Discussion of article "Technical Analysis. What Do We Analyze?"
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Discussion of article "Technical Analysis: How Do We Analyze?"
newdigital, 2014.06.13 19:28
Technical analysis is considered one of the easiest ways to analyze the foreign exchange market. It involves the analysis of charts and graphs to ascertain future currency price movements, and differs massively from fundamental analysis in that it does not require the analysis of forex news, reports or other economic releases to establish future price movements.
Becoming a Technical Analyst
The first step in becoming a successful technical analyst is to learn how to read forex charts. Outlined below are some simple steps that every trader should take when first starting out with technical analysis:
When analyzing a currency pair you will need to look out for a prevailing trend. Start off with charts that provide long-term data (for example days, weeks and months) and go back over the course of a number of years. Such charts contain an exhaustive amount of data, thus providing a much clearer picture of exactly what the currency pair is doing than if using short-term charts (5 minutes, 15 minutes, 30 minutes or one hour). This extra data also makes the technical indicators much more steadfast and reliable.
How to Identify a Trend
To identify a trend simply look at the graph presented before you and decide whether it is rising more than it is falling, or vice versa. Trends can be shallow or sharp, weeks short or years long. Practice identifying trends and locating the moment where the trends change direction.
Even if you are a short-term scalper or day trader who wishes to place a trade for no longer than an hour, it is still important to identify trends. Identifying a trend is one of the best steps a trader can take in executing more accurate, profitable trades.
Upon identifying a trend in a long-term chart you will then be able to compare that trend with the one that you have found in the short-term charts. Within the path set by the prevailing trend you will discover that there are a variety of short-term and intermediate-term trends. Overall the pattern on the graph will follow a particular path as set by the longest-term trend.
Identifying Support and Resistance Levels
After this point you will then need to locate the support and resistance levels. In technical analysis these are regarded as the ‘floor’ and ‘ceiling’ points on a graph and are key locations on a chart where the price continually refuses to break through. The price will reach a peak or a valley, after which point it will not go any further, but will instead alter its direction. The more frequently this occurs, the stronger the support and resistance levels are.
Draw a straight line as you pass through most of the support points. Draw another line as you pass through most of the resistance points. This provides you with a lucid picture of the price channel, or the path that the currency pair’s trend is following. This is a highly powerful yet incredibly simply tool for determining a currency’s future pathway.
What is a Range- Bound?
In the event that ‘range bound’ occurs, this simply means that the support and resistance levels are so strong that the graph’s movements appear to ‘bounce’ in a sideways pattern. Nevertheless this generally occurs 80% of the time and many traders prefer to trade within the channels.
Breaking out of a Price Channel
In the event that a currency pair
becomes released from a price channel, in some instances it falls back
into the channel, and in others it gains momentum and continues to move.
The latter movement is better known as a ‘momentum market’, and is an
alternative way to trade the range: by setting an entry order for the
price to break out, either below or above the channel.
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New article Technical Analysis. What Do We Analyze? is published:
Author: Victor