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Technical Analysis

History

The principles of technical analysis derive from the observation of different financial markets over hundreds of years. The oldest known example of technical analysis was a method developed by Homma Munehisa during early 18th century which evolved into the use of candlestick techniques, and is today a main charting tool. Steve Nison brought this technology to the West from Japan and with the demand for understanding Steve Nison published the Candlestick Technique books. In these books he describes the Japanese using candles to calculate rice contracts as far back as the 8th century. Thus candlestick charting techniques..

Technical analysis

In the foreign exchange markets, Technical Analysis is more widespread than fundamental analysis, especially in shorter duration trades such as DAY trading.

It is a method of evaluating price by analyzing statistics generated by market activity such as past prices and volume. Technical analysts do not attempt to measure the value but instead use charts and other tools to identify candlestick and chart patterns that can suggest future activity. Technical analysts (or technicians) also seek to identify price patterns and trends in financial markets and attempt to exploit those patterns. While technicians use various methods and tools, the study of price on currency charts is primary. Technicians especially search for archetypal (an original model after which other things were patterned) patterns, such as the well-known “Head and Shoulders” reversal pattern, and also study such indicators as volume, Fibonacci retracement and moving averages of price.

The most important function of any Technical Analyst is to find one technical method that WORKS consistently for the trader, that can be statistically graphed and journalized, showing a viable result for the trader on a consistent basis. This can then be implemented for self and others.

There are 3 styles of trading:

DAY Trading – includes momentum and scalping. Trades last seconds, minutes or hours and are closed within the day. Day traders need to adopt a rational and analytical outlook. Emotional traders will lose money quickly in this type of trading style. Close attention is needed and day trading can become a full-time profession. Day trading normally requires a trader be in front of the computer while trading.

In our opinion, day trading can be done with less capital in one’s account than either SWING or POSITION trading due to the shorter duration of the trade and thus less fluctuation of the currency within that time period.

SWING Trading - executing a trade and keeping that trade running for hours up to two or three days. In our opinion a trader requires more capital in one’s account to swing trade.

POSITION Trading – executing a trade and keeping that trade running for days, weeks or even months; sometimes up to 6 months or more. In our opinion this style requires more capital.

Beginner’s attempting this style of trading would find this style to be extremely risky, as one needs much more capital in one’s account due to the duration of the trade and the widening fluctuation of the currency. It would be much wiser for a trader to become consistently proficient in shorter duration trades before risking the value of one’s account that is necessary to trade in this style.

Technical Analysis on Charts

Some key indicators we look for on a chart:

  • Support and Resistance Levels
  • Candlestick patterns
  • Trend lines
  • Candlestick support patterns
  • Candlestick resistance patterns
  • Reversal Type Candles
  • Continuation Type Candles
  • Fibonacci Retracement levels
These all assist us in our analysis of the charts.


Chart Patterns: *

Theory:Illustrated:














Candlestick Patterns:


Illustrated:Dictionary:














* The Views and opinions represented in the provided website links and resources are not controlled by the RB (Referring Broker) or the FCM (Futures Commission Merchant). Further, the Referring Broker and the FCM are not responsible for their availability, content, or delivery of services.

©Forexchartscapes ® ™ 2011

 

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Disclaimer :
Forexchartscapes®™ and company staff, owners, associates and all administrators of this site and/or trading, training, seminar/workshop rooms are not licensed financial advisers and are neither intending, representing or advising financial decisions for any person coming to this site or assume responsibility for inaccurate information and shall not be liable for any special, direct, incidental, or consequential damages, including and without limitation, losses, lost revenues, or lost profits that may result from these materials. The purpose of this site is to provide educational information regarding the Forex market, access to further potential education for trading the Forex market and submitted testimonials of those who have used this educational information, which an individual may apply according to his or her own free choice. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. You are solely responsible for your actions. Contents of this site and any enclosures are copyrighted 2011 by Forexchartscapes®™, LLC