The Full Technical Analysis Guide

Technical analysis is a trading method that aims to forecast the future price movement of a financial-traded asset based on past market data such as price movement and volume.

1. Introduction to Technical Analysis

Technical analysts use charts, patterns, indicators, and oscillators in order to identify similarities in the current and past market activity that can suggest future price movements. Technical analysis can be applied to all financial asset classes and assets such as stocks, indices, Forex pairs, and commodities. Technical analysts focus on two major aspects:

(i) What is the current price of a financial-traded asset 

(ii) What is the history of price movements of this financial-traded asset

Technical analysis cannot predict the future, but it can help investors to evaluate the possibility that a certain trend will continue or reverse. Furthermore, and most importantly, technical analysis can help investors to identify the perfect timing to enter/exit the market.

Major Assumptions of Technical Analysis

Technical analysis is an excellent tool for timing our entries in the market. These are the three general principles of technical analysis:

(i) Price action discounts everything

All known news and updates are instantly incorporated into the prices of financial assets. That can be particularly true for highly liquid and efficient financial markets, such as the Foreign Exchange market.

(ii) Price movements are not totally random

(iii) Price moves in trends

The prices of financial assets tend to follow the same direction for long periods of time. This happens as fundamental news and economic events also follow a particularly positive or negative direction for long periods. The macroeconomic circle generates long-term trends in the financial markets.

(iv) History repeats itself

Financial assets tend to react exactly the same if the market conditions are exactly the same. This can be explained as human behavior tends to repeat itself. If humans trade the global markets, and human behavior repeats itself, then the behavior of financial markets should also repeat over time.

(v) There is no particular time frame when you trade the market

Technical analysis can be applied in multiple timeframes.

 

 

2. Popular Technical Analysis Indicators

Technical indicators are mathematical calculations based on price volatility and volume activity. These tools are used to identify or to confirm the price trend, but also to generate buy or sell signals.

Commonly used Technical Analysis Indicators {Press the Following Slider}

► More on Technical Analysis Indicators

 3. Major Types of Charts

Charting is a key tool for all technical analysts, there are four major types of Charts:

• (1) Line Chart | (2) Bar Chart | (3) Candlestick Chart | (4) Point and Figure Chart

Price Gaps

A price gap occurs when the price of an asset opens at a higher price than it previously closed. Post and pre-market activity are not important for defining gaps. Gaps are usually the outcome of news realized.

► Major Types of Charts | ► Trading Chart Patterns

 

4. Harmonic Chart 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.

There are a lot of different harmonic price patterns and include:

1. ABCD Pattern
2. Three-Drive Pattern
3. Gartley 222 Pattern
4. Harmonic Bat Pattern
5. Harmonic Crab Pattern

► More on Harmonic Price Patterns

 

5. Elliott Wave Principle and the Stock-Market

An American accountant called Ralph Nelson Elliott studied price movements in the US markets in the 1930s and suggested that some particular price movements (chart patterns) have the tendency to repeat during different time periods. Elliott wave patterns consist of two phases: impulsive and corrective phases.

In this section you may learn also about:

-Short-Explanation of the Elliott Wave Principle

-The Correlation of the Wave Principle and the Fibonacci Sequence of Numbers

► Elliott Wave Principle

 

6. The Wyckoff Trading Method -Full Tutorial

Developed in the early 1930s by Richard Wyckoff, this method is a combination of principles and chart schematics that aim to identify the market structure and forecast power trends at early stages. The Wyckoff method can be applied to every financial market.

The Four (4) Phases of the Market Cycle

According to Wyckoff, the Composite Operator applies a predictable strategy that creates a repeating market cycle consisting of four phases:

1. Accumulation Phase (mark-up)

2. Uptrend Phase (consolidation)

3. Downtrend (mark-down)

4. Distribution Phase (consolidation)

Chart: Wyckoff’s Accumulation Schematics (EURUSD)

The Five-Step method of Wyckoff

According to Wyckoff, these are the five steps for efficient market analysis and good decision-making:

(1) Analyze the trend and the dynamics of demand/supply by using volume bars.

(2) Select assets in the same direction as the trend. Analyze how these assets have performed in the past during strong market trends

(3) Select assets that are in an accumulation phase if you trade long, and in the distribution phase, if you trade short. Determine if the potential reward of trading these assets is strong enough to justify the risk of holding them.

(4) Evaluate the asset’s readiness to commence a trend using volume to confirm the completion of the accumulation/distribution phase.

(5) Time your entries/exits in the market by using the general index

► Wyckoff Method Trading Tutorial

7. Trade with the TD Sequential (Tom Demark)

What is the TD Sequential?

The TD (Tom Demark) Sequential is a powerful tool designed to identify the exact time of trend exhaustion and price reversal. It is a counter-trend tool that aims to solve the problem of several TA indicators that are profitable during trending markets but perform very poorly in ranging markets. TD Sequential can be used in any timeframe and in any market conditions. However, it is more reliable on H4 timeframes, and above.

Chart: Applying the TD Sequential on EURUSD

TD Sequential Key Features

(1) The TD Sequential can be used in any timeframe and in any financial-traded asset

(2) It includes two phases: The setup phase (9-count) and the Countdown phase (13-count)

(3) The TD Sequential will work only in Japanese Candlesticks or Bar charts

(4) Timewise, the TD Sequential is ideal for the early recognition of key market turning points

(5) The TD Sequential also generates support and resistance levels (TDST lines)

(6) The rules of TD Sequential can be easily modified, therefore, there are many variations

► Trade with the TD Sequential Tutorial

8. Pivots

A pivot point is a mathematical calculation based on the average of the closing, high, and low prices from a previous period of time. Trading above the pivot is thought a bullish sign, while trading below the pivot is thought a bearish sign. The pivot points are used also as support and resistance levels. The most important pivots include the Daily, Weekly, and Monthly pivots.

Calculating Pivots:

Pivot point (PP) = (High + Low + Close) / 3

• Support

First support (S1) = (2 x PP) – High

Second support (S2) = PP – (High – Low)

Third support (S3) = Low – 2 x (High – PP)

• Resistance

First resistance (R1) = (2 x PP) – Low

Second resistance (R2) = PP + (High – Low)

Third resistance (R3) = High + 2 x (PP – Low)

 

9. Fibonacci Sequence of Numbers

The Fibonacci numbers were introduced by the Italian Leonardo Fibonacci in early 1200. In the Fibonacci sequence of numbers, each number equals the sum of the previous two numbers. In addition, any given number of the Fibonacci sequence equals 1.618 times the previous number and 0.618 of the next number.

• Here are the first numbers of the sequence: 1,2,3,5,8,13,21,34,55,89,144,233,377,610,987 etc.

Fibonacci Retracement

Fibonacci retracement is the most popular TA tool based on Fibonacci ratios. The Fibonacci retracement is a method for determining support and resistance levels and can be used when trading any financial market in any timeframe.

Fibonacci Extensions Tool

While the Fibonacci Retracement shows potential levels of price retracement, Fibonacci Extensions show how high the price can go following a retracement. Fibonacci Extensions are quite useful for spotting market tops when an asset is in a price-discovery territory.

Table: Key Fibonacci levels

Key Fibonacci Levels
0.2360	1.0000
0.3820	1.6180
0.5000	2.6180
0.6180	3.6180
0.7860	4.2360

► Learn more about Fibonacci Tools on TradingFibonacci.com

 

10. The Platinum Sequence of Numbers in Financial Trading

This analysis from Tradingcenter reveals a valuable numerical sequence for trading the global financial markets. The sequence is based on a combination of Fibonacci numbers, Prime numbers, and Fibonacci ratios.

The key to revealing the platinum sequence of numbers is the golden ratio (1.618) and its products 2.62 and 6.85. In order to create harmony, we add a few more Fibonacci numbers. Seeking for order and aiming to achieve the perfect harmony.

Table: The Platinum Sequence (consisting of only Fibonacci numbers)

► More on Trading with Fibonacci Primes -The Platinum Sequence of Numbers

 

Exclusive Technical Analysis Tools by Trading Center

TradingCenter is always striving to provide the trading community with innovative technical analysis tools and techniques. The aim is to help traders better analyze the financial markets and accurately understand the cyclicality of certain asset classes.

 

11. RSI PRECISION-Τhe Latest Technical Indicator by TradingCenter

Created by Giorgos Protonotarios, RSI PRECISION is an oscillator designed to enhance RSI with market momentum and price volatility and make it much more accurate on longer timeframes. The oscillator aims to identify overbought/oversold market levels, and it is ideal for analyzing any volatile financial asset. RSI PRECISION can be used on any timeframe, as the common RSI.

The oscillator is extensively tested and optimized to work properly with any financial-traded asset. However, there is the option to customize settings, in order to better match extreme market conditions.

RSI PRECISION FEATURES

The RSI PRECISION formula combines RSI readings with the periodic measurement of market momentum and price volatility. The key features are:

(1) Enhancing RSI and making it more accurate on longer timeframes, where RSI readings are hardly readable

(2) Identifying overbought/oversold market levels in a simple and user-friendly manner

(3) Making precise calculations near market tops and bottoms, where price volatility is always booming

(4) Offering the chance for experimentation by including a plethora of different settings

Example: RSI PRECISION vs CLASSIC RSI on Bitcoin (Monthly)

As you can see on the above chart, RSI PRECISION offers a considerably more accurate visualization of the price action than the classic RSI. The SETTINGS on the left include several options such as altering the weight of the RSI equation or the weight of market volatility.

■ You can add RSI PRECISION here on TRADINGVIEW, for free: » https://www.tradingview.com/script/irWH8Wkm-RSI-PRECISION/

► Introducing RSI Precision (Enhanced RSI tool)

 

 

12. PriceMomentum Chart Type

PriceMomentum is also created by G. Protonotarios and offers a new perspective to chart analysis. This chart type emphasizes percentage changes, rather than the price itself. In addition, it incorporates an algorithm that is designed to include market volatility and the shifts of the periodic momentum. It summarizes three main elements:

-Periodic Percentage change (%)

-Bullish/Bearish Periodic Momentum

-Volatility (as expressed  by the daily range, from high to low)

Basic Features:

• Focusing on percentage gains/losses, by ignoring the price itself
• A PriceMomentum chart is closer to a logarithmic chart rather than a common price chart
• It combines price action with intraday momentum and volatility, and that makes it more precise than any other chart near market tops/bottoms
• It is very sensitive to key shifts in the market momentum, especially if these shifts are characterized by significant volatility (something common near market tops/bottoms)
• Technical analysis formations and chart patterns are fully applicable to a PriceMomentum chart
• Moving averages are fully applicable too

Example: PriceMomentum on EURUSD

-You can see a perfect descending triangle that is formed throughout the past 18 years (2004-2021).

-Each time the exchange rate touches the upper or the lower trendline of the channel, the trend is reversing in an emphatic way.

► PriceMomentum Chart: A New Perspective to Chart Analysis

 

 

Building a Reliable Trading Framework When Using Technical Analysis

 

These are some very important steps to building an effective Technical Analysis framework:

(i) Identify the current trend of the general market in higher timeframes (Monthly, Weekly, Daily)

-Using Wyckoff phases, TD sequential, moving averages, higher-highs/lower-lows,  etc.

(ii) Spot assets that usually trade in the same direction as the general market

-Analyze how these assets have performed in the past during strong market trends

(iii) Make sure that there is a fundamental background supporting your technical analysis

-Smart traders always add a fundamental flavor to their technical analysis

(iv) Make sure neither the market nor the assets you have picked are overbought

-Use RSI Precision in higher timeframes (Monthly, Weekly, Daily) and confirm readings below 80

(v) Analyze the market sentiment to ensure that you are not trading along with the herd (contrarian thinking)

-Use the COT report, Fear and Greed Index, etc.

-When there is retail fear think about buying the market, and when there is greed, think about selling your positions

(vi) Evaluate the asset’s readiness to commence a trend using volume as confirmation

-Always keep an eye on market volume

-When price action and volume are found in perfect harmony, there is an already established price trend and there is a high probability that this trend will continue (Wyckoff)

(vii) Recognize key chart patterns and candlestick formations

-These may include triangles, price channels, chart patterns, candlestick formations, harmonic patterns, etc.

-The rounding bottom and rounding top are some of the most reliable reversal chart patterns

-Certain candlestick formations in higher timeframes (Monthly, Weekly) may signal a price reversal at an early stage

(viii) Make sure you are not trading against a major divergence

-A divergence may occur between the slope of the price chart and the slope of MACD, RSI, Volume, etc

-Divergences matter only in higher timeframes (Monthly, Weekly, Daily)

(ix) Time your entries by seeking confirmation in shorter timeframes

-For example, use MACD or RSI Precision on the 1-hour chart

(x) Combine technical analysis with seasonal statistics and market sentiment to optimize your trading decisions

 

Reviews on Trading Center: ► Forex Brokers Reviews

 

■ The Technical Analysis Guide

George Protonotarios for TradingCenter (c)

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