: Technical Analysis

Technical Analysis Indicators

Major Technical Analysis Indicators

What is a Technical Analysis Indicator?

Technical analysis indicators are mathematical calculations based on price volatility and volume activity. These indicators are used to evaluate the price trend but also to generate trade signals through price crossovers and divergences.

Oscillators

Indicators formed in a bounded range are called oscillators. Usually, an oscillator ranges between 0 and 100.

Here is some key information about MACD, RSI, and some other commonly used technical indicators.

1) MACD (Moving Average Convergence Divergence)

□ Type: Momentum Oscillator & Trade Signals Machine

□ Asset Classes: All Asset Classes

□ Chart: M30 and above

MACD is one of the most important technical analysis tools used for the analysis of a wide variety of financial assets (Forex pairs, Stocks, Indices, Commodities, Cryptocurrencies, etc.). MACD is a trend-following momentum oscillator which transforms two trend-following moving averages into a single momentum oscillator by subtracting the longer moving average to the shorter moving average.

Tips when trading with MACD:

(i) Prefer to use the MACD using its standard settings (12,26,9)

(ii) Divergences between the price chart and the MACD histogram can provide very important price reversal signals

(iii) MACD signals are more reliable in longer timeframes (H1 and above)

: Technical Analysis

Exact Swing Points -Support & Resistance

Exact Swing Points -Support & Resistance

■ By Adrian Jones

Learn a Swing Trading strategy that’s so easy even a beginner trader could be trading it in no time! In this article, you will learn how to determine where exactly the support and resistance points and the swing points are on a chart. This is a particularly important lesson! Just about every system or method of trading at least takes note of where the key support and resistance levels are. I’ll discuss a double use for this method of identifying these points.

Now, how do you know where support and resistance really is?

The problem with Support and Resistance (S&R) is that it is not a definite number. It is not an exact point on the chart at which price will, without any hesitation stop.

In fact, S&R is actually an area – it is not an exact number as we would all like to think.

The dilemma, of course, is that in order to do our calculations we need an exact point. You can’t enter $50.10/20 area when using Fibonacci or working out your stops and limits. You need an exact number even though S&R is not an exact number.

Try telling your broker that you want a stop loss at somewhere between 50 and 55 and watch him burst a blood vessel. This is what I want to concentrate on in this lesson. This is a technique I have found to be particularly good at not only identifying strong S&R points but also swing points. In order to find S&R, we must first identify market swing points. There are various ways of doing this but I am going to use the one I have used for years.

■ Swing Up

: Technical Analysis

Major Types of Charts

4 MAJOR TYPES OF TECHNICAL ANALYSIS CHARTS

There are four major types of Charts:

1) Line Chart

A line chart represents the daily closing prices of financial securities. It is used for the observation of long-term trends but also to make comparisons with related financial variables. For example, observe the price of an oil company compared to the price of oil during a particular period of time.

2) Bar Chart

A bar chart is commonly used for the observation of short-term and mid-term price movements. It incorporates opening, closing, high and low price on a daily basis. The left dash represents the opening price, the right dash represents the closing price -while the upper edge of each bar represents the daily high and the lower edge represents the daily lows.

If the left dash (open) is lower than the right dash (close) then the bar will be colored black. If the left dash (open) is higher than the right dash (close) then the bar will be colored red or white. In simple words black bars represents upward closing prices and red (or white) bars downward closing prices.

Forex Technical Analysis

Forex Technical Analysis

Using Technical Analysis Tools to trade the Forex market is a complicated but common task for every Forex trader. Here are some of the major technical indicators concerning the Forex Market.

1) Relative Strength Index (RSI):

The RSI measures the ratio of upward and downward movements on a scale of 0-100. If the RSI is 70 or higher, it’s a signal that the market is overbought (that means prices have risen more than market expectations). If the index is 30 or less it’s a signal that the market is oversold (that means that prices have fallen more than market expectations).

When trading Forex intraday, it is recommended using RSI on the 5-Minutes chart. It is recommended also to seek for divergences between the price chart and the RSI chart (H1, H4, D1). These divergences may provide very reliable reversal signals.

Key Tips when Trading with RSI:

(i) Use RSI(21) instead of the standard settings of 14-periods

(ii) Divergences between the price chart and the RSI chart can provide powerful reversal signals

(iii) For evaluating key price reversal/continuation you can use RSI(21) on the H4 and D1 charts

(iv) When evaluating short-term overbought/oversold levels you can use RSI(21) on the 5-Minutes chart

(v) In order to perfectly time your trades, wait for RSI(21) to reverse after reaching an overbought/oversold level (20/80)

2) Stochastic Oscillator:

The Stochastic Oscillator is used by Forex traders to indicate an overbought or oversold Forex exchange rate on a scale of 0-100%. The index is based on the assumption that in strong-upward-trend-period closing prices tend to be concentrated at the highest point on the scale shown. Conversely, if prices fall in a strong downward trend, closing prices tend to move towards the lowest point of that particular period. Stochastic calculations produce two lines (% K and % D), which used to define the levels of an overbought/oversold Forex exchange rate.

► Technical Analysis Indicators at the Trading Center

Elliott Wave Principle

Elliott Wave Principle and the Stock-Market Cycles

An American accountant called Ralph Nelson Elliott studied the stock-market volatility during the 30s and concluded that certain price movements (patterns) tend to repeat themselves during different time frames. Until then investors considered market fluctuations as random events. Elliott supported that the stock market is moving in a recognizable pattern and that was called "Elliott Wave Principle".

The most crucial step in implementing the Elliott wave principle is to identify the pattern upon the market is moving today. Wave patterns consist of two phases: an impulsive and a corrective phase. Impulse phase is composed of five sub-waves (graph 1, 2, 3, 4, 5) and move in the same direction of the main trend. Corrective phase is composed of three sub-waves (graph a, b, c), and it moves against the main trend. In the graph below the basic Elliott Wave Pattern is presented.

Graph: Elliott Waves

The two Phases of the Elliot Wave Principal

Harmonic Price Patterns

Harmonic Price Patterns

Harmonic trading is based on geometry and fractals. The core of this trading practice incorporates the primary ratio and its derivatives (1.618, 0.618, etc.). Harmonic price patterns work as a sign of potential trend retracements. These patterns can be combined and confirm trade ideas deriving from other technical analysis tools.

The best book for understanding harmonic patterns is “Harmonic Trading” by Scott M Carney.

Introduction to Harmonic Patterns

The harmonic patterns generate signals of upcoming sharp reversals in the currency rates, stocks, indices, etc. In general, these reversals cover a price zone between two Fibonacci ratios, and this is commonly called a Price Reversal Zone (PRZ). Harmonic trading can be seen as high-probability trading. Harmonic patterns are more reliable in M30 and higher timeframes. The general win/loss ratio of harmonic trading strategies is above 70%.

Technical Analysis