Technical analysis

Technical analysis is an attempt to calculate the market. It is based on mathematical processing of the previous price values and on their basis to make a forecast of the future movement.

Formulas, algorithms, indicators and levels - objects that interpret a quote chart in one way or another - help traders in this. This is how it turns from a chaotic set of prices into a logically built structure. The center of which is still a human being and his psychology.

Conducting technical analysis of Forex or any other market means determining the current trend and confirming your forecasts regarding further price movement with the help of various graphical tools. As a result of these manipulations, it means determining a good moment to make a deal.

Therefore, the purpose of technical analysis is to see the rationale for opening a position on the chart itself.

Graphic - Price Action

You look at a chart and try to find the shapes that Japanese candles form on the chart. Some of these figures signal a price reversal, while others signal a continuation of the trend. There are also figures of uncertainty, when the asset itself does not yet know which way to go next.

Analysis of volumes

More transactions in the market - more volume of operations and, therefore, more interest of traders to a particular asset. This factor proves the strength or weakness of the price trend. There are special indicators to determine volumes. The simplest and the most accessible of them is the On Balance Volume (OBV) indicator. It links the volume and the price change that accompanies the volume. If there is a rise or fall in price, the volume increases, it is considered a confirmation of the trend. If the indicator or volume is falling, there is no confirmation and it may be dangerous to join the move.

Candle analysis

You analyze the Japanese candles themselves: their closing levels, opening levels, length, and which candles are on the sides. This method is similar to chart analysis and is a more detailed version of it.

Indicator - mathematical

You select technical indicators on the trading platform: various lines, which are based on various formulas that make calculations with the price based on previous quotes. These indicators help to visually identify the best moments to open trades (give signals) and the current assessment of the situation from the life cycle of the trend.

Tools are offered in addition to the standard lines:

• Grid, Fan, Arcs, Time Zones, Fibonacci Channel
• Grid, lines, Gunn's fan.
• Fourier series

These trading "add-ons" are an attempt to mathematically predict the subsequent price movement based on technical analysis of the previous trend dynamics in the market. The use of channel tools allows trading at the moments of price reversal inside the channel, taking into account the current trend. Channel lines indicate where a correction reversal is most likely to occur if the price is moving against the trend, support/resistance lines show the price level where a trend change is likely to occur, the beginning of a prolonged correction. All technical analysis tools are based on mathematical calculations and they are used mainly as a basis for determining the trend, and more precisely the moment of market entry is determined by indicators.

There are the following groups of indicators:

• Trends - help to determine the direction of price movement and are ineffective in a calm market;
• Oscillators - are indicators that show how much the price has deviated from its average value and help to identify periods of trend reversal;
• Volumes - take into account the total number of buy and sell transactions for a particular asset;

This division is conditional: sometimes the same instrument falls into several groups. For example, MACD is considered a trend indicator, which looks and works like an oscillator.

Two types of the most popular trader's "helpers":

• Trend indicators (lagging)
• Oscillators (leading)

Trend indicators mark the direction of the prevailing trend, and oscillators signal reversal points. They are based on a certain formula, which is automatically calculated in the trading terminal and shows the results of these calculations in a clear graphical form.

It is believed that if you take into account the readings of several complementary tools at once, you can get a clear picture of what is happening and build a reasonable forecast of price movement. Trend indicators are often used to confirm the presence of a trend and signal after the actual market reversal. Oscillators are designed to signal a trend change even before the direction has changed.

They measure the strength of current price movements and note either:

• that the impulse of growth/decline of quotes is not exhausted yet,
• or that the movement has gone too far and a correction is likely (i.e. an inevitable pullback in the opposite direction).

There are 10 basic figures of technical analysis:

• Triangle. It is bullish, bearish and symmetrical (the last one means the continuation of the previous trend).
• Diamond Visually, a rhombus-like shape is formed on the chart, the tops of which are resting on resistance/support levels.
• Double top. A reversal pattern suitable for use both as a separate tool and as an extra signal.
• Wedge. One of the "long-playing" figures, it can be formed during a long period, which is convenient for use in long-term trading strategies.
• Triple bottom. Allows you to determine the direction of the breakdown during the flat period..
• Triple top. One of the tools for determining the trend reversal point, which works in moments of consolidation.
• Double bottom. Another figure indicating the change from a downtrend to an uptrend.
• Flag. It is observed after news impulses, indicates its continuation in the previously determined direction.
• Platter. A figure used by long term trading enthusiasts.
• Pennant. A flag-like pattern has a similar definition.