Technical analysis
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Forex Technical Analysis
Forex technical analysis is all about identifying the most appropriate time to enter the market to "buy cheaper, sell more expensive" - it can be detecting a trend reversal point, determining whether its direction is suitable for entering the market at the current moment, or, for example, identifying potential opportunities to make money even during flat periods. In an uptrend or bullish trend, you can make money both on the growth of the price of a currency pair and on temporary pullbacks (correction).
In case of unforeseen price reversal against open trades, the trader has to determine at least approximate time of closing trades with profit. Manual closing, Stop Loss and Take Profit orders are used. The search for the closing point is carried out on the basis of the same rules of technical analysis.
For the ease of using techanalysis, the trading period from the beginning of trading on Monday to their completion on Friday is divided into equal intervals - time-frames. Thanks to them, it is possible to analyze the most significant parameters. These include the price at the moment of opening/closing of the period, price minimum/maximum, volumes.
Basic postulates of technical analysis
Prices take everything
They are influenced by absolutely any political or economic factor (sometimes also climatic). The degree of influence is conditioned by the importance for the state whose currency is traded.
Subordination of prices to trends
The value of currencies is constantly changing. As a result, currency pairs rise and fall in value. During certain periods, a flat period may occur - a time of uncertainty, when the price does not change much over time.
History repeats itself
Trend reversal and flat market conditions are observed at the same price levels. A trend that was once recognized can be repeated many times, which traders use in their trading systems.
Basics of technical analysis
Standard and non-standard timeframes
The trading terminal offers several standard timeframes - from M1 (minute) to MN (month). The chart is divided into nine timeframes, in addition to the extreme ones, M5, M15, M30, H1, H4, D1, W1 are used. The choice of period determines the dynamics of visual price changes. Short-term trading systems use timeframes no older than M30. Sometimes traders resort to the formation of non-standard timeframes. Their task is to compensate for the shortcomings of typical values. For example, if an indicator on H1 displays a late value, but on M30 it "hurries". Presumably, the "average value", i.e. the M45 timeframe should show the most accurate time for opening trades.
Technical analysis tools
Periodic repeat of previously occurring events allows you to prepare for them and, having timely identified a tendency to return to previous positions, earn profit. The trader has a lot of tools in his arsenal: support/resistance levels, ascending and descending channels. The terminal has built-in functions for drawing the necessary lines on the chart of a currency pair, access to them is provided from the "Graphical tools" panel.
In addition to the standard lines, tools are offered:
- Grid, fan, arcs, time zones, Fibonacci channel
- Grid, lines, Gann fan.
- Fourier series
The listed trading "add-ons" are an attempt to mathematically predict the subsequent price movement on the basis of techanalysis of the previous trend dynamics in the market. The use of channel tools allows trading at the moments of price reversal inside the channel, taking into account the current trend. Channel lines indicate where a correction reversal is most likely to occur if the price is moving against the trend, support/resistance lines show the price level where a trend change is likely to occur, the beginning of a prolonged correction. All technical analysis tools are based on mathematical calculations and they are used mainly as a basis for determining the trend, and more precisely the moment of market entry is determined by indicators.
Using of Japanese candles
Forex techanalysis includes the control of such components of Japanese candlesticks as:
The body of the candle. The color means the direction of price movement. By default, white is used for rising candles and black for declining candles.
Candle size. It indicates the strength of selling/buying pressure. There are Dodgy candles when the opening price is equal to the closing price.
The presence of the tail and its size. It reflects the indecision of sellers/buyers in the market, which leads to price fluctuations around the unchanged level.
Figures are formed from different types of candlesticks, their combination can be used to determine the current trend (trend), approaching reversal. If there is no certainty on the candle of the H1 period, the trader switches to the lower timeframes and thus provides a more accurate Forex techanalysis. If we are talking about scalping, the opposite is true - work mainly on the lower TFs, while the general trend is watched on the higher ones.
Candlesticks also show the volatility of the currency pair. If you switch to periods from H4 and above, it will become clear in what range the price is moving in the current month or this week, whether there is a risk of reversal, market entry into a long-term flat. The exact result is achieved by using additional tools, searching for patterns, indicators. When a trader counts on a long-term perspective, a more dynamic picture on TFs lower than H1 allows you to react faster to the signals that appeared on the intervals H4 and higher.
Graphic figures
10 basic figures of technical analysis are applied
Triangle. It is bullish, bearish and symmetrical (the last one means the continuation of the previous trend).
Diamond. Visually, a rhombus-like shape is formed on the chart, the tops of which are resting on resistance/support levels.
Double top. A reversal pattern suitable for use both as a separate tool and as an additional signal.
Wedge. One of the "long-playing" figures, it can be formed during a long period, which is convenient for use in long-term trading strategies.
Triple bottom. Allows you to determine the direction of the breakdown during the flat period.
Triple top. One of the tools for determining the trend reversal point, which works in moments of consolidation.
Double bottom. Another figure indicating the change from a downtrend to an uptrend.
Flag. Observed after news impulses, indicates its continuation in the previously determined direction.
Plate. A figure used by amateurs of long-term trading.
Pennant. A pattern similar to a flag having a similar definition.
Indicator types
Indicators are conventionally divided into several categories:
Trends. They show the direction, strength of the trend, probability of reversal.
Oscillators. Display a mathematical model for measuring the rate of change in the market.
Bill Williams and Volumes. They work on a "separate theory", but have quite high efficiency in short-term and long-term trading.
The key task of indicators is to indicate the recommended direction for market entry (Buy or Sell orders), volatility indication for profit forecasting. Without their use, a trader will have to focus on "simpler" signals - support/resistance levels, trend channel lines.
Many trading strategies contain rules for combining the readings of different indicators. When conditions appear on one of them (conditionally the main one), the trader looks for confirmation on the others. And only in case of coincidence the decision to open a deal is made. If there is no match, the trader waits for the next signal of the "main" indicator.