Technical Analysis Can Be Divided into the Following Five Categories (Part 2)

4. Candlestick School

The candlestick school focuses on analyzing multi-day candlestick patterns to gauge the balance of power between bulls and bears in the forex market, determining whether one side holds a temporary or decisive advantage. Candlestick charts are the most essential tools for technical analysis, which we’ll explore in detail later.

A single candlestick has over a dozen patterns, while multi-day combinations are virtually limitless. Through continuous总结经验, traders have identified recurring patterns with predictive value, and new discoveries are still being made. Candlesticks are especially popular in East Asia, often serving as the first technical tool forex traders encounter.

5. Elliott Wave Theory

The Wave Theory originated from the 1978 book The Wave Principle by American Charles J. Collins, but its true inventor was R.N. Elliott, who conceived the idea in the 1930s.

The theory compares price movements to ocean waves—rising and falling in natural, rhythmic patterns. Forex prices, it argues, follow these same cyclical rules.

In brief, an uptrend consists of 5 waves, while a downtrend has 3. Correctly counting waves allows traders to anticipate trend reversals, such as a bear market bottom or a bull market peak. Unlike other methods, the Wave Theory can predict tops and bottoms far in advance, whereas other approaches often lag until trends are confirmed.

However, this is also the most challenging technical method to master. "Waves within waves" make real-time wave-counting highly error-prone. Retrospectively, waves always fit the theory perfectly; but in real-time, few can count them accurately.

Conclusion
These five schools analyze the forex market from distinct angles. Some have solid theoretical foundations, while others rely more on empirical observation. Yet all share one trait: they’ve survived market baptism, distilled from generations of trading wisdom.

Their applications differ—some favor long-term trends, others short-term swings; some prioritize relative price levels, others absolute values; some emphasize timing, others price action. But ultimately, the goal is the same: profitability. The method matters less than the results.