The basic concepts of technical analysis
Introduction prices
For analysis of the market traders use a special form of submission rates in the form of bars (bar) or "Japanese candlesticks» (candlesticks, often simply called "candles").
Each bar or candle is based on four basic food prices during the standard period of time (eg per hour). These are the prices:
Price discovery - Open price
Closing price - Close price
Maximum Price - High price and
Minimum price - Low price
These are the four prices are the reference for determining the degree of price volatility over a specific period. But all the same schedule as a result of a long series of consecutive bars or candles. Convenience of such a description of price movement is that there is no need to apply everything quotes coming constantly. Four prices are rather decent job making a qualitative idea of the mood of the market over the period.
To build the bar, the maximum and minimum prices for a standard link between a vertical line. Then at the opening price put at risk, the waste left from the vertical, and at the closing price - at risk, the waste law.
To build the candle between the prices of opening and closing draw a rectangle, its name candle body. If the closing price above the opening, it remains white if the closing price below the opening price, his painting the black. Then, from the upper bound of the rectangle to draw a vertical maximum price - as the "upper shadow candle", but from the bottom - up to a minimum - the second vertical line is - the lower shadow candle. Fig. 1 we can see the bars and candles, built on the hourly time interval.
In his analysis, traders use charts, constructed on the basis of bars or candles of various sizes: 10 min, 1 hour, 1 day, week, month. The choice of time periods depends on the trade rules adopted by the trader.
That the schedule of a working scale trader usually determines the frequency of transactions, as well as the possible gains and losses.
Fig. 1. EUR / USD, 1-hour chart as a bar ... ... And the candles
But, of course, one schedule in the form of bars or candles to make a decision is not enough. We must have some way to make assumptions about how to behave in price during the period consisting of several future bars. Therefore, in practice, traders use several methods of analysis - and only with an analysis, acting in accordance with the received signal entry and exit from the market. They used a technical, fundamental and psychological analysis and, in turn, technical analysis is divided in two types: graphical and mathematical analysis
Graphical analysis
Jack Schwager
Technical Analysis.
Full course
Technical Analysis
Graphical analysis uses the assumption that if in the past stock prices in the graphs formed by some combination of shapes or candle, and those figures and the combination led to reversals in the trend or its continuation, then they will continue to testify to the same behavior of prices - a turnaround or continuation of the trend. For such approval, of course, it was necessary to check and recheck the behavior of prices on the charts for a long time.
Information about the figures, candle combinations and other graphical tools to accumulate from the very start of the commodity and stock exchanges. And today, trading on the FOREX market currencies, we have powerful tools of forecasting the behavior of prices, while trade replenishing human knowledge with new information.
John J. Murphy's
Technical Analysis Futures Markets
Technical Analysis of the Futures Markets: A Comprehensive Guide to Trading Methods and Applications
At the heart of the process of studying the trader price chart is the notion of a trend - that is, the current more or less settled directional price movement. If the general direction of price movement upward - the base currency becomes more expensive, and states that "the trend is upwards. When price goes down - base currency is cheaper, "down trend". In this case in determining the direction of the trend short movement against the alleged trend (correction), not only do not disprove a trend, but rather help to build a trend line, indicating the rapidity with which increases or decreases price. Trend line are two minima at promoting the market and two maximums at lowering market. These lines are also called lines of support and resistance, respectively. Fig. 2 shows the upward trend, where the price as it is repelled by the support line and climbs. This upward movement indicates whether the trader buying the currency: there is a tendency to increase prices and it can save for the future, and if the base currency to buy now, then it become more expensive, and selling the contract, the trader earns money. If there is a downward movement - downward trend, the trader has the right to sell the currency in the expectation that its price will fall further. Closing position at the bottom of the market (buying the currency at the presumed minimum), the trader will profit.
Fig.
2. GBP / USD, uptrend
However, the price often moves in a straight line. Rather, it moves along a zigzag line, indicating a continuous change of the dominant group of players on the market: winning a "bear", the "bulls." If the minimum and maximum price increase (or decrease) in approximately the same rate, then the talk of price movement in the channel (Fig. 3). canal is being built like this: we take as a basis for a support line on an uptrend or resistance line on the downlink, we add to this line parallel line drawn through the largest High to rising market or through the lowest Low - on the downstream market, you end up with a channel within which the price moves.
Fig.
3. USD / CHF, downlink
Stephen B. Akelis
"Technical Analysis from A to Z»
ABC of Technical Analysis
How to interpret the information obtained from the lines of support and resistance lines or channel? If the price is approaching any of these lines, then she meets along the way some barriers. Overcoming this obstacle is only when a sufficient number of players entering the market in one direction that often occurs, for example, as the market response to emerging news on the economy, politics, or extraordinary events (terrorist attacks, hostilities or natural disasters). In this case it is the breakdown of lines of support or resistance of the channel or a substantial line of graphic shapes and the likelihood of continued strong price movement.
If you hold the chart is not inclined line of support or resistance, and the horizontal through a maximum or minimum, we will get the level of support or resistance, which plays in the exchange trade special, very important role. These psychological levels have the power, and price often takes place without breaking them.
Thomas R. Demark
Technical Analysis - a new science
The New Science of Technical Analysis
For the correct use of information contained in the graph of stock exchange prices, you must know not only listed in this lesson, the basic concepts of graphical analysis and the nuances and figures that are not described here, but you must also know how to and properly interpret them. Ability to interpret incoming information is no less important factor for success than knowledge of the methods of graphic analysis. The number of all possible configurations is large, but still limited, and with due diligence to remember them is not difficult. But the correct interpretation depends on the experience of the Chartists, and the characteristics of the market.
All the possible image configurations are divided into three types:
The figures continued trend
A reversal trend
The figures reflect the situation of uncertainty
The figures continued trend signals that the previous trend is likely to continue, a reversal trend alert about the end of last movement and the willingness to start moving in the opposite direction (if the previous trend has been upward, ie, base currency more expensive, then the new trend will be downward - base currency will be cheaper).
Steve Nison
Candlestick.
Graphical analysis of financial markets,
Japanese Candlestick Charting Techniques
It is easy to detect trends, much harder to say that, when it changed. Knowing that the trend is changing, on the one hand, we would not lose, but on the other hand, will allow us time to enter the market in the direction opposite to the original trend. Graphical figures which indicate a possible change in trend, are called the reversal pattern, and detailed familiarity with these figures will significantly improve trading results.
The figures reflect the situation of uncertainty, occupy a special position in the market. This provision is defined by him in because, if found, we know: something will happen. But we are still not clear whether trends will reverse, or continuation of the previous trend. In this case, a trader in the market is not included, and the open position is closed.
Commerce and analytical platform Metatrader4 and AFM can analyze the behavior of the price chart of the main currency pairs for any period of time and monitor trends in real time. With its help, the trader will be able to detail and comfort to analyze the price chart, seeking opportunities to make money. He can work with different scales of motions, building lines, levels, shape, color lines with different colors, make notes and even build their own and use the built-in indicators that help determine the important price levels or aspects of price reversal.
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