TECHNICAL ANALYSIS

To read up on the technical indicators as used on this site then click on the following links;

1.      Heiken Ashi Charting

2.      Bill Williams Fractals

3.      Moving Averages

4.      Stochastic Oscillator

5.      Bollinger Bands

Technical Analysis Basics

Price action in the Forex Market are viewed from tick charts, displaying what is happening with price on a per second basis, up to Monthly charts displaying price action of a whole month on a single candlestick. The common saying goes; “The Macrocosm reflects the Microcosm” meaning that the monthly charts are constructed from weekly charts, which in turn is constructed from daily charts and so forth until it is ultimately constructed from the tick charts. Less the tick charts, price action is commonly displayed with Japanese candlesticks that describe what has happened to price within the span of time represented by the candlestick. A candlestick represents 4 important bits of information about price within the duration of the candlestick, namely, the Opening Price (Price right at the beginning of the candlestick duration), the Closing Price (Price right at the end of the candlestick duration), and the High and Low of Price during the duration of the candlestick. Candlesticks do have one disadvantage in that it does not reflect the order of the formation of the high and low during the duration of the candlestick. Generally, candlesticks are either green or red; in green candlesticks, the closing price is above the opening price, and conversely in red candlesticks, the closing price is below the opening price. A one hour chart is constructed from four 15-minute candlesticks, whilst a daily chart is constructed from 24 1-hourly candlesticks.

Price action in the Forex Market progresses in waves and, at any point in time, one of a possible of three trends are prevailing in the market due to investors & traders, geopolitical and economic sentiments. The market may either be bullish, be bearish or may be consolidating. In a bullish market, the waves are progressing higher as price increases, establishing higher highs and higher lows. Conversely, in a bearish market, the waves are progressing lower as price decreases, establishing lower highs and lower lows. When the market is in consolidation, the waves settle into a range in which price increases to the upper bound of the range and then decreases to the lower bound of the range, and thus fails to establish higher or lower prices, and thus no prevailing bullish or bearish sentiment is apparent.

Per Dow Theory, market trends consist of tides, waves and ripples and the forex market is no exception to this. Tides or long term trends may last for months and up to years and the tide may be riddled with waves; trends lasting days to weeks. The waves consist of ripples that form over minutes and hours within these waves. Each trend, no matter its size does give birth to opportunity for profits for Forex traders and depending on the risk appetite and style of trading of the trader, opportunities on ripples, or waves or tides may be sought after by traders.

Trends are the first noticeable aspect of price action at all levels of time and can be seen as lines connecting the lows of waves and lines connecting the highs of waves in trends. These lines are commonly referred to as trend lines, where the line connecting the lows of price action swings is termed the “support” line, and the line connecting the highs of price action swings termed the “resistance” line. These lines may be parallel (often seen in sideways movement), or may be converging or diverging in what is called triangle formations.

Technical analysis seeks to predict where price is going by way of analysis of past price action within context of supply and demand mechanics. It defines what the trend is, where support and resistance levels are and with what momentum price is moving currently. Numerous tools and indicators have been created to meet these objectives albeit with mixed successes, and although technical analysis alone cannot give an overall picture of where price is going, it functions to pinpoint entry and exit levels in most if not all, trading strategies. The technical indicators as part of the FX Trader Strategy consists of;

1.      Heiken Ashi Charting

2.      Bill Williams Fractals

3.      Moving Averages

4.      Stochastic Oscillator

5.      Bollinger Bands

Click on each link to find a more detailed description of these indicators.