Forex technical analysis
It consists in identifying the most suitable moment to enter the market, to "buy cheaper, sell more expensive" — this may be the detection of a trend reversal point, determining whether its direction is suitable for entering the market at the moment, or, for example, identifying potential opportunities for earnings even during the flat period. On an uptrend; or bullish trend, you can earn both on the growth of the price of the currency pairs and on temporary pullbacks (corrections).
Basic postulates of technical analysis
For easy application of technical analysis, the trading period from the beginning of trading on Monday to its completion on Friday is divided into equal intervals - time frames. With the help of them, it is possible to analyze the most important parameters. They include the price at the time of opening/ closing of the period, min/max price, volumes. The basic postulates of technical analysis are the basis of almost any trading strategy.
The basic postulates of technical analysis are the basis of almost any trading strategy.
Prices include everything
Their change is influenced by absolutely any political or economic factor (and sometimes climate one). The degree of influence is determined 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 are rising and falling in price. During certain periods, there may be a flat, that is, time of uncertainty, when the price does not change much over time.
History repeats itself
Trend reversal, flat state of the market are observed at the same price levels. Once noticed the trend can be repeated many times which the fact is used by traders in trading systems.
Basics of technical analysis
Standard and non-standard timeframes
The trading platform offers several standard time intervals - from M1 (minute) to MN (month). The chart is divided into nine timeframes, in addition to extreme timeframes , M5, M15, M30, H1, H4, Dl, W1 are also used. The dynamics of visual price changes depends on the period selection. Short-term trading systems use time intervals not older than M30.
Sometimes traders recourse to the formation of non-standard timeframes. Their task is to compensate for the shortcomings of typical values. For example, if the indicator on H1 shows a belated value, but on M30 it is "in a hurry". Presumably, the "average value", i.e. M45 timeframe should show the most accurate time for opening trades.
Technical analysis tools
Periodic repetition of previous events allows to prepare for them and earn profit in timely manner by revealing a tendency to return to previous positions. A trader is equipped with a lot of tools: support/resistance levels, ascending and descending channels. The terminal has built-in functions for drawing the necessary lines on the chart of the currency pair; access to them is provided from the "Graphical tools" panel.
In addition to standard lines, the following tools are available:
- Grid, fan, arcs, time zones, Fibonacci channel
- Grid, lines, Gann fan.
- Fourier series
Above mentioned trading "add-ons" are an attempt to mathematically predict the subsequent price movement on the basis of technical analysis of the previous dynamics of trends in the market. The use of channel instruments allows you to trade at the moment of price reversal within the channel, taking into account the current trend. Channel lines indicate where the correction is most likely to reverse if the price moves against the trend, while support/resistance lines show the price level, where the trend change is likely, as well as the beginning of a prolonged correction. All the tools (Illegible) of the analysis.
The usage of Japanese candlesticks
Forex technical analysis includes the control of the following components of candlesticks:
- Candlestick body. The color indicates the direction of price movement. «default, white is used for rising candlesticks, and black is used for falling candlesticks.
- Candle size.It indicates the strength of pressure caused by sellers/buyers. Doji candles appear when the opening price is equal to closing price.
- The presence of the tail and its size. It shows the indecision of buyers/sellers in the market, which leads to price fluctuations around a constant level.
Different types of candlesticks form figures, their combination can be used to determine the current trend (trend), the approaching reversal. In the absence of certainty on the candlestick of period H1, the trader switches to younger time frames, and thus provides a more accurate Forex technical analysis.If we are talking about scalping, they act on the contrary - they work mainly on younger TF, and the general trend is observed on older ones.
Candlesticks also display the volatility of the currency pair. If you switch to periods from H4 and above, it becomes clear in what range the price moves in the current month or week, whether there is a risk of a reversal, market entry into a long-term flat. The exact result is achieved through additional tools, search patterns, indicators. When a trader counts on the long term, a more dynamic picture on the TF below H1 allows to react faster to signals appeared within intervals of H4 and above.
Chart pattern Types of indicators
10 basic technical analysis patterns are used
- Triangle. There are bullish, bearish and symmetrical triangles (the latter means continuation of the previous trend).
- Diamond. Visually, the chart is formed like a diamond, the tops of which rest against the resistance/support levels.
- Double top. Reversal pattern, suitable for the use as a separate instrument, and an additional signal.
- Wedge. One of "long-playing" patterns that can be formed over a long period, which is convenient for use in long-term trading strategies.
- Triple bottom. It allows to determine the direction of the breakout in the flat period.
- Triple top. One of tools for determining the trend reversal point, working at the moments of consolidation.
- Double bottom. Another pattern indicating the turn of the downward trend into upward one.
- Flag. It is observed after the news impulses, indicates its continuation in a previously defined direction.
- Saucer. A pattern used by long-term trading enthusiasts.
- Pennant. A pattern similar to a flag that has a similar definition.
Types of indicators
Indicators are divided into several categories:
Trend. They show direction, strength of the trend, probability of the reversal.
Oscillators. They display a mathematical model for measuring the rate of change in the market.
Bill Williams and Volumes. Work according to a "separate theory" but are quite efficient in short and long term trading.
The key task of indicators is to indicate the recommended direction for entering the market (Buy or Sell orders), volatility indication for profit forecasting. Without their use, the 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 (deemed main), 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 coincidence, they wait for the next signal of the "main" indicator.