Leveraging Technical Analysis and Market Trends: UK, US Stock Insights, AI-Driven Strategies and Wealth Growth Opportunities

Good evening, everyone!

I’m thrilled to meet you all here at Diamond Ridge Financial Academy. Together, we’ll delve into cutting-edge investment strategies and discover how to enhance your skills with AI trading tools to achieve consistent, long-term returns. I look forward to embarking on this exciting and rewarding journey with you!

Last night, we talked about how to leverage trends in tech innovation for investment success. We explored the potential of emerging fields like AI and the digital economy, and looked at case studies like Rolls-Royce, SMCI and XRP to see how these picks benefited from industry growth. The key takeaway was that successful investing relies on spotting trends and timing your moves.

For trends, it’s about seizing long-term opportunities like AI-driven manufacturing revolutions. For timing, you can use tools like quantitative trading systems to find price dips for efficient entry. We also discussed how profits come from price fluctuations, the importance of recognizing that prices tend to return to their true value over time and how deep market analysis with the right tools can help you find steady returns even in uncertain conditions.

From my chats with many of you, I’ve noticed some common reasons for losses. For example, some jump into hot picks they see in the news without really understanding them, only to buy high and sell low. Others buy random assets without a plan, not knowing their risks, features or potential, which leads to messy portfolios that are hard to manage.  

To succeed in real trading, the key is learning how to spot upward trends in the assets you’re investing in. Tonight, we’ll focus on technical analysis and how to read price movements to identify buy and sell signals.  

Before we dive in, let’s take a quick look at today’s markets and check out the latest updates.

The UK stock market saw an expected pullback today, with the FTSE 100 index posting a slight decline.  

Several key reasons explain the recent market adjustment:  

First, from a technical perspective, the FTSE 100 index has risen steadily over the past two weeks and is now near historic highs, creating short-term correction pressure. This is often seen as an "overbought" situation in technical analysis, leading investors to take profits and reduce risk.  

Second, as this is the final month of the year and with several key economic reports due this week, such as PMI figures, job reports and industrial output data, market sentiment has become cautious. Increased volatility and potentially lower trading volumes reflect this uncertainty.  

Lastly, the uncertainty surrounding the UK’s economic fundamentals remains a significant factor.

While Q4 GDP is expected to grow modestly, slowing service sector growth, fragile business confidence, rising inflation and higher energy costs make investors skeptical about the sustainability of the recovery.

On the bright side, the UK’s relative stability in global geopolitics provides a favorable external environment for its economy. Being far from conflict hotspots like the Middle East and the Russia-Ukraine war means the UK market faces less direct impact from these risks. Recent global tensions have even boosted demand for defense-related products. For example, Rolls-Royce has seen strong short-term stock performance driven by increased demand for its aerospace engines.  

At the same time, as an established industrial powerhouse, the UK has a solid industrial foundation. This advantage has been further strengthened in recent years by the ongoing technological revolution. With the rapid growth of the digital economy and advancements in artificial intelligence, the UK’s position as a leader in global tech innovation has become increasingly prominent, attracting significant capital. In particular, areas like life sciences, fintech and green energy have seen UK companies becoming more competitive, creating broader growth potential for the stock market.

The UK’s tech industry is rising quickly, becoming a key driver of economic transformation. London has become one of the world’s leading tech hubs, drawing significant venture capital investment. Government support for advanced tech fields like AI, quantum computing and blockchain also provides strong growth momentum for these sectors.  

For investors, the continued growth of the tech industry offers not only future opportunities but also the potential to become a core driver of the UK economy. As more innovative companies go public and traditional industries accelerate their digital transformation, the tech sector is likely to become a critical foundation for the long-term growth of the UK stock market.

From an investment trends perspective, aside from the UK stock market, the US market is also a great choice.  

For example in the AI sector, the seven big US tech companies, along with new AI-related names like Marvell Technology (MRVL) and Credo (CRDO) have seen significant price surges recently.  

In quantum technology, companies like IonQ and Quantum Computing (QUBT) have seen their stock prices multiply nearly tenfold (as shown above).  

Meanwhile, in the digital economy, stocks linked to crypto, such as Microstrategy Incorporated (MSTR) and Coinbase Global (COIN) are now in an accelerating upward trend.  

From these profitable patterns, we can conclude that what seems like complex investing can actually be simplified, just follow the development trends of technological revolutions to earn profits easily.

In actual practice, the essence of investing lies in capturing the price fluctuations and profiting from the difference. Any asset can generate maximum returns if you can accurately grasp its price movement patterns. Technical analysis is one of the most commonly used and practical tools for investors. Its straightforward and simple approach helps investors quickly understand market dynamics and spot potential profit opportunities.  

The core of technical analysis is studying market price, trading volume, time and related data to analyze market behavior and predict price trends and movements. This method is built on the philosophy that "everything is reflected in market behavior." The goal of technical analysis is to identify market trends and maximize returns through well-timed buying or selling decisions.

Technical analysis dates back to 17th-century Japan, where rice traders used "candlestick charts" to record price movements and analyze supply and demand changes for rice. In the 19th-century Western markets, Charles Dow, considered the father of modern technical analysis, developed the famous "Dow Theory," laying the theoretical foundation for technical analysis.  

In the 1980s, the well-known investor Richard Dennis used a simple price breakout strategy to achieve enormous success by analyzing trend changes. He recruited a group of individuals with no trading experience, taught them basic trend-following methods and these "Turtle Traders" went on to deliver astonishing trading returns. This demonstrates the practical value of technical analysis.

The predictive principles of technical analysis are based on three core assumptions:  

1. Market behavior reflects everything.

This assumption stems from Dow Theory, which states that market prices fully reflect all relevant information, including fundamental factors, macroeconomic conditions and market participants' psychology. Technical analysis doesn’t focus on news or earnings reports but instead derives information directly from price trends.  

For instance, George Soros observed price trends and market fluctuations, successfully shorting the market ahead of the 1987 global stock market crash. His operation showed that technical analysis could reveal trend changes through market behavior in advance.

A recent example is Super Micro Computer (SMCI), recommended by the chief analyst in mid-Nov. Its rally followed this principle. SMCI experienced a sharp drop in stock price due to delays in filing its financial report and the resignation of its auditor, which sparked delisting fears. However, starting mid-Nov, the stock rebounded from a low of around $17.50 to $40, with a gain of over 120%. Interestingly, on Dec 2, SMCI announced it had hired a new auditor and submitted a plan to regain Nasdaq compliance, but this good news came after the stock rally (as shown above). In fact, the stock lost steam after the news broke.  

So, this shows that real-time prices already reflect all market information, including earnings and major company events. Technical analysis leverages this by decoding historical price and volume data to identify market patterns and future trends, helping us make smarter investment decisions.

2. Prices move in trends.

This assumption states that price movements are not random but directional, they follow trends. The market can be in an uptrend, downtrend or sideways trend. The goal of technical analysis is to identify the trend and trade accordingly.  

Jesse Livermore was a classic example of this. In the early 20th century, he made massive profits across multiple market cycles by observing trend changes and employing a "buy strength, sell weakness" strategy. His success is a testament to the effectiveness of trend analysis.

In practice, the 21-day moving average (MA) we’ve discussed recently is a simple yet effective tool for identifying trends.  

Specifically, when the 21-day MA turns downward and prices stay below it, the market is in a bearish trend. In this case, a price rebound to the MA is usually a signal to sell. On the flip side, when the 21-day MA turns upward and prices remain above it, the market is in a bullish trend. Pullbacks to the MA often present great buying opportunities.  

Some of you might think this method is too simple and didn’t take time to study it deeply, but that doesn’t stop us from making money with it. As shown in the chart, the trading opportunity we captured last month with Astera Labs (ALAB) followed this exact rule.

In reality, simple tools often prove incredibly useful in a complex market. True market experts don’t rely on overly complicated analysis models, they excel by simplifying the trading process and improving decision-making efficiency.  

As highlighted in Hanover's “Price Trend Theory,” the key to trend analysis lies in mastering the rhythm of price movements and identifying critical levels. This helps traders spot clear buy and sell signals.  

Next, I’ll combine Hanover's theory to show you how to use key trend levels to design more accurate trading strategies. This will not only help you overcome confusion during trades but also increase your success rate, turning trend analysis into a winning strategy.

3. History Repeats Itself  

This concept is based on the repetitive behavior of investors, assuming that people's emotional reactions and decision-making tendencies during market fluctuations are predictable. Technical analysis leverages historical data and chart patterns to predict future price movements.  

For example, every financial crisis tends to share similar economic data and recovery methods, with market fluctuation cycles that are almost identical. These emotions are reflected in price movements, leading to specific technical patterns like the “head and shoulders” formation. For instance, during the 2008 financial crisis, the S&P 500 formed a “head and shoulders” pattern which often signals a shift from rising to falling prices. Peter Lynch serves as a notable example. He once applied this method, analyzing similar chart patterns to successfully avoid several major losses, which highlights how technical analysis can play a crucial role in risk management.

Technical analysis is widely used across markets with many successful cases. For instance, Warren Buffett's partner Charlie Munger, known for his fundamental analysis also uses technical analysis to identify price lows and decisively add to positions in quality assets.  

The popularity of technical analysis comes from its advantages:

Firstly, technical analysis is simple and intuitive. Charts and indicators make it easy for investors to understand market trends and identify buying or selling opportunities.  

Secondly, it applies to various asset classes, such as stocks, crypto and forex.  

Lastly, it helps manage risk effectively. By setting stop-loss levels and analyzing patterns, investors can better protect their capital.

The essence of technical analysis lies in predicting price trends through market behavior. Its foundation rests on three basic assumptions, market behavior reflects everything, prices move in trends and history repeats itself. These assumptions provide a solid theoretical basis for technical analysis, validated by history and many successful cases, making it an essential tool in investing.  

It’s worth noting that technical analysis doesn’t work in isolation but complements fundamental analysis and quantitative strategies. For example, Diamond Ridge Asset Management’s quantitative trading system combines AI technology with technical and fundamental analysis to develop highly accurate investment strategies. This integration improves market prediction and decision-making efficiency.

Mastering technical analysis not only deepens market understanding but also boosts investment success rates through trend identification and effective risk management.  

To help investors master technical analysis, we’ve launched an online investment course. It covers quantitative trading principles and real-world applications, with both classic and cutting-edge case studies to blend theory with practice. Most importantly, students will get access to the beta version of the AI 5.0 quantitative trading system, an advanced smart tool designed to enhance strategy effectiveness and support wealth growth.

Tonight's discussion ends here. I hope this sharing helps you better understand the principles and advantages of technical analysis to achieve greater returns. In the next session, we’ll dive into methods of technical analysis, focusing on using the 21-day moving average to pinpoint buying signals. If you have questions about stocks, crypto, forex or portfolio building, feel free to contact me anytime!  

For tonight’s learning, please think about:  

1. What are the common features of the UK and US stock markets?  

2. What are the core principles of technical analysis, and how can they guide our investments?