Overview
The practice of analysing price charts and market data to forecast future price movements and identify trade setups. Relies on patterns, levels, and indicators rather than fundamental company/asset data.
Key Concepts
- Trendlines — lines drawn along swing highs (downtrend) or swing lows (uptrend) to define price direction and identify potential breakout or reversal zones. Drawing them correctly (connecting significant pivot points, not forcing them) is the foundational skill.
- Trade setup identification — a valid setup requires confluence: price approaching a trendline + a signal (candlestick pattern, momentum shift) + confirmation. Not every touch of a line is a trade.
- Stop loss placement — the most common mistake is placing stops based on arbitrary percentage risk (e.g. “I’ll risk 2%”) rather than trade logic. Logic-based stops are placed beyond the level that invalidates the thesis — if price reaches there, the setup is wrong.
- Risk management — position sizing and stop placement are inseparable. A well-placed stop at the right level determines position size; the dollar risk follows from that, not the other way around.
Trendline Rules (Tori Trades)
- Connect at least two significant swing points — more touches = stronger line
- Don’t force the line to fit; if it doesn’t connect cleanly, it may not be a real trendline
- Watch for price reaction at the line — a break with momentum is more significant than a drift through
- Most reliable setups come from the third or fourth touch of a well-established line
Stop Loss Logic (Tori Trades)
- Percentage-based stops: arbitrary, get triggered before valid setups play out
- Logic-based stops: placed just beyond the structural level that defines the trade thesis
- If price reaches your stop, it means the setup was wrong — not that you got unlucky
- This reframe changes stop placement from “how much am I willing to lose?” to “where does this trade become invalid?”
Synthesis
Technical analysis is a probability game, not a prediction game. The goal is finding setups where the risk/reward ratio is favourable and the invalidation point is clear. The two resources here (trendlines + stop losses) cover the entry and exit sides of the same trade logic — they belong together.
Both resources unwatched — this page will expand significantly once consumed.
Contradictions / Open Questions
- TA is often critiqued as self-fulfilling prophecy — does it work because of market psychology or because enough traders use it?
- How does trendline analysis apply differently to equities vs. futures vs. options?