This means that actual price is the reflection of everything that is known to the market that could affect it.
Some of these factors are inflation , interest rate etc supply and demand, political factors and market sentiments. However the pure technical analysis is only concerned with price movement, not with the reasons for any changes.
Technical analysis is used to identify the patterns of market behavior that has long been recognized as significant.
For any given pattern there is a high probability that they will produce the expected results.
There are also recognized patterns that repeat themselves on a consistent basis.
Forex chart patterns has been recognized and categorized over 100 years and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little over time.
Since patterns have worked well in the past, it is assumed that those patterns would work well in the future.
We will look into trend lines and how they can be used to maximize the information available to you through your superior charting tools on AchieverFX's MT5 platform. You can learn more about technical analysis by attending one of our FREE weekly webinars.
The simplest form based upon the closing trades forming a homogeneous line. This chart does not show what happened during the time unit selected by the viewer, only closing rates for such time intervals. The line chart is a simple tool for setting up for support and resistance levels.
Chart based on price without time. Unlike most other investment charts, points and figure charts do not present a linear representation of time; instead, they show trends in price.
This chart shows three rates for each time unit selected: the high the low and the closing. This chart provides clearly visible information about trading price range during the trading period; so are popular with many short term traders. Below are examples of a EURUSD bar chart; and a breakdown of one bar below to show what information it contains clearly.
This type of chart represents prices at their opening, high, low and closing prices. Like a bar chart this type of chart contains several key pieces of information and in this case it is represented not as a bar but in the form of candles, for each time frame unit selected. The empty (transparent) candles show an increase, while the dark one shows a decrease. The length of the candle shows the range between opening and closing, while the whole candle shows the whole range of trading prices for the selected unit item.
Trend Line: a sloping line of support and resistance
Uptrend Line: straight line drawn upward to the right along successive reactions low.
Down Trend Line: straight line drawn downwards to the right along daily successive picks.
Two points are needed to draw the trend line, and the third point to make it valid trend line. Trend line is used in many ways by traders. One way is that when price returns to an existing principle trend line' it may be opportunity to open new position in the direction of the trend in the belief that the trend line will hold and the trend will continue further. A second way is when price action breaks the principle trend line of the existing trend, it is evidence that the trend may be going to fall and the trader may consider in the opposite direction of the existing trend, or existing position in the direction of the trend.
Remember the Trend is simply the overall direction of price movement; up, down or Flat. Below is an illustration of a trend line, comprising of a short and intermediate trend and then the overall long term trend as well; so you can see how trend lines can be broken down further.
Markets don't move straight up and down. The direction of any market at any time is either Bullish (Up), Bearish (Down) or Neutral (Sideways). Within those trends, markets have countertrend (backing & filling) movements. In a general sense "Markets move in waves", and in order to make money, a trader must catch the wave at the right time.
The basic trend line is one of the simplest technical tools employed by the trader, and is also one of the most valuable in any type of technical trading. For an uptrend line to be drawn there must be at least two low points in the graph where the 2nd low point is higher than the first. A price low is the lowest price reached during a counter trend move.
Drawing Trend Lines – Below are some examples of annotated charts with trend lines drawn to help guide you:
When price trend between two parallel trend lines they form a channel. When prices hit the bottom trend line this may representative of a buying area and when prices hit the upper trend line this may be representative of selling.
Price supports are price areas where traders find that it is difficult for market prices to penetrate lower. This will happen for example if buying interest in the dollar is strong enough to overcome selling interest in the dollar keeping prices at a sustained level. In the chart below you can see the support level in RED. Clearly the price has fallen to this level at least 3 times and failed to go below; hence this is a support level. Eventually this support level gives way but not after holding for a while; giving trader’s valuable information and time to take a view and place their trades.
Resistance is the opposite of support and represents a price level where selling interest overcomes Buying interest and advancing prices are turning back. In the example below, a resistance line has been drawn as well as the support line below this. Many times these lines will appear in pairs. This will create a tradable range for a short period of time. During this time the price will move in between the resistance and resistance support levels; until one of these levels is overcome. Then the new trend, along with support and resistance must be determined.
Retracement is when a prices resume their original trend for a short time (hence the name) before returning to the current trend. Retracements can be confusing sometimes and mistaken for a new trend but can represent a very short term opportunity for very short term traders such as scalpers or snipers. here is a graphical representation of a 50% retracement with annotations to help illustrate this:
Indicators are considered essential when trading in the forex market. Several forex traders use these indicators daily, which helps them understand when they can buy or sell in the forex market. These indicators are known as an important part of technical analysis, and every technical or fundamental analyst should be aware of these indicators. Here are the top 10 forex indicators that every trader should know:
Moving average (MA) is a crucial forex
indicator that indicates the average
price value over a particular period
that has been chosen.
If the price trades are above the moving
average, it means buyers are controlling
the price, and If the price trades are
below the moving average, it means
sellers are controlling the price.
Therefore in trading strategy, a trader
should focus on buy trades if the price
is above the moving average. The moving
average is one of the best forex
indicators that every trader should
know.
When it comes to measuring the price
volatility of a particular security, the
Bollinger bands indicator is used to
determine the entry and exit points for
a trade.
Bollinger bands come in three parts, the
upper, middle, and lower brands. These
bands are often used to determine
overbought and oversold conditions.
The best part about this indicator is
that it helps characterize the price and
volatility over time of a financial
instrument.
The Average True Range indicator is used
to measure the market volatility. The
key element in this indictor is the
range, and the distinction between
periodic low and high is called
range.
The range can be applied on any trading
period, such as intraday or multi-day.
In the Average True Range, there is a
use of the true range.
True range is the biggest of three
measures:
1) Current high to low period
2) Previous close to current high
period
3) Prior close to current low period
The absolute value of the biggest of the
three ranges is called the true range.
However, the average true range (ATR) is
the moving average of specific true
range values.
This is one of those indicators that tell
the force that is driving in the forex
market. In addition, this indicator
helps identify when the market will stop
in a particular direction and will go
for a correction.
MACD is arrived at by deducting the
exponential moving average of the
long-term from the short-term EMA.
EMA is a kind of moving average where
the current data gets larger importance.
However, the formula of MACD is MACD =
12 Period EMA - 26 Period EMA.
Fibonacci is another excellent forex
indicator that indicates the exact
direction of the market, and it is the
golden ratio called 1.618.
Several forex traders use this tool to
identify areas and reversals where
profit can be taken easily. Fibonacci
levels are computed once the market has
made a big move up or down and looks
like it has flattened out at some
specific price level.
The retracement levels of Fibonacci are
plotted to find areas to which markets
may retrace before moving back to the
trend that the movement in the first
price has created.
The RSI is another forex indicator that
belongs to the oscillator category. It
is known to be the most commonly used
forex indicator and showcases an
oversold or overbought condition in the
market that is temporary.
The RSI value of more than 70 shows an
overbought market, while a value lower
than 30 shows an oversold market. Thus,
several traders use 80 RSI value as the
reading for overbought conditions and 20
RSI value for the oversold market.
This forex indicator showcases the
demand-supply balance levels of a pair
of currencies. If the price reaches the
pivot point level, the demand and supply
of that particular paid are at an equal
level.
If the price crosses the pivot point
level, it shows higher demand for a
currency pair, and if the price falls
below the pivot point level, it shows a
higher supply for a currency pair.
Stochastic is considered one of the top
forex indicators that help traders
identify momentum and
overbought/oversold zones.
In forex trading, the stochastic
oscillator helps recognize any trends
that are likely to be a reversal. A
stochastic indicator can measure the
momentum by comparing the closing price
and the trading range over a certain
period.
This indicator helps several forex
traders understand the market's
volatility by determining the higher and
lower price action values.
Donchian channels are usually made of
three different lines that have been
formed by calculations pertaining to
moving averages.
There are upper-lower bands around the
median one. The area that lies between
the upper and the lower band is the
Donchian channel.
The parabolic stop and reverse (PSAR) is
a forex indicator used by forex traders
to arrive at the direction of a trend,
assess short term reversal points of a
price.
This indicator is mainly used to find
spot entry and exit positions. The PSAR
appears as a set of dots on a chart
below or above the price of an
asset.
If the dot is below the price, it
indicates that the price is moving up.
Conversely, if the dot is over the
price, it indicates that the price is
moving down.
