Part 26 Technical Analysis – Initial balance

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Contents

ForeX Technical Analysis & Analytics

Технический Анализ и Аналитика рынка Форекс

Category Archives: FOREX TECHNICAL ANALYSIS

Professional forex technical analysis and trade recommendation

US dollar (USDX) at the crossroads � traps for bulls and bears

Since the beginning of the new 2020, the US dollar index (USDX) cannot determine the further direction of trade. As a result, we got an interesting technical picture.

From this point, the US dollar can both continue to grow in the long-term channel and begin a downward trend. Continue reading >

MACD divergence indicator for MT4

In the article �MACD � non-standard use on Forex�� I already described the technical indicator FX5 MACD DIVERGENCE, which determines the divergence of the MACD indicator.

In this article, I present to your attention another technical indicator for the MT4 trading terminal, revealing the divergence of the MACD indicator. Continue reading >

Gold (XAUUSD) � consolidation at the market

The uptrend in the gold market has changed to a downtrend relative to the US dollar.

Gold (XAUUSD) came out of the growing channel and formed a downward channel. Recent impulses of the price formed a new Lower Low, and Lower High. However, the last week the movement in the gold market has stopped. What�s next? Continue reading >

Breakeven level information indicator for MT4.

Some forex trading strategies include splitting one position into several smaller ones, adding to already open positions or averaging.

When opening several positions, it is not very convenient to manually calculate the breakeven level for all open positions in the MT4 terminal.

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This task is greatly facilitated by a simple breakeven indicator. Continue reading >

Strong consolidation in the forex market � dollar VS euro.

After a series of central bank meetings, the foreign exchange market entered a phase of strong consolidation.

This consolidation is clearly visible by the damping fluctuations in the US dollar index � USDX. Continue reading >

Defining Forex Supply / Demand Zones (continued)

In this article, we continue to study the trading methodology from the demand/supply zones of Sam Seyden and his followers. You can familiarize yourself with the first article at the link � �Forex Trading from Supply and Demand Zones�.

The trading strategy in supply / demand zones is quite simple and methodologically fundamentally not particularly different from trading at support / resistance levels. Continue reading >

Bear trap on the EURCHF currency pair

The EURCHF currency pair has been in a downtrend for 4 months.

For the last 20 days, we have seen consolidation on the pair, which is highlighted in the chart by a blue rectangle. Over the past three days, we have seen an unsuccessful attempt to break through the lower edge of the consolidation range, which led to the formation of a bear trap on the EURCHF. Continue reading >

Japanese Yen � Forex Technical Analysis August 18, 2020

The Japanese yen has recently been in strong demand as a �safe haven� for investors on the topic of the risk off sentiments associated with the trade war between the US and China.

On the daily chart of the USDJPY currency pair, we see a clear downward long-term channel. Continue reading >

The key to understanding the current situation in the Forex

Take a look at the 4-hour dollar index (USDX) futures chart. We see very strong consolidation in a narrow range (blue rectangle).

Traders are in a state of uncertainty about the future prospects of the US dollar. Continue reading >

Forex trading from supply and demand zones

Trading in financial markets from levels (or zones) of supply and demand is traditionally associated with the methodology developed by Sam Seiden and his colleagues.

This methodology is extremely interesting for traders for several reasons. First of all, it is quite simple to understand and based on the basic principles of market interaction of supply and demand. It does not use complex technical indicators and, according to many traders, it provides significant advantages in the real trading of any financial instruments. Let�s delve into this methodology together. Continue reading >

British Pound (GBPUSD) � high volatility ahead

Technical analysis of the GBPUSD currency pair tells us about the current extreme degree of consolidation in this pair.

As a rule, there is a way out of any consolidation and it can be very volatile, which provides traders with good trading opportunities. Continue reading >

US dollar � change of the long-term trend? Do not hurry�

The week before last week was marked by the most significant weekly decline in the US dollar index (USDX) for the entire last period of its growth. And this is more than one year.

During the entire last year, investors and speculators bought the US dollar at all its falls and were in profit. Continue reading >

EURUSD � traders looking for direction

In the previous article I noted the formation of a technical triangle on the euro-dollar currency pair (on the chart it is a red triangle). The breakdown of the lower edge of this triangle led to the removal of euro buyers� stops and the impulse movement down almost by one figure.

However, this breakdown turned out to be false and euro buyers were able to return the pair inside the triangle and return to the balance of supply and demand. Continue reading >

Euro-dollar volatility at minimum values

The daily volatility of the euro-dollar currency pair (EURUSD) on the foreign exchange market has reached its lowest levels in the last five years.

Such a low value of the daily indicator ATR (14) was last observed in June 2020. Continue reading >

Technical picture on the EURUSD currency pair in anticipation of the FOMC

The euro-dollar currency pair is in consolidation for 5 months. The consolidation range is highlighted on the daily chart with a blue rectangle and limited to the range of values ​​1.12145-1.15000.

But any ranges at some point end. It�s time for traders to make a decision. Continue reading >

Euro-dollar currency pair (EURUSD) is consolidating in triangle

Yesterday we wrote on our website about the triangle formed on the US dollar index � Geometric metamorphosis of the US dollar index (USDX).

On the EURUSD currency pair, the figure of technical triangle has also formed. Continue reading >

Geometric metamorphosis of the US dollar index (USDX)

The upward trend of the US dollar in recent days has slowed down in its development. Is it just a pause in the foreign exchange market or signs of an approaching reversal?

Over the past few days, the US dollar (USDX) has been consolidating around the level formed by the previous high on the value of 96.836. Continue reading >

Euro-dollar on forex � triangle technical figure

The agreement between US � and China at the last G20 summit led to a decrease in tensions in financial markets. The risk appetite led to demand, including for the single European currency. However, the long-term trend of the US dollar growth on forex is still in force.

What technical levels do traders of the EURUSD pair need to monitor in the foreign exchange market? Continue reading >

Brexit deal under attack � what awaits us next?

The last two trading days were marked by events on the front of the British exit process from the European Union. The Brexit deal is prepared and agreed by the parties. What awaits us next?

The UK is due to leave the European Union at 23:00 GMT on Friday 29 March, 2020, after people voted by 51.9% to 48.1% for Leave in the 2020 referendum. Continue reading >

EURUSD technical analysis � a delicate balance in the market

The last five months, the EURUSD currency pair has been trading in a fairly wide range on the forex market.

On the pair chart, this range is highlighted with a blue rectangle and is limited to 1.13000 -1.18500. Continue reading >

Technical Analysis

What Is Technical Analysis?

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.

Unlike fundamental analysis, which attempts to evaluate a security’s value based on business results such as sales and earnings, technical analysis focuses on the study or price and volume. Technical analysis tools are used to scrutinize the ways supply and demand for a security will affect changes in price, volume and implied volatility. Technical analysis is often used to generate short-term trading signals from various charting tools, but can also help improve the evaluation of a security’s strength or weakness relative to the broader market or one of its sectors. This information helps analysts improve there overall valuation estimate.

Technical analysis can be used on any security with historical trading data. This includes stocks, futures, commodities, fixed-income, currencies, and other securities. In this tutorial, we�ll usually analyze stocks in our examples, but keep in mind that these concepts can be applied to any type of security. In fact, technical analysis is far more prevalent in commodities and forex markets where traders focus on short-term price movements.

Key Takeaways

  • Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts.
  • Technical analysts believe past trading activity and price changes of a security can be valuable indicators of the security’s future price movements.
  • Technical analysis may be contrasted with fundamental analysis, which focuses on a company’s financials rather than historical price patterns or stock trends.

Understanding Fundamental Vs. Technical Analysis

The Basics Of Technical Analysis

Technical analysis as we know it today was first introduced by Charles Dow and the Dow Theory in the late 1800s. ? ? Several noteworthy researchers including William P. Hamilton, Robert Rhea, Edson Gould, and John Magee further contributed to Dow Theory concepts helping to form its basis. In modern day, technical analysis has evolved to included hundreds of patterns and signals developed through years of research.

Technical analysis operates from the assumption that past trading activity and price changes of a security can be valuable indicators of the security’s future price movements when paired with appropriate investing or trading rules. Professional analysts often use technical analysis in conjunction with other forms of research. Retail traders may make decisions based solely on the price charts of a security and similar statistics, but practicing equity analysts rarely limit their research to fundamental or technical analysis alone.

Among professional analysts, the CMT Association supports the largest collection of chartered or certified analysts using technical analysis professionally around the world. The association’s Chartered Market Technician (CMT) designation can be obtained after three levels of exams that cover both a broad and deep look at technical analysis tools. Nearly one third of CMT charter holders are also Certified Financial Analyst (CFA) charter holders. This demonstrates how well the two disciplines reinforce each other. ? ?

The Underlying Assumptions of Technical Analysis

There are two primary methods used to analyze securities and make investment decisions: fundamental analysis and technical analysis. Fundamental analysis involves analyzing a company�s financial statements to determine the fair value of the business, while technical analysis assumes that a security’s price already reflects all publicly-available information and instead focuses on the statistical analysis of price movements. Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security’s fundamental attributes.

Charles Dow released a series of editorials discussing technical analysis theory. His writings included two basic assumptions that have continued to form the framework for technical analysis trading.

  1. Markets are efficient with values representing factors that influence a security’s price, but
  2. Even random market price movements appear to move in identifiable patterns and trends that tend to repeat over time. ? ?

Today the field of technical analysis builds on Dow’s work. Professional analysts typically accept three general assumptions for the discipline:

1: The market discounts everything

Technical analysts believe that everything from a company’s fundamentals to broad market factors to market psychology are already priced into the stock. This point of view is congruent with the Efficient Markets Hypothesis (EMH) which assumes a similar conclusion about prices. The only thing remaining is the analysis of price movements, which technical analysts view as the product of supply and demand for a particular stock in the market. ? ?

Technical analysts expect that prices, even in random market movements, will exhibit trends regardless of the time frame being observed. In other words, a stock price is more likely to continue a past trend than move erratically. Most technical trading strategies are based on this assumption. ? ?

3: History tends to repeat itself

Technical analysts believe that history tends to repeat itself. The repetitive nature of price movements is often attributed to market psychology, which tends to be very predictable based on emotions like fear or excitement. Technical analysis uses chart patterns to analyze these emotions and subsequent market movements to understand trends. While many forms of technical analysis have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves. ? ?

How Technical Analysis Is Used

Technical analysis attempts to forecast the price movement of virtually any tradable instrument that is generally subject to forces of supply and demand, including stocks, bonds, futures and currency pairs. In fact, some view technical analysis as simply the study of supply and demand forces as reflected in the market price movements of a security. Technical analysis most commonly applies to price changes, but some analysts track numbers other than just price, such as trading volume or open interest figures.

Across the industry there are hundreds of patterns and signals that have been developed by researchers to support technical analysis trading. Technical analysts have also developed numerous types of trading systems to help them forecast and trade on price movements. Some indicators are focused primarily on identifying the current market trend, including support and resistance areas, while others are focused on determining the strength of a trend and the likelihood of its continuation. Commonly used technical indicators and charting patterns include trendlines, channels, moving averages and momentum indicators.

In general, technical analysts look at the following broad types of indicators:

  • Price trends
  • Chart patterns
  • Volume and momentum indicators
  • Oscillators
  • Moving averages
  • Support and resistance levels

The Difference Between Technical Analysis And Fundamental Analysis

Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at opposite ends of the spectrum. Both methods are used for researching and forecasting future trends in stock prices, and like any investment strategy or philosophy, both have their advocates and adversaries.

Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. Fundamental analysts study everything from the overall economy and industry conditions to the financial condition and management of companies. Earnings, expenses, assets and liabilities are all important characteristics to fundamental analysts.

Technical analysis differs from fundamental analysis in that the stock’s price and volume are the only inputs. The core assumption is that all known fundamentals are factored into price; thus, there is no need to pay close attention to them. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use stock charts to identify patterns and trends that suggest what a stock will do in the future.

Limitations Of Technical Analysis

Some analysts and academic researchers expect that the EMH demonstrates why they shouldn’t expect any actionable information to be contained in historical price and volume data. However, by the same reasoning, neither should business fundamentals provide any actionable information. These points of view are known as the weak form and semi-strong form of the EMH.

Another criticism of technical analysis is that history does not repeat itself exactly, so price pattern study is of dubious importance and can be ignored. Prices seem to be better modeled by assuming a random walk.

A third criticism of technical analysis is that it works in some cases but only because it constitutes a self-fulfilling prophesy. For example, many technical traders will place a stop-loss order below the 200-day moving average of a certain company. If a large number of traders have done so and the stock reaches this price, there will be a large number of sell orders, which will push the stock down, confirming the movement traders anticipated.

Then, other traders will see the price decrease and also sell their positions, reinforcing the strength of the trend. This short-term selling pressure can be considered self-fulfilling, but it will have little bearing on where the asset’s price will be weeks or months from now. In sum, if enough people use the same signals, they could cause the movement foretold by the signal, but over the long run this sole group of traders cannot drive price.

Technical analysis indicator On Balance Volume

This indicator of technical analysis was developed by Joe Granville. It was originally designed for work in the stock market, later it has been successful used by Forex traders. Creator of this indicator believed that the main driving force in the market is the volume.

However, there is such a thing as a �thin market�. Traders use this expression for the market with low liquidity. Sometimes, when the large players are absent, such �thin market� can have so strong fluctuations, that even minor volumes can cause strong movement in price.

This is a unique indicator as it measures positive and negative cash flows. Granville believed that as soon as the new volumes appear in the market, price fluctuations can take place.

The window of the on-Balance volume is separate from the price. Accordingly, all the results are presented in the form of a curve which is compared with the price in order to view divergence or confirmation of the trend.

Specifics of OBV

This indicator shows the rate of change in price and volumes. It is a leading indicator. The creator of this indicator believed that any change in volume can be reflected on the chart slightly later than it actually happened. But it will happen. Usually after the strong fluctuations a strong trend is formed.

If the curve of the indicator is increasing, it means that market volumes are growing. If the price is also growing, it means that the price trend is confirmed. If the price increases during the period when the curve of the On Balance Volume indicator is dropping, it is a signal that the trend is weak and there is a divergence.

How to use OBV for trading

This indicator is used by traders for receiving signals. It is often used with the other indicators. It is important to pay attention to the direction of the indicator but not on its numerical values.

First of all, this indicator can be used for searching divergences between the prices and the curve of the indicator. There are two types of divergence: bullish and bearish.

Bullish divergence is formed when the price continues to reach new lows, while the curve of the indicator shows higher lows. This is an indication that the price will follow the curve of the indicator for some time but in the nearest future it can change movement direction upwards. Bearish divergence occurs when price continues to reach new highs, while the curve of the indicator shows lower values. In this case, we can expect that the price will soon change the trend to downwards.

The other type of signals is the change in trends. Once the curve of the indicator turns down, we can expect that soon the trend will change to downwards. If the curve of the indicator has decreased for some time and then turns up, it means that in the near future the trend can change to the upwards. It is advisable to use this indicator on the daily or higher timeframes. The fact is that the pure volume in the foreign exchange market is not calculated. Therefore, the higher the timeframe, the more accurate will the signals be.

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