Linear Regression Channel is built on base of Linear Regression Trend representing a ussual trendline drawn between two points on a price chart using the method of least squares. As a result, this line proves to be the exact median line of the changing price. It can be considered as an equilibrium price line, and any deflection up or down indicates the superactivity of buyers or sellers respectively.

Linear Regression Channel consists of two parallel lines, equidistant up and down from the line of linear regression trend. The distance between frame of the channel and regression line equals to the value of maximum close price deviation from the regression line. All price changes take place within Regression Channel, where the lower frame works as support line, and the upper one does as resistance line. Prices usually exceed the channel frames for a short time. If they keep outside of the channel frames for a longer time than usually, it forecasts the possibility of trend turn.

Fibonacci Time Zones is a sequence of vertical lines having Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc. Significant price changes are considered to be expected near these lines.
To build this instrument, it is necessary to specify two points to determine the length of a unit interval. All other lines are built on base of this unit interval according to Fibonacci Numbers.

Fibonacci Retracement are built as follows: first, a trend line is built between two extreme points, for example, from the trough to the opposing peak. Then, nine horizontal lines intersecting the trend line at Fibonacci levels of 0.0, 23.6, 38.2, 50, 61.8, 100, 161.8, 261.8, and 423.6 per cent are drawn. After a significant rise or decline, prices often return to their previous levels correcting an essential part (and sometimes completely) of their initial movement. Prices often face support/resistance at the level of Fibonacci Retracements or near them in the course of such a reciprocal movement.

Think of prices for financial instruments as a result of a head-to-head battle between a bull (the buyer) and a bear (the seller). Bulls push prices higher, and bears lower them. The direction prices actually move shows who wins the battle.

Support is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling lower.

Resistance, on the other hand, is the point at which sellers (bears) take control of prices and prevent them from rising higher. The price at which a trade takes place is the price at which a bull and bear agree to do business. It represents the consensus of their expectations.

Support levels indicate the price where the most of investors believe that prices will move higher. Resistance levels indicate the price at which the most of investors feel prices will move lower.

But investor expectations change with the time, and they often do so abruptly. The development of support and resistance levels is probably the most noticeable and reoccurring event on price charts. The breaking through support/resistance levels can be triggered by fundamental changes that are above or below investor's expectations (e.g., changes in earnings, management, competition, etc.) or by self-fulfilling prophecy (investors buy as they see prices rise). The cause is not so significant as the effect: new expectations lead to new price levels. There are support/resistance levels, which are more emotional.

Supply and demand

There is nothing mysterious about support and resistance: it is classic supply and demand. Remembering ’Econ 101’ class, supply/demand lines show what the supply and demand will be at a given price.

The supply line shows the quantity (i.e., the number of shares) that sellers are willing to supply at a given price. When prices increase, the quantity of sellers also increases as more investors are willing to sell at these higher prices. The demand line shows the number of shares that buyers are willing to buy at a given price. When prices increase, the quantity of buyers decreases as fewer investors are willing to buy at higher pricesAt any given price, a supply/demand chart shows how many buyers and sellers there are. In a free market, these lines are continually changing. Investor's expectations change, and so do the prices buyers and sellers feel are acceptable. A breakout above a resistance level is evidence of an upward shift in the demand line as more buyers become willing to buy at higher prices. Similarly, the failure of a support level shows that the supply line has shifted downward.

The foundation of most technical analysis tools is rooted in the concept of supply and demand. Charts of prices for financial instruments give us a superb view of these forces in action.

Traders’ remorse

After a support/resistance level has been broken through, it is common for traders to ask themselves about to what extent new prices represent the facts. For example, after a breakout above a resistance level, buyers and sellers may both question the validity of the new price and may decide to sell. This creates a phenomenon that is referred to as "traders’ remorse": prices return to a support/resistance level following a price breakout.

The price action following this remorseful period is crucial. One of two things can happen: either the consensus of expectations will be that the new price is not warranted, in which case prices will move back to their previous level; or investors will accept the new price, in which case prices will continue to move in the direction of the breaking through.

In case number one, following traders’ remorse, the consensus of expectations is that a new higher price is not warranted, a classic "bull trap" (or false breakout) is created. For example, the prices broke through a certain resistance level (luring in a herd of bulls who expected prices to move higher), and then prices dropped back to below the resistance level leaving the bulls holding overpriced stock. Similar sentiment creates a bear trap. Prices drop below a support level long enough to get the bears to sell (or sell short) and then bounce back above the support level leaving the bears out of the market.

The other thing that can happen following traders’ remorse is that investors expectations may change causing the new price to be accepted. In this case, prices will continue to move in the direction of the penetration.

A good way to quantify expectations following a breakout is with the volume associated with the price breakout. If prices break through the support/resistance level with a large increase in volume and the traders’ remorse period is on relatively low volume, it implies that the new expectations will rule (a minority of investors are remorseful). Conversely, if the breakout is on moderate volume and the "remorseful" period is on increased volume, it implies that very few investor expectations have changed and a return to the original expectations (i.e., original prices) is warranted.

Resistance becomes support

When a resistance level is successfully broken through, that level becomes a support level. Similarly, when a support level is successfully broken through, that level becomes a resistance level.

The reason for it is that a new "generation" of bulls appears, who refused to buy when prices were low. Now they are anxious to buy at any time the prices return to the previous level. Similarly, when prices drop below a support level, that level often becomes a resistance level that prices have a difficult time breaking through. When prices approach the previous support level, investors seek to limit their losses by selling.

Regardless of the "timeframes" of the data in your charts (i.e., hourly, daily, weekly, monthly, etc.), the basic principles of technical analysis endure. Opportunities exist in any time frame. But customized settings of the technical analysis tools are needed for each time period.

On the weekly chart, the scale interval on the time axis is one week. On the monthly chart, correspondingly, every bar shows price behavior for one complete month. It is obvious that in order to cover a longer period of time and to be able to analyze long-term trends, one has to compress the price behavior. A weekly chart, for example, can cover a period of five years and more, the monthly chart can cover twenty years or more. This is how the analyst manages to see far ahead of her-/himself and that is how s/he can assess the market in terms of the long-term opportunities, which are really valuable while conducting the technical analysis.
The order of studying price chart is very important for deep analysis. It is wise to start by analyzing long-term charts and then move slowly to short-term charts. There is less "noise" on the long periods, that is why graphic models, basic trend lines and different levels of support or resistance are seen more clearly. This accounts for the type of work with data time periods. If we start studying short-term market, later on, as the volume of analyzed data expands, we will have to reconsider the conclusions several times at least. In the long run, short-term results may even change completely after long-term charts have been studied. If we start analyzing longer periods first, we can establish where the market is in terms of a long-term perspective. After that, we could then turn to chart studies which cover shorter periods of time. That is how an analyst goes from "macro" to "micro" analysis. At the final stage of the analysis, we determine the point of "entry into the market", i.e., the point of opening a position. The shorter the last analysis stage is, the more precisely one can determine this entrance point.

Moving averages are one of the oldest and most popular technical analysis tools. A moving average is the average price of a financial instrument over a given time. When calculating a moving average, you specify the time span to calculate the average price. For example, it could be 25 days.

A "simple" moving average is calculated by adding the instrument prices for the most recent "n" time periods and then dividing by "n". For instance, adding the closing prices of an instrument for most recent 25 days and then dividing by 25. The result is the average price of the instrument over the last 25 days. This calculation is done for each period in the chart.

Note that a moving average cannot be calculated until you have "n" time periods of data. For example, you cannot display a 25-day moving average until the 25th day in a chart.

The moving average represents the consensus of investor’s expectations over the indicated period of time. If the instrument price is above its moving average, it means that investor’s current expectations (i.e., the current price) are higher than their average ones over the last 25 days, and that investors are becoming increasingly bullish on the instrument. Conversely, if today’s price is below its moving average, it shows that current expectations are below the average ones over the last 25 days.

The classic interpretation of a moving average is to use it in observing changes in prices. Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average.

Advantages

The advantage of moving average system of this type(i.e., buying and selling when prices break through their moving average) is that you will always be on the "right" side of the market: prices cannot rise very much without the price rising above its average price. The disadvantage is that you will always buy and sell some late. If the trend does not last for a significant period of time, typically twice the length of the moving average, you will lose your money.

Traders’ remorse

Moving averages often demonstrate traders’ remorse. Thus, it is very common for an instrument to break through its long-term moving average, and then return to its average before continuing on its way.

Breaking through support or resistance levels results in a change of traders’ expectations (which causes supply/demand lines to shift).

This type of a change is often abrupt and «news based». Such changes may have a certain trend. A trend represents a consistent change in prices. Trends differ from support/resistance levels in that trends represent change, whereas support/resistance levels represent barriers to change.

An Uptrend is defined by successively higher low-prices. A rising trend can be thought of as a rising support level: the bulls are in control and are pushing prices higher. A Downtrend is defined by successively lower high-prices. A falling trend can be thought of as a falling resistance level: the bears are in control and are pushing prices lower.

Just as prices penetrate support and resistance levels when expectations change, prices can penetrate rising and falling trend lines. Volume increases when the trend line has been penetrated. As with support and resistance levels, it is common to have traders’ remorse following the penetration of a trend line. Again, trading volume is the key to determining the significance of the penetration of a trend.

Technical analysis is research of market dynamics that is done mainly with the help of charts and with the purpose of forecasting future price development. Technical analysis comprises several approaches to the study of price movement which are interconnected in the framework of one harmonious theory. This type of analysis studies the price movement on the market by means of analyzing three market factors: price, volumes, and, in case of study of futures contracts’ market, of an open interest (number of open positions). Of these three factors the primary one for technical analysis is the prices, while the alterations in other factors are studies mainly in order to confirm the correctness of the identified price trend. This technical theory, just like any theory, has its core postulates.

Technical analysts base their research on the following three axioms:

• Market movement considers everything

This is the most important postulate of technical analysis. It is crucial to understand it in order to grasp rightly the procedures of analysis. The gist of it is that any factor that influences the price of securities, whether economic, political, or psychological, has already been taken into account and reflected in the price chart. In other words, every price change is accompanied by a change in external factors. The main inference of this premise is the necessity to follow closely the price movements and analyze them. By means of analyzing price charts and multiple other indicators, a technical analyst comes to the point that the market itself shows to her/him the trend it will most likely follow.This premise is in conflict with fundamental analysis where the attention is primarily paid to the study of factors, and later on, after the analysis of the factors, to conclusions as to the market trends are made. Thus, if the demand is higher than the supply, a fundamental analyst will come to the conclusion that the price will grow. Technical analyst, however, makes her/his conclusions in the opposite sequence: since the price has grown, it means the demand is higher than the supply.

• The prices move with the trend

This assumption is the basis for all methods of technical analysis, as a market that moves in accordance with trends can be analyzed, unlike a chaotic market. The postulate that the price movement is a result of a trend has two effects. The first one implies that the current trend will most likely continue and will not reverse itself, thus, excluding disorderly chaotic movement of the market. The second one implies that the current trend will go on until the opposite trend sets in.

• The history repeats itself

Technical analysis and studies of market dynamics are closely related to the studies of human psychology. Thus, the graphical price models identified and classified within the last hundred years depict core characteristics of the psychological state of the market. First of all, they show the moods currently prevailing in the market, whether bullish or bearish. Since these models worked in the past, we have reasons to suppose that they will work in the future, for they are based on human psychology which remains almost unchaged over years. We can reword the last postulate — the story repeats itself — in a slightly different way: the key to understanding the future lies in the studies of the past.