Forex Fanatic

Technical analysis is the study of market data such as historical data and the current money supply in order to make the best forecast of market activity in the long run. The history of the data of the course is generally the most used available data which is set up in the analysis.

The history of the data of the market is preserved and constitutes graphs of various periods. The technical analyst can analyze various periodic graphs which belong to a quite specific amount of time, with the only aim of selecting the levels of entries and exits of a transaction. By studying the graph, the chartist can in only one glance have information which with a little chance indicates the direction that the instrument in the future will take.

There exists an eternal discussion between the fundamentalist and the technical analysts on the most powerful analytical method. The technical analysts claim that all the bases are already elaborate in the course. Thus, apart from natural disasters and of unexpected events in the world, the current course which takes into account all the known information, is able to make a valid estimate. In fact the chartists seek models or repetitions in the mobility of the course in order to guess the courses to come. In other words, they seek tendencies!

The technical analysis assumes three principal points:

1. The foundations are already developed in the course
2. The history has in general repeated itself. It is thus enough to study the past and to project it in the future.
3. The tendency is the key - note the tendency of an instrument then follow it. Generally there are three fluctuations: the rise, the fall or on side. Once the tendency is established , one can select an entrance point to begin the negotiation.

With the years, various mathematical handling was imposed on the market prices like on the money supplies. Handling in question, also called studies, helped the technical analysts to be focused on the identification of the tendencies like on the levels of entry and exit.

As for all the analyzes, the discipline is the most important aspect of the study. Do not hesitate to rely on your search if you show that something is about to happen. Do not change your plans for the market. If you make a mistake, it is not serious, the important thing is to always stick to its plan.

Types of graphs

There exist three principal types of graphs: lines, the bars (also called sticks) and candlesticks.

The graph on line is at the same time most elementary and simplest, it connects the closing prices.

The bar chart gives further details because each period is represented by a bar. The bars do not show only the fluctuation in the one period prices to that which follows it, they indicate also the fluctuation within one period.

The candlesticks resemble the bar charts except that there are “bodies” colors which make it possible the observer to locate in a glance much more details on fluctuations the one period. Each period is made of a candlestick which consists of a body and of a wick at each end. The body of the candle is then colored, generally in red, then in blue or green the wick represents the period raises some or drops some, whereas the body represents its opening or its fence. The color makes it possible to know so during this same time, the prices are in rise or fall.   If the body of the candle is red, the top of the latter indicates the opening price whereas bottom represents the closing price. A blue or green candle, would represent the opposite situation.

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Periods

The graphs are regarded as a succession of daily prices. The fastest mobile Graphic is the one that represents the minimum distance courses. There is only one model of this last one, whether it be the bottom, top, the opening or closing, there is a single price during this period. Each point on the graph represents one away from the course or a single price. The next period is usually a graph of one minute with periodic increases of 5 minutes, 10 minutes, 30 minutes, 1 hour, 4 hours, then becomes daily, weekly and monthly.

Longer is the period, slower is the graph. The graphs of long periods present more stable tendencies, those which show short periods are rather used in order to choose the exit and entrance points.

Technical indicators

There exist many kinds of technical indicators. It is however possible to group them in five types.

1. Tendency indicators: Tendencies, as we saw previously, watch the persistence of the directions whom the prices take, in rise, fall or on side. The indicators of tendency smooth the history of the prices to confirm the market trend.  Most usual of them are moving average.  Simple lines of tendency can also be used in this manner by drawing a line which connects the high points and the low points on a space of time. They are also used to form tunnels and triangles as a common analysis. Just as one makes use of the lines of tendency in order to select the levels of support and resistance.
2. Force Indicators: It is primarily about an indicator of volume which one is useful oneself much more in the futures markets that in the foreign exchange markets. In fact most used of them is volume.
3. Volatility: This one measures the fluctuations and the watch on a certain amount of time. These indicators help to precisely indicate the levels of support and resistance. Most famous of them is called the Bands of Bollinger
4. The cycle: This kind of indicator tends to find models, or more exactly of the cycles of repetitions. This one is also more popular in the other financial markets.  Elliot Wave is the indicator of the most famous cycle
5. Momentum or Oscillators: These indicators trace the speed to which the prices move in a lapse of temp given. Momentum determine the force or the weakness of a tendency progressively of its progression in time.  Momentum is most with the beginning of the tendency and low at the time of the revolving points. Any change of management of the prices is enough in Momentum to inform of a weakness. So extreme prices occur with a weak momentum, an end of movement in this direction is announced. If the momentum has a strong tendency and the prices are single, it is then announced a possible change in the direction of the price. The stochastic indicators, MACD and RSI are the most popular indicators momentum.

Technical indicators most commonly used

Moving average

Moving average is indicators of tendency. The negotiators use them as tools in order to check the existing tendencies, to identify the tendencies which appear and to indicate their end. Moving average is regular lines which make it possible to the negotiators to see the long-term trends of prices without the fluctuations in short-term prices.

Among three moving average, most common is the simple moving average. The two others are balanced and exponential.

All moving average is calculated as an average of a specified number is of a low price, a high price or a price of clôtture of the period. The difference between the three is weighting or the importance placed over each period in particular. Moving average balanced and exponential, for example, attaches a greatter importance to the last prices, whereas the simple fastener the same importance at the three selected periods.

Each new point of the moving average eliminates the oldest period to introduce most recent. The changes of a moving average depend on the number of periods chosen, plus the number is large and slower will be the average. Certain negotiators bring into play various numbers of moving average, each one pertaining to another period. They will act thus until they find a succession of moving average which according to them corresponds to the best indicator of the behavior of the studied instrument.

When one chooses to work with a moving average in a market tending ideally to the top, the current price should not fall more once below the line of the selected moving average. During the increasing tendencies, the moving average must form a line of support and a line of resistance when the tendency is downward. If the continuous increasing tendency and that the line of moving average is broken on several occasions, that indicates that the line of selected moving average is too fast and that it was not smoothed enough. If, for example, 30 days a moving average were used for example, one 45 days period would have been preferable for this instrument in particular.

Once satisfied with the control of the line of moving average compared to the current courses, the negotiator can use the line either to continue a tendency or to put an end to it. If the price is closed twice below the line of moving average in a market which tends upwards, ceaà means the end of the tendency and which it is time to leave a long position. Logic wants that it is the reverse if the market tends towards the fall. the current price must be closed twice above the moving average to indicate that the downward trend is finished.

Moving average can also be used in pairs. Many negotiators will first of all find the moving average, mentioned in the long run above, and will add a faster moving average (during one shorter time) as an indication former at the end of the tendency.  If the moving average shortest crosses the slowest average mobiIe, That can be a former exit point for a tendency.

The stochastic ones

The stochastic slow one is most commonly employed. One makes also use of stochastic oscillators in order to determine either the force of a tendency or the moment when the end of the tendency approaches.  Stochastic calculations are represented by %K (faster) and %D (slower) which oscillate on a scale from 0 to 100.

Calculations which are behind the oscillators one not importance, which counts it is the significance of the lines like their site. When the lines pass above 80, this is the indication of a strong upward trend. Contrary, when the lines pass below de20, that a strong downward trend indicates. When the line %K crosses the line %D, this can be sign of a change of tendency and a possible exit point. An absence of tendency appears when the prices have an apparently normal fluctuation but that the stochastic ones start to overlap the ones on the others.

The stochastic ones give their best signal when the two lines just like move at the same time towards new zones the current prices. That indicates the continuation of a tendency. However when the stochastic ones cross in a direction different from a prolonged tendency, that means that it is necessary either to leave or to change the directions.

The index of relative force (RSI)

The RSI is another oscillator momentum. It tries to select the effects of reversals in the tendency. Just like the stochastic ones, they are read on a scale which goes from 0 to 100. If the RSI is higher than 80 then the instrument is perceived in surachat. On the other hand, if the RSI is lower than 20, the instrument is then perceived in survente. One should negotiate on RSI only at the time of change of management higher than 80 or lower than 20. It is important to know that the lines of the RSI can often remain above 80 and below 20 for long periods because of strong market trend (with the fall or the rise).

The shorter the period of the RSI is and the faster the instrument is and the number of signals is also higher. It is at this time there that the negotiator must find the posology which is appropriate to him. The daily negotiators often use short lines in order to receive regular signals, on the other hand the longer-term negotiators will make use of an Index of relative force longer.

Bands of Bollinger

The bands of Bollinger are indicators birds which one uses in order to identify the extreme rises and falls compared to the current course.

The bands of Bollinger are based on a series of numbers of standard deviations of the moving average. The instrument primarily tries to indicate the levels of support and resistance or the bands of the negotiation which one anticipates.

The negotiator can choose and arrange the moving average in order to put at it the bands of Bollinger as well as the standard deviations at utliser. With time, the negotiator can arrange the latter to adapt them to his own style of trading. The format used by defect is usually 20 days of moving average and two standard deviations of the moving average.

A rupture above or below the bands of Bollinger can announce an exit point or a reversal of trend.

Divergence convergence of the moving average (MACD)

The MACD is a raised study of moving average and holds the same role as an oscillator. The MACD determines the difference between an exponential mobile myenne 26 days and one in 12 days. 9 days a moving average is generally used like a line of signal. thus when the MACD passes in lower part of the line in question one sees appearing a signal directed with the fall, alos that if this one passes above the line mentioned, it is a signal directed with the rise which will appear.

The negotiators make use of the MACD for the reversals of trend. The appearance of divergeance between the MACD and the prices, for example, constitutes a strong technical signal to anticipate a trend reversal.

Fibonacci Sequence

The levels of retracement Fibonacci are a series of numbers which indicate changes of tendency according to preceding peaks or hollows. Following the important movement of a rate, the prices often recall a significant portion of the first movement.  Whereas the prices recall, the levels of support and resistance, them, often take place on the levels of retracements of Fibonacci, or with their proximity.

On the money markets, the series of rartios generally used is:  23.6%,38.2%,50% and 61.8%. The levels of retracements Fibonacci are drawn by connecting two significant points, a top and a bottom. The withdrawal represents a correction in a tendency and not the end of the tendency. The most significant withdrawals are: Levels 38.2%, and 61.8%.