Technical Analysis

Market analyzing on a computer screen

The most popular among individual investors a tool to predict future changes in the market is technical analysis. Its popularity owes certainly simplicity and speed with which you can learn it. On the market there are also many publications on it and all the portals of economic devote separate sections. The simplicity of this art not a science, it is also its disadvantage. Most market players using the same methods of investment and prognostic causes that they become ineffective.

Technical analysis is the art consists in forecasting future exchange rate changes only through observation charts of price and building on the basis of indicators and price formation. Technical analyst does not therefore focuses his attention on macroeconomic data, the information flowing from the financial statements of companies. It focuses only on the graph, since according to the theory of technical analysis, the price is a reflection of all of this information. The adoption of such a rule, legitimate or not, is the cornerstone of shaping the entire technical analysis. All indicators and trading systems based on technical analysis, based on market prices rather than macroeconomic data and financial statements. Another important aspect of technical analysis is the assumption that the markets (and, in principle, investors) behave in certain situations similarly. If you like, this means that changes in market prices during the current crisis may be similar to the crisis in the oil crisis of Internet companies. Investor Technical examines therefore the historical price movements and looks for analogies in the world today. This approach results in “stud reaction.” Thus, if most investors made identical transactions and comes through technical analysis to similar conclusions, market trends appear (bull or bear market), Bański speculative or big crashes.

Chart range is the result of macroeconomic, fundamental views of other investors in the market. Thanks to this technical investor may use technical analysis in many markets while not devoting additional time to learn. Technical analysis of each market, whether they are commodities, currencies, stocks, works in the same way. This is undoubtedly a big advantage of technical analysis over fundamental. Generally, it is assumed that technical analysis is used to predict the short-term and medium-term price movements. Fundamental analysis on the other hand, is better suited to predict long-term trends. With this approach, investors can combine technical analysis (to determine the moment of the transaction, I / O from the market) and fundamental analysis (to determine the direction of opening positions).

Speaking of charts should be given some time to. The most common type of chart is not like you would expect a line graph. Professional traders use candlestick charts or bar charts. The first were taken from the Japanese culture, the other from the US.

The above is a bar graph. Each bar represents the range of price changes within the specified time (in this case one of the bars is the change in price in one hour). The post consists of a body (the vertical direction) and two horizontal lines. The horizontal line on the left side of the body represents the opening price, the horizontal line on the right side of the body – the closing price. Peak and hole body means the minimum and maximum price that has been reached within an hour. If the closing price is above the opening price it means that the price increases if, conversely, it falls.

The above graph shows the same situation as a bar chart but with the candlestick. In this case, the black body candle means that the price will fall (ie the closing price is below the opening price) and white, that rate increases (ie the closing price is above the opening price). “Wicks” body means that within the hour course there was but the ultimate price turned around.

At the end of a line chart, which apparently does not reflect the whole range of fluctuations in the exchange rate, making it less useful for investors (not shows the price maxi cast and minimum).

The simplest analysis of the graph is plotting a trend line. Generally, investors have to deal with three types of trends: downward, ascending and horizontal. Downtrend line connects the lower and lower peaks falling prices.

It is clear that it gives information to the investor that the price will fall and becomes the line of resistance (ie, the course is reflected from it). Breaking the downtrend line is the first sign of the birth of the uptrend. We draw a trend line growth through a combination of higher and higher positioned holes money.

With horizontal trend we have to do when they chart the price is moving sideways. Limitations of this trend horizontal lines called lines of support and resistance. The lower limit of such a trend is called line of support, while the upper – resistance. After breaking these lines, they turn into places – ie. Broken from the top line of support becomes resistance line and broken the bottom line resistance becomes support line.

Finally, a few words about technical analysis indicators. AT indicators are tools to better anticipation of future market prices. We share them because of the use on the indicator of trends (in order to forecast the direction of price change) and oscillators (in order to forecast high / low of the trend). Literally, every user transaction platforms can create your own index. On the web there are countless weight.

The simplest trend indicator is a moving average. It is aimed at smoothing exchange rate fluctuations and to indicate the main direction in which it is to follow the price. The simplest trading system while the system is the intersection of two medium – fast and free. Speaking of fast medium we mean the average determined from a shorter period (with less data), while the free medium contains the information more. In our example, the average green 34 periodic (fast) and red 55 periodic (free).

Oscillators are indicators of well-functioning trends side. They operate on the principle of a sine wave and contain their values in the specified interval, for example. 100 and -100. The maximum extension above the level of the oscillator example. 70 and 30 will cause the investor expects to peak (if the oscillator has a value greater than 70) or well (if the oscillator is below 30). The graph marked with vertical lines indicate the implied peaks and holes on the oscillator and the price chart.

Combinations of different indicators (trending and oscillators) and the formation of technical analysis give many opportunities forecasting. Only from the investor depends on what techniques will be used. However, there is available to an unlimited number of them.