portfolio
Basic diversification principles to reduce risk in an investment portfolio. - What is an ETF and How Does it Work?
Introduction to ETFs (exchange-traded funds) and how they track market indices. - Introduction to Mutual Funds
An explanation of mutual funds and their benefits for beginners. - Financial education for the family.
Explanation of the economic principles that can help your family make ends meet. - Economic Cycle and its Impact on Investments
How the stages of expansion and contraction in the economy affect investments. - Growth Stocks vs. Value Stocks
Differences between these types of actions and when each is appropriate. - Fundamental Analysis of Stocks
Explanation of how to analyze a company's value based on its fundamentals. - Basic Technical Analysis: Charts and Patterns
Introduction to basic technical analysis tools, such as trend lines and candlestick patterns. - Options: What They Are and How They Work
Basic concepts of call and put options and their uses in investments. - Futures: What They Are and How They Work
Introduction to futures contracts and their application in investment and speculation. - Introduction to Cryptocurrencies
What is digital money, how it was created, and the characteristics of Bitcoin and other cryptocurrencies. - Blockchain and its Importance in Finance
How the technology behind cryptocurrencies works and their applications in finance. - Risks in Cryptocurrency Trading
Volatility, fraud, and regulations in the cryptocurrency market. - Leverage Principles and its Risk
What it means to trade with leverage and the associated risks. - Investor Psychology and Emotion Management
How emotions influence investment decisions and tips for managing them. - What is Algorithmic Trading
Basic explanation of the use of algorithms to perform operations in the financial market. - Financial Analysis of Companies
Introduction to basic financial statements and their interpretation for valuing companies. - Investing in Commodities: Gold, Oil, and Other Goods
How commodity investments work and their role in diversification. - Advanced Investment Strategies: Hedging and Derivatives
Introduction to strategies for managing risks through financial derivatives. - Creating and Managing a Complete Portfolio
Practical application of prior knowledge to build and manage a diversified portfolio.
When you get into the world of investing, one of the most popular ways to analyze the market is technical analysis. Unlike fundamental analysis, which focuses on numbers and a company's actual value, technical analysis relies on price movements, volumes, and patterns seen on charts. It's like reading the language of the market: investors use historical data to predict where prices might go in the future.
In this article, we'll explore what technical analysis is, how it works, what tools it uses, and how it was applied by legendary figures such as Jesse Livermore, John J. Murphy (author of the book "Technical Analysis of the Financial Markets"), and Alexander Elder (with his book "Trading for a Living"). If you're interested in learning how to read the market and make chart-based decisions, this lesson will give you a complete overview to get started.
What is technical analysis?
Technical analysis is a method for analyzing financial assets, such as stocks, currencies, or commodities, by studying their past price and volume movements. The central idea is that prices already reflect all available information (news, economic data, rumors) and tend to move in repeating patterns. So, by looking at charts and using indicators, you can try to predict whether the price will go up, down, or stay put.
This method is based on three fundamental principles: "price discounts everything," "prices move in trends," and "history repeats itself." For example, if a stock consistently rises after hitting a low price, you could take advantage of that pattern. Technical analysis doesn't focus on a company's fundamentals, such as its earnings or debt, but rather on how its price behaves in the market. For example, you don't care if Mercado Libre had record profits this quarter; what you care about is whether its stock is forming a "double bottom" (a pattern that suggests it's headed up) or if trading volume is increasing, which could indicate a strong trend.
How technical analysis works
Technical analysis begins with a chart. You can use line charts, Japanese candlestick charts, or bar charts, but candlestick charts are the most popular because they show four key pieces of data for each period (e.g., a day): the open price, the close price, the high, and the low. If you see a green candle, it means the price closed higher than where it opened; if it's red, it closes lower. You can find these charts on platforms like TradingView, MetaTrader, or even in broker apps like Bull Market or eToro.
Once you have the chart, you look for patterns and trends. An uptrend is when prices rise, forming increasingly higher peaks and valleys. A downtrend is the opposite: lower peaks and valleys. A sideways trend is when the price moves in a range with no clear direction. Identifying the trend is the first step, because it helps you decide whether to buy, sell, or wait.
Then, you use tools to confirm your ideas. Support and resistance levels are key levels: a support level is a price where a stock typically stops falling because there are many buyers; a resistance level is a price where it typically stops rising because there are many sellers. For example, if a YPF stock consistently bounces at 500 pesos, that's a support price, and if it can't break above 700 pesos, that's a resistance price. If the price breaks through a resistance price, it could be a buy signal; if it breaks through a support price, it could be a sell signal.
You also use technical indicators, which are mathematical formulas applied to price or volume to give you signals. Some of the most common are the moving average (which smooths prices to see the trend), the RSI (Relative Strength Index, which measures whether an asset is overbought or oversold), and Bollinger Bands (which show volatility). For example, if the RSI is above 70, the stock could be overbought and about to decline; if it's below 30, it could be oversold and about to rise.
Advantages and disadvantages of technical analysis
Technical analysis has several advantages. First, it's fast: you can analyze a chart in minutes and make decisions without reading balance sheets. Second, it's versatile: it works for any asset (stocks, currencies, cryptocurrencies) and any timeframe (days, hours, minutes). Third, it gives you clear signals: a pattern like a head-and-shoulders pattern or a moving average crossover can tell you when to enter or exit. It is ideal for traders looking to take advantage of short market movements.
But it also has disadvantages. First, it doesn't always work: patterns can fail, especially if there is unexpected news (such as a crisis or a change in policy). Second, it can be subjective: two people can look at the same graph and come to opposite conclusions. Third, it depends a lot on experience: beginners often misinterpret signals and lose money. For this reason, many people combine technical analysis with fundamental analysis to gain a more complete view.
Jesse Livermore: The Pioneer
Jesse Livermore is one of the most legendary figures in technical analysis, although he didn't write a formal book like some others. Born in 1877 in Massachusetts, Livermore was a self-taught trader who began trading in bucket shops at age 14. His approach was based on reading price movements and understanding market psychology, making him one of the first to use technical principles in a practical way.
He made millions in big moves, like the 1929 crash, where he bet on the short side and got rich, but he also lost fortunes due to his lack of control over his emotions. His life ended tragically in 1940 with suicide, but his legacy lives on.
Livermore did not use modern indicators like the RSI, but developed strategies based on support, resistance, and trends. He believed the market was a reflection of the collective mind of investors, and that big moves came from breaking key points. For example, if a stock rose to a level where many were selling (resistance), he would wait for it to break through before buying, confident that the trend would continue. He also emphasized the importance of timing and position sizing: he didn't jump in all at once, but rather adjusted according to the strength of the market.
His story shows that technical analysis can be powerful, but it requires discipline and emotional control. His biography, “Reminiscences of a Stock Operator” (1923) by Edwin Lefèvre, is an inspiration to traders and captures his lessons.
John J. Murphy and his book «Technical Analysis of the Financial Markets»
John J. Murphy is another pillar of technical analysis, known for his book "Technical Analysis of the Financial Markets," published in 1986 and considered a modern bible for traders. Born in 1942 in New York, Murphy worked as a Wall Street analyst and later as an educator, synthesizing decades of knowledge into a text that remains a standard. His book covers all aspects of technical analysis, from chart patterns to indicators and their application in different markets. It's a practical resource that explains how to use tools like moving averages, RSI, and Japanese candlesticks, with clear examples.
Murphy organizes analysis into three levels: trends (primary, secondary, and minor), patterns (such as triangles or flags), and confirmations (with volume or indicators). He emphasizes that trends are the basis of technical analysis, and that identifying them gives you the main direction of the market. For example, an uptrend in a stock like Mercado Libre suggests buying, while a downtrend invites selling. It also introduces concepts such as divergences (when the price and an indicator move in opposite directions) and the importance of confirming signals with volume.
His approach is systematic and educational, making technical analysis accessible even for beginners. The book was updated in subsequent editions to reflect changes such as electronic trading, and remains a must-read.
Alexander Elder and "Trading for a Living"
Alexander Elder is a psychiatrist and trader who combined technical analysis with psychology in his book "Trading for a Living" (1993). Born in 1949 in Leningrad (now St. Petersburg), Elder emigrated to the United States and used his background in psychology to understand how emotions affect investors. His book teaches you how to use technical analysis not only with charts, but also by controlling your mind and money, which makes it unique. It's a guide to making a living from trading, but also a manual of discipline.
Elder introduces the "Triple Trading System," which combines three elements: technical analysis (patterns and indicators), money management (how much to risk per trade), and psychology (controlling fear and greed). Use tools like the exponential moving average, MACD, and Force Index to identify trends and signals. For example, if the MACD crosses upward, it might be time to buy, but only if the risk is limited to the 2% of your capital. He emphasizes that success in trading depends more on discipline than on indicators. He also warns against overtrading and suggests keeping a journal to learn from mistakes.
Other contributions to technical analysis
In addition to Livermore, Murphy, and Elder, others have left their mark on technical analysis. William Gann, a 20th-century trader, developed geometric theories and time-course cycles, such as Gann angles, to predict movements. Ralph Nelson Elliott created the "Elliott Wave Theory," which suggests that markets follow patterns of five bullish and three bearish waves, based on collective psychology. Martin Pring, with his book "Technical Analysis Explained," popularized indicators such as the KST (Know Sure Thing) to measure momentum.
How to apply technical analysis in practice
To use technical analysis, start with a chart of your favorite asset, such as YPF stock or a currency pair like EUR/USD. Identify the trend by looking at the peaks and valleys: if they rise, it's bullish; if they fall, it's bearish. Then, mark support and resistance levels: for example, if YPF bounces off 500 pesos several times, that's support. Add indicators like the 50-day moving average: if the price is above it, it confirms the uptrend. If the RSI is below 30, it could be a buying opportunity; if it goes above 70, consider selling.
Practice on a demo account so you don't risk real money at first. Have a plan: enter when a pattern is confirmed (such as a moving average crossover) and exit with a predetermined profit or loss. For example, if you buy at 510 pesos with a stop-loss at 500, you limit the risk to 10 pesos per share. Review your trades to learn: If you lost, analyze why the pattern failed. Over time, you will develop intuition without losing discipline.
Practical example of technical analysis
Let's imagine you're analyzing Mercado Libre. On a daily chart, you see that the price formed an ascending triangle (a pattern suggesting a rise) and broke through the resistance at 1,800 pesos with high volume. The 50-day moving average is rising and the price is crossing above it, confirming the uptrend. The RSI is at 45, neither overbought nor oversold, and the Bollinger Bands are wide, showing volatility. You decide to buy at 1,820 pesos, with a stop-loss at 1,780 and a target at 1,900. If it rises, you win; if it falls, you lose a little. This is technical analysis in action.
Conclusion: Technical analysis as a tool for success
Technical analysis is a powerful way of reading the market, based on prices, volumes, and patterns. Thanks to pioneers like Jesse Livermore, who used psychology and key levels; John J. Murphy, who systematized knowledge in "Technical Analysis of the Financial Markets"; and Alexander Elder, who integrated mind and money in "Trading for a Living," today we have a practical and accessible method. Others, like Gann and Elliott, contributed innovative theories, enriching the approach. It's not infallible, but with practice, discipline, and a good plan, it allows you to make informed decisions and take advantage of market opportunities, whether for quick trading or medium-term investments.
Next course date
Questions for you to reflect on
What advantages does Technical Analysis offer?
Do you know anyone who has become a millionaire using Technical Analysis?
Reflect on the effects of applying Technical Analysis to other disciplines, such as statistics. Will it work?
A brief overview of The Pocket Investor
The Pocket Investor is a project that combines experience and passion for financial education to help you transform your relationship with money. Through personalized mentoringWe help you design investment strategies tailored to your goals and needs, optimizing your portfolio to address challenges like inflation and the dollar.
The books on finance and investment, including the popular The Argentine Pocket Investor - El Inversor de Bolsillo argentino, are practical tools that explain complex concepts in a simple way, bringing the world of investments closer to anyone interested in financial growth.
See more notes from our blog:
-
25 – Investor Psychology: How to Keep a Cool Head and Win in the Long Run
In this lesson, we'll discuss how investor psychology is key. We'll look at how to keep a cool head in difficult times and thus be successful in the long run.
-
A 17 años del Inolvidable Día Más Volatil del Dow Jones
October 10, 2008, was the most volatile day in history for the Dow Jones Industrial Average, moving more than 1,000 points in a single day. It fell as low as -8.1% and by the end of trading, it had recovered to just -1.49%. Let's look at the full story of these turbulent days of the subprime crisis.
-
Pampa Energía: El Sorprendente Ascenso a Wall Street 16 Años Atrás
On October 9, 2009, Pampa Energía, a leading energy company in Argentina, began trading on the New York Stock Exchange. Let's take a look at the company's complete history.
Aeronautics saving Apple Financial Advisor banks Berkshire Hathaway Stock market bonds bubble Dot-com bubble byma commodities South Sea Company Financial advice Cryptocurrencies crisis subprime crisis free finance course economy Start investing pyramid scheme USA scams Facebook finance Personal finances IBM inflation England finance books investment books LTCM financial mentoring Argentine market stock market international market Microsoft Nasdaq Oil Russia Steve Jobs Technology value investing Wall Street Warren Buffett
