Technical Analysis

technical analysis

Technical analysis is an approach to predict the trend of price, involving chart pattern identification. Analysts identify the support level and resistance level, upward or downward, trend and trading ranges through various tools. After learning some basic strategies, the trader is able to use some key elements into his/her own designed strategies.

Chart.

A chart is a graphical sheet indicating the price changes in a given time. A K-line chart, bar chart, and line chart are available in all trading platform. The three charts source the same data but showing in different form.

The line chart is a simple and fundamental chart indicating the closing price only.

The bar chart tells you the opening price, the highest and lowest prices and closing price in real time. The vertical line shows the highest and lowest price, the left dash shows the opening prices and right dash tells us the closing price.

The most used one is the K-line chart, which tells the opening price, the highest and lowest prices and closing price in a given time. Each candlestick has a "cylinder" drawn from the opening and closing prices and a "wick" drawn at the highest and lowest prices. The K-line is usually colored in two different colors - a bullish candlestick and a bearish candlestick .The closing price of the bullish candlestick is higher than the opening price, while the bearish candlestick is the opposite - the closing price is lower than the opening price.

Forex Line - Column - Candle Chart

Please note that all the charts are drawn based on the buying price, so, you should not determine your selling price according to them at any time.

Time Frame

Time frame refers to the period for drawing a candle or a line chart, and how much information representing in the chart. For instance, period H1 means the fluctuation of buying price within one hour. You can define your own time frame on the trading platform.

In general, a short time frame represents a stronger fluctuation; however, the visible part is always wrong. On the contrary, a long-time frame shows a weaker fluctuation with stronger signal and clearer trend for reference.

Time frame of the foreign exchange trading platform

Trend.

To identify the trend and market direction is one of the basic technologies you should master. Sometimes, you have to judge by analyzing the charts for reference, in other cases, a more in-depth analysis capability is required.

There are two main types of market trends:

Uptrend – a series of rising highs and lows; most of the lows form a rising trend line.

Downtrend - A series of downward highs and lows. Most of the highs form a downward trend line.

A direction without a clear uptrend or downtrend is a sideway or horizontal trend.

Foreign exchange trend

You can draw a straight line in the direction of price fluctuation on the chartto server yourself a trend. The “trend line” serves as one of the analysis tools for the beginner in all trading platform. The other option is a technical index, which can be added to the chart for trend predication.

Support level and resistance level.

Finding a support level and resistance level can help you determine when and where you should open a position, the potential profitable and loss level. Support level means the price encounters resistance as going downward while resistance level represents the price encounters resistance as going upward. The level will not be maintained for a long time as the trend may break through the level.

Support level and resistance level.

Technical analysis: support and resistance level

The price that moves through the resistance level is called upward breakthrough. Its opposite downtrend movement is known as a downward breakthrough. – support the horizontal price movement. Both breakthroughs are accompanied by the surge of fluctuation.

You can mark the level of difficulty in raising or falling prices in the past to determine the support level and resistance level. Some technical index (i.e. Fibonacci or pivot points) can show and draw automatically the level in the chart.

Chart pattern.

Chart pattern is a unique form to predict future price fluctuation or create a buy or sell order. The principle for it is the specific pattern in the past indicated the assumption for price trend.

The head and shoulders top are considered to be the most reliable chart pattern, which indicates that an immediate change is looming. There are two types of chart, one of it is head and shoulders top, which indicates that the upward trend is at its peak, the other one is head and shoulders bottom, which means the downward trend is at its bottom.

Technical Analysis: Chart Analysis

Doji chart - The Doji chart is a chart showing upper and lower shadows without K-line (which means the opening price is the same as the closing price), and a relatively long wick on each side showing market fluctuation over time. Doji chart means that the market is in a hesitating period because the market is neither bullish nor bearish, and the force of short-selling reaches equilibrium.

K line Doji

Bullish hammer line –this kind of line usually occurs when the downtrend is reversed. Its shadow line is twice as long as the tangible one.

Bullish hammer line

Hanging line - A bearish trend against the bullish hammer line, it has a shorter tangible line and an extra-long lower shadow line, which looms before the uptrend reversed.

Hanging hammer

Another popular chart pattern is the triangle pattern. There are three kinds of triangles, that is: symmetrical triangles, upward triangles and descending triangles. Symmetrical triangles have two lines indicating trend, from the view of price changes, the upper lines is a downward slanting line, the lower is an upward slanting line. Connect the short-term peaks with the nadirs by lines to form a symmetrical triangle; the upward and downward trends are changing at all time. This pattern is used for the predications that have been determined. In the upward triangle pattern, the upper part is a flat line, and the lower part is up. This pattern is a symbol for bullish and a possible breakthrough. In downward triangle pattern, the lower part is a flat line while the upper one is down. The downward triangle is a symbol for bearing and a possible breakthrough.

Index.

Index is a tool to predict or determine the trend, pattern, support and resistance level or buying and selling. It is the software designed specifically for your trading in the platform with calculation based on the price trend and fluctuation. There are many existing indexes available in cTrader and MT4 platforms. You can also download a tailored index or even create one for your own.

Adding an index on a price chart may greatly deepen your understanding to the current market and help you judge the trading direction. For example, if you want to determine the support level and resistance level, Fibonacci or pivot point indicators may help a lot. Momentum indicators will help you measure price change rate, the zigzag type may help you predict when the trend will be reversed.

More information on installation and custom installation, please see MT4 or cTrader Instruction Manual.