Technical analysis deals with the examination of what happened on the market, but not what should happen. Technical analyst controls the level of price and movement of a particular financial instrument in the past and, based on data collected through analysis of a chart, you create a prediction of future changes in prices. Not affect the macroeconomic and political events: it focuses only on the chart that reflects the behavior of all investors, trends and tendency.
Technical analysis is an evaluation and a test of forecasting future trends based on price behavior in the past. The prices quoted on the charts create different shapes and configurations. According to technical analysts, these formations are regularly repeated and lead to similar market behavior. Some of them announce price drops, while others announce increases. According to some of them you can try to assess the extent of any increases or decreases. Unlike fundamental analysis, which evaluates the overall market, the technical analyst's work is groped to predict the future direction of prices, trying to identify a number of recurring patterns in the past.
Technical analysis is based on three premises:
The analysis technique used three main types of charts:
Moving averages provide another tool to keep track of prices. The moving average, in its simplest form, is the average of prices changes over time. The 10 day moving average is calculated by adding the closing prices of the last 10 days and then dividing by 10. The following day, the oldest price is dropped and added the closing price of the new day, the sum of 10 prices is then divided by 10. In this way, the average "moves" each day.
Moving averages provide a more mechanical approach to entering or leaving the market. To identify the points of entry and exit, moving averages are frequently superimposed bar charts. When the market closes above the moving average, this is generally interpreted as a buy signal. Conversely, when the market closes below the moving average, this is considered a sell signal. Some traders prefer to wait for the moving average actually reverses direction, before accepting the result as a signal to buy or sell.
The sensitivity of a moving average line and the number of signals of buying and selling products directly related to the time reference on which the moving average is calculated. A moving average of 5 days will be more sensitive and send more signals of buying and selling over a 20-day moving average. If the average is too sensitive, traders may be going in and out of the market too often. On the other hand, if the moving average is not sensitive enough, traders may lose many opportunities, identifying too late signs of buying and selling.
Moving averages can be an extremely useful tool for the technical trader.
One way to use the technical analysis is to derive the levels of "support" and "resistance". The basic idea is that the market will tend to conduct transactions over its support levels and below their levels of resistance. A support level indicates a specific price level below which the currency will struggle to get off. If the price falls below this particular point graphically displays a straight line.
The levels of resistance, however, indicate a specific price level that the currency will have difficulties to overcome. If the price does not rise above this point, you'll get a straight line.
If a support or resistance level is exceeded, it is expected that the market will continue in that direction. These levels are determined through analysis of the chart and the assessment of where the market has encountered unbroken support or resistance in the past.
The trendlines facilitate both the identification of market trends and potential areas of support and resistance. The trend line is a straight line that connects at least two major peaks or troughs in the price action of an element of trading below. No other price action must intersect the trend line between two points. In this way, the trend line indicates an area of support or resistance in which the price has changed direction without exceeding the level of support or resistance as the line itself.
The longer the trend line, the greater its worth, especially if price has touched the line several times without crossing it.The crossing of a line of long-term trends that might indicate a trend reversal is about to occur. However, there is no guarantee that would happen. As with all indicators of reversal of the price, there is no method of verification can determine future price trends.
Having moved rapidly in a certain direction, the market can sometimes shrink, since the participants close their open positions to realize profits (take profit). This phenomenon is known as "retracement" and often provides a good opportunity to re-enter the market at more attractive levels before the underlying trend would resume.
The use of Fibonacci ratios is a very common method to calculate retracements.
When a market reaches a point of minimum after a remarkable recovery, often find support at least this before. If support holds, you create a training "double-minimun", which could signal a future move to significantly higher levels.
A similar formation and consists of three truer test of the same level, forming a "triple minimum".
Conversely, if the market finds resistance two or three times at a certain level for a longer period of time, creating a double or triple top, which may involve a future shift to considerably lower levels.
Formations to double or triple the minimum / maximum are therefore very interesting as they provide good levels of technical input to the market.