In this chapter, we will go through some popular methods of technical analysis and show how to apply them while analyzing market data. We will perform basic algorithmic trading using market trends, support, and resistance.

You may be thinking of how we can come up with our own strategies? And are there any naive strategies that worked in the past that we can use by way of reference?

As you read in the first chapter of this book, mankind has been trading assets for centuries. Numerous strategies have been created to increase the profit or sometimes just to keep the same profit. In this zero-sum game, the competition is considerable. It necessitates a constant innovation in terms of trading models and also in terms of technology. In this race to get the biggest part of the pie first, it is important to know the basic foundation of analysis in order to create trading strategies. When predicting the market, we mainly assume that the past repeats itself in future. In order to predict future prices and volumes, technical analysts study the historical market data. Based on behavioral economics and quantitative analysis, the market data is divided into two main areas.

First, are chart patterns. This side of technical analysis is based on recognizing trading patterns and anticipating when they will reproduce in the future. This is usually more difficult to implement.

Second, are technical indicators. This other side uses mathematical calculation to forecast the financial market direction. The list of technical indicators is sufficiently long to fill an entire book on this topic alone, but they are composed of a few different principal domains: trend, momentum, volume, volatility, and support and resistance. We will focus on the support and resistance strategy as an example to illustrate one of the most well-known technical analysis approaches.

In this chapter, we will cover the following topics:

• Designing a trading strategy based on trend-and momentum-based indicators
• Creating trading signals based on fundamental technical analysis
• Implementing advanced concepts, such as seasonality, in trading instruments