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Introduction

Many programs of technical analysis allow to test trading strategies on history data. In the most cases, the testing is conducted on already completed data without any attempts to model the trends within a price bar. It was made quickly, but not precisely enough.

It is important to choose a relevant way of modeling development of price bars to make a quality testing of a trading strategy. Indeed, there cannot exist an ideal situation when there is a full tick history for an extremely accurate testing. It is very difficult for a normal trader to find the full tick history for a period of several years, in order to analize it.

To solve this problem, the data of more precise periods can be used as reference points with modeling price changes between them.

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Trendlines

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.

Support and Resistance

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.
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Introduction

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.