Technical Side

Introduction to technical analysis | Technical index and Application | Short-term currency movements | Correct technical index

Introduction to technical analysis

Technical analysis is to predict the future price trend by examining historical data.
Most people prefer to use technology to analyze the price trend of investment products as a macro grasp". Even if the fundamentals of transactions, often look at a chart, look at the purchase price is appropriate, whether to sell or if it will form a cycle of the top into a sideways market fluctuation.
Technical analysis is based on several important assumptions:
• Fundamental information is reflected in the price data. Market sentiment, point of view and other basic information need not be analyzed.
• History repeats itself, and there are laws to follow. The form of price fluctuation is called signal. The goal of the technical analysts is to find the current market signals by examining historical market signals.
• Price trends. Analysts believe that price fluctuations are not random or unpredictable. A rise, fall, or fluctuation trend, once formed, usually lasts for some time.
Learn to get in and out in time
Traders usually look for ideal entry and exit opportunities based on the mathematical representation of price charts, graphs, and other market data. Some of these methods are used to identify trends, while others determine the strength and length of a trend.
The use of technical analysis will make your trading more rigorous, and can reduce the impulse. It may be difficult to curb the fundamentals and stick to the plan. Although no system is perfect, technical analysis can help you look at the trading plan more objectively and calmly
Price chart type
• Histogram
It is one of the most basic graphs of price behavior. Each column represents a period of time - a minimum of 1 minutes and a maximum of several years. With the passage of time, the histogram can reflect the different price patterns.
• Candlestick Charts
Different from the simple histogram, the high price and low price, the opening price and closing price of each candle candle line represents a period of time. Candles provide us with more visual information.
• Point line graph
Point line graph similar histogram, different changes with multiple X and O to mark the price trend. Point line graph has nothing to do with time, only emphasizes price changes.
Types of technical indicators
• Trend indicator
The trend index will be price data smoothing, which is relatively easy to distinguish a sustained rise, fall or sideways trend. (for example: moving average, trend line)
• Strength index
The strength index reflects the intensity of the market point of view by considering the positions of different market participants. Trading volume or interest is the most basic elements of the strength index.
• Fluctuation index
"Volatility" refers to the size of the daily price fluctuations (whatever the trend). Changes in volatility can often predict changes in prices. (for example: Poly plus channel)
• Circulation index
Circular index refers to the repeated forms of the market due to the occurrence of periodic events such as seasons or elections. It determines the time at which a market is formed. (Eliot wave theory, for example)
• Support and resistance
The support and resistance levels mark the price of those markets that repeat and then reverse. This phenomenon is attributed to the basic supply and demand. (for example: trendline)
• momentum index
It is a measure of the strength of a trend over time. The momentum index reaches the peak value at the beginning of the trend, and the trend changes to the lowest value. When the price and momentum indicators deviate from the description of fatigue. If the price to the extreme, and the momentum is weak, it means that the trend towards the end. If momentum indicators show a strong trend and prices are stable, it means that the price trend may change. (for example: random index, MACD, RSI)

Technical index and Application

If price charts help traders gain insight into the available market trends, technical indicators can help us determine the strength and durability of the trend. Even if the index issued a reversal signal, it is necessary to fully grasp the action. This means that you need to be patient for a while to confirm the same signal, or to see if there are other signals. Enough patience to help you interpret the signal and respond promptly.
Type of moving average (Moving Averages)
Moving average is one of the most widely used technical indicators, it helps traders to identify existing trends, determine the trends that will occur, and found that the trend of excessive delay is about to reverse. As its name implies, the average price volatility is "averaged" in the form of a curve on a chart, which helps to observe long-term price movements.
Simple moving average
Is the connection of all price averages for each given period of time. A curve determined by a trader whether or not they are included in the highest price, the lowest price, or the closing price.
Weighted moving average
Greater weight on the recent data. Smoothing the price curve makes the curve more sensitive to recent price changes.
Exponential moving average
Also known as smooth moving average, in another way to increase the weight of the recent price data. It is multiplied by the percentage of the latest price data multiplied by the previous stage.
Find the moving average and time slots for you
It is not an easy task to find the best moving average type and time parameters for transaction analysis. Once you choose the right, you will easily find the trend. The process of finding an ideal tool is called curve fitting.
The first step, traders tend to compare different moving average time parameters in a historical data on the chart, then you will find over time, different time parameter to reflect the degree of speed and price changes have different performance, then adjust and select the line.
Once you have found a suitable moving average, you can use it as a tool to find support and resistance levels for long positions and short positions. If the price curve and cross this line, is often the reversal signal, for example: Although a moving average term is more convenient to confirm the trend, but the short-term moving average is reflected in the trend changes more sensitive. This is also the reason why many traders will look at the moving averages at different times. Once the short-term moving average and relative moving average long-term intersect, it may mean that the current trend into the end, that may be the time to lighten up.
Stochastics
Random index (or shock index), used to monitor the trend of persistence and price reversal signal. Numerical within the range of 0-100, composed of K-line and D line. K "fast index", more sensitive; the D line as "slow, slow response index.
In the sideways market, a random index losing effectiveness. Because K, D line intersection is too frequent, unable to determine the signal.
Relative strength index (RSI)
Such as random index, the relative strength index of the numerical range is also 0-100, it is a measure of the price rise, fall strength indicators.
The signal from the relative strength index will always need confirmation of other indicators. It may last for a long time to maintain peak or trough, and no signs of reversal. All this means that the market is strong or weak, and may continue for some time.
You need to find the right time parameters. Short term exponential response is very sensitive and sends a number of signals, but not all of the signals are sustained; relatively long-term index is less volatile. You can choose according to their own time to choose the time parameters: do short-term parameters with short-term, long-term use of long-term parameters.
Price and the relative strength index is a departure from the trend reversal signal. Of course, please make sure that you have a full grasp of the action.
Bull
Poly plus channel is used to determine the limit of the price curve, the general use of a certain standard deviation of the moving average line to determine the number of channels and the bottom of the channel. Its inventor John poly plus such recommendations:
Touching the high or low channel does not necessarily mean that the trend will reverse. Poly plus channel changes with the volume of transactions and dramatic changes, so the only way to touch the channel price changes. Need to cooperate with other indicators to confirm the strength of the trend.
Fibonacci retracements
The Fibonacci callback is composed of a series of famous mathematician Leonardoda Fibonacci invented in twelfth Century. These numbers reflect the laws of the natural world, and technical analysts use them to look for price retracement.
After a period of significant rise and fall, prices tend to be substantial or across the board". At this time, support and resistance usually falls right at the lease or near the Fibonacci retracement. For foreign exchange transactions, which means that the callback is usually in the previous position 23.6%, 38.2%, 50% or 61.8% position.

Short-term currency movements

Short term trading opportunities
Most of the time, the market trend is not clear - just back and forth between the support and resistance. This movement is known as the "trading range". The following trading strategy can help you capture the entry point in the short-term trend, and the use of mobile stops to protect profits.
Transaction settings
This strategy will use two kinds of time parameters (10 minutes and 1 hours) chart, in addition to the application of the technical indicators: the moving average of the 200 period of time and the random index of the 14 period of time (two).
Step 1: judge trends
Can compare the performance of moving averages on two graphs. If the price on the two chart is consistently above or below the moving average, the trend may be shaping.
The second step: find the right time
Once the trend is confirmed, it will take 10 minutes to meet the requirements of the two conditions:
1. The price is located within 20 points of the moving average (over the top, short at the bottom).
2. 20 below the level of stochastic "express" (i.e., K) from the bottom up through the "slow line (D line) - long signal; or above the level of 80, express from the top down through the" slow line "- short signal.
The third step: the use of trends
Don't forget to set up a trailing stop (i.e., a mobile stop) in order.
For multiple positions, stops should be located on the 10 minute chart 200 times below the moving average of 10 points. You should raise your stop loss when dealing with homeopathy.
For short positions, the stop loss should be located above the moving average of 10 points. You should lower your stop loss when dealing with a deal.
Example: June 2002 EUR/USD
Step 1: compare the EUR/USD with the 10 minute chart
On the hourly chart, such as the price is almost certainly above the 200 hour moving average, it means there will be a sustained rally.
On the 10 minute chart, the price changes in the last 1/3 sections of the chart and continues to remain above the moving average.
The second step: find the entrance point
When the 10 minute chart, the market price is located within the moving average of less than 20 points, and the random index when crossing the signal, that is, admission, as shown in the picture, June 27th at 8 p.m.. Buy 0.9883 at EUR/USD
In 0.9858, set the stop loss to protect the position (below the moving average of 10 points)
Sell at 0.9992 EUR/USD
Trail stop automatically moved to 0.9967
Profit =109 = $1090
Conditional order does not necessarily reduce losses

Correct technical index

How to choose the correct technical index
The foreign exchange market a proverb is "for having heard it many times but if you take advantage of the transaction, the current market has no obvious trend, the basis for how to deal? This is a very practical problem, because the foreign exchange market, even by economic trends dominate, such as monetary policy cycle, the trend of the trend, showing the long-term trend of the direction but still accounted for only 1/3 of the market price behavior, that is about 2/3 of the time, in fact, there is no market price change direction to speak of.
Trend and interval puzzle
What is worse, many traders usually only rely on one or two technical indicators to identify the direction of the market as well as the timing of the transaction on the basis of the orientation of this "universal" so that they are often trapped in the trend and range in the market, because the applicable technical indicators to identify the direction of the market trend of the present range of movements in the market. Serious traders may be misleading. As a result, traders may be too early to make a profit, miss a larger directional band, or assume that the trend is still leading to a short - term trading.
To avoid this trend in the end there is no myth, the purpose of this paper is to suggest that traders use at the same time a number of technical indicators, to identify whether the market has the trend of development, and the use of different indicators to determine the entering and exiting. However, this article lists a series of trading rules, this paper will propose a flexible technical analysis to help traders to solve the market trend is the existence of doubts.
Tools for trend trading
First, we must define what is the trend. From a technical point of view, the implication of the trend is that the price behavior is expected to change in the so-called resistance and support. For example, in an upward trend, the price will rebound when close to the support, finally will be high; on the other hand, in a downward trend in prices will be blocked by the resistance, and finally there will be new lows. This definition has already shown that trend line analysis is the first tool we use to identify trends that can be used to suggest the so-called support and resistance levels.
Some market participants believe that the analysis of the trend line is too subjective, but they ignore a little, it actually helps us to see the analysis of market implied price patterns. In view of this, should be the first tool used to determine whether there is the trend analysis of the trend line, and if the analysis cannot show a recognizable trend, probably, at present there is no market trend. In addition, the trend line analysis can also be used to identify price patterns, which are also predictive of their own value.
Analysis of the best starting point is the long time of use price chart trend line, such as daily or weekly, and then step down to 4 hours and 1 hours, so can also explore the short-term support and resistance. This approach highlights the importance of a variety of support and resistance levels in order to avoid the tendency of traders to follow a shorter trend line and ignore a major trend line that may not be far away.
Another trend is more objective decision tools (DMI, dirctional, movmnt index, indicator) this index can effectively exclude the existence of doubts about the trend, and further confirm the conclusions obtained from the trend line analysis. The DMI system by ADX (AAG dirctional movmnt indx and DI+ and DI-) consisting of two lines, ADX is used to determine whether the market is the trend of the trend, if the index is higher than 25, it means that the presence of the trend trend, below 20 means there is no trend. ADX can also be used to measure the strength of the trend, the higher the index means that the trend is stronger. The use of ADX indicators can not only determine whether the market is in the trend of the trend, more importantly, traders can decide whether to use the trend following trading system.
Another trend is more objective decision tools (DMI, dirctional, movmnt index, indicator) this index can effectively exclude the existence of doubts about the trend, and further confirm the conclusions obtained from the trend line analysis. The DMI system by ADX (AAG dirctional movmnt indx and DI+ and DI-) consisting of two lines, ADX is used to determine whether the market is the trend of the trend, if the index is higher than 25, it means that the presence of the trend trend, below 20 means there is no trend. ADX can also be used to measure the strength of the trend, the higher the index means that the trend is stronger. The use of ADX indicators can not only determine whether the market is in the trend of the trend, more importantly, traders can decide whether to use the trend following trading system.
Interval trend tool
Such as RSI, Stochastics or MACD to determine these price momentum shock indicators, many traders are most often used in no specific trend or horizontal market tools, these earthquakes? The main function index, is showing signs of whether the goods have overbought or oversold, and display the price reversal signal can advance.
However, once the market in a strong trend, the momentum index will be maintained for a long time interval in overbought or oversold, prompting prices continued higher or lower, depending on the momentum index makes pure traders not too early profit taking positions, is to reverse the transaction, but the trend is not because the shock index has reached the extreme the location of the.
The second use of the momentum index is to observe the phenomenon of price and momentum deviation. The basis of this theory is that only the existence of implicit momentum, the market price changes can be regarded as effective. For example, when prices continued emergence of new high, only behind the momentum also follow high, the high prices to stabilize, or deviate from the so-called phenomenon will appear. Divergence occurs frequently in the foreign exchange market, and prices usually follow the reversal of momentum.
However, in reality, even if the deviation phenomenon often appears in the trend of the market, the price is not significantly reversed, the trend is still valid, but the price finally accelerated along with the change of direction, even the momentum is reversed again along the trend, the reverse operation of trading signals according to the deviation unprofitable. That is to say, the deviation can produce a lot of false signals, resulting in many traders who do not pay attention to the trend indicator.
Comprehensive application
Then we take a look at some of the actual examples, the use of the above comprehensive analysis of technical tools to address the market is sometimes a trend, sometimes the trend of the interval puzzle. In these examples, we will use MACD as a momentum indicator, although traders can choose other similar tools according to their preferences.
Figure 1 is a EUR/USD 4 hour chart, the technical indicators are MACD collocation and DMI system (ADX, DI+, DI-), in the days of the price chart, there are two trend lines respectively reflect the trend of prices during the period, when the price rises to point A, ADX index rose to a trend the significance of the trend of 25, means that at this time for concussion index must be reduced depending on the. In fact, if you look at the MACD signal, traders are likely to think that the upward trend in prices has stalled, however, the price of the subsequent behavior continues to rise.
However, prices later fell below the trend line 1, and ADX index in B began to decline, although the volatility is quite intense, but because the ADX reading is still higher than 25, so the MACD signal for cross traders and effective support line to play some discount should be broken. To the point of C, ADX has begun to slide below 25, meaning that the importance of MACD at this time, that is, the price of a new high in fact there is no momentum behind the support. Then, the price fell sharply also led to the emergence of MACD cross sell signal, because the ADX reading below 25, we can be in about 1.3060 (D points) to establish short positions.
However, prices later fell below the trend line 1, and ADX index in B began to decline, although the volatility is quite intense, but because the ADX reading is still higher than 25, so the MACD signal for cross traders and effective support line to play some discount should be broken. To the point of C, ADX has begun to slide below 25, meaning that the importance of MACD at this time, that is, the price of a new high in fact there is no momentum behind the support. Then, the price fell sharply also led to the emergence of MACD cross sell signal, because the ADX reading below 25, we can be in about 1.3060 (D points) to establish short positions.
Figure 2 shows a strong trend, in other words, the importance of momentum indicators in this market is not high. We start to analyze the trend line is USD/CHF hours, the price broke through the previous trend line resistance at A, MACD position is more and more high, support price breakthrough, and ADX have increased by more than 25, which means that we could establish long positions in about 1.1650 locations.
Then prices began climbing speed is not fast, but because the ADX reading is still higher than the 25 that we shouldn't pay too much attention to MACD in the B display of the correction signal. Indeed, prices continue to rise along the trend line, MACD also reversed upward, although it at C display sell signal, but the reading of ADX close to 50, that the trend of strong, really, then the price uptrend burst characteristics, but also ADX continued high.
In contrast, MACD from D began to display bearish divergence signals, ADX will soon show the strength of the trend gradually weakened, but only if the price fell below the trend line at E and ADX less than 25, is our best time to open, the price is about 1.2000. This example shows that ADX reference index, can let us better grasp the short period of the band, on the contrary, if we only rely on the momentum index, we are probably too early in the rising trend in the open, or even too early to establish short positions.
epilogue
The financial market is constantly changing, especially in this article that discussed the trend and no problem, can sometimes be applicable to day trading rules may be not worth a hair, so, in technical analysis, we should adopt a flexible type strategy for multi market changes, at the same time using the trend line, this paper suggests that the DMI system well, the momentum index, is a can create better results in a wide variety of market environment strategy.