What is technical analysis?
It is a method to study the movement of the past price as it is and regardless of its reasons to predict its future direction based on certain hypotheses proven experience in most cases.
The main Hypotheses on which technical analysis is based
The most important of these hypotheses:
Prices move in Trends
This means that although price action appears in the short term as a random move, this movement has a certain direction that leads either upward or downward.
It may rise the price of a currency and then back and down a little and then re-rise quickly and then decrease slightly and then return to rise strongly .. Etc .. Although it may appear this movement as a random movement between the rise and fall, but when you look in the eyes and for a longer period Notes That the price trend towards the rise, although it decreases sometimes, but the rush is always stronger and stronger, although it fluctuates between the ups and downs, but the wholesale rises more and more.
It is enough to know that the tendency of the price of a currency towards the rise to buy it reassuring even if the price dropped a bit because you know that the price has a tendency to rise and it will rise after a period and you will be able to bet at a higher price and vice versa to the downward trend of the price to enough to reach the conviction that the price of currency Downward trend until you sell them for later purchase at a lower price.
In fact, the Trend hypothesis is the most important hypothesis of analysis that the experiment has proven to be true in various circumstances.
History Repeats itself
This means that the price movement "behaves" in the same way it "walked" if the circumstances were similar.
From this important hypothesis, there have been major arguments in technical analysis, such as support, resistance, patterns and others.
Trends Exist Until Broken
This means that if the price of the currency tends to rise, it will continue to rise, until proven otherwise.
If the price of a currency tends to fall, it will continue to decline, until proven otherwise.
How is technical analysis?
Technical analysis using charts showing the movement of the price of a currency - or stock or commodity - for past periods is done by the traders taking a look at the chart of a currency and then using technical analysis techniques will be able to predict how much the price of this currency will be after a period of time and The basis of this expectation and according to the strength of probability will take the shops to decide to sell or buy this currency.
Expressions of price movement
Any market in Forex knows that a study of price action and predicting the future direction of the price is the basis of successful trading.
For decades, traders in various countries have developed several forms of price movements in the chart that make price tracking very clear, accurate and easy at the same time. It is enough to take a short look at the currency chart to get a lot of information For the price of this currency and thus easy to predict the direction of price movement.
Currently, there are three methods of expressing the movement of the currency - or stock or commodity - that are most commonly used by all traders around the world and in various types of exchanges and financial markets:
Japanese Candle Sticks
You may find some strange names, but with a bit of practice you will discover for yourself how these types of currencies will enable you to identify currency movements very easily.
For example, you can monitor the price of a currency using the bar graph and then move to the price control using the candlestick chart with the click of a button
The data are similar, but the way they are expressed is different and the choice is due to the convenience and convenience of the stores
We will now explain the three methods so follow us.
It is a technique developed by traders in Western countries and is still common in these countries, where the movement of the price of a currency is expressed in bars
So what is the bar and how it reflects the price movement?
The bar represents one unit of the time period you choose.
For example, if we assume that you wanted to watch the GBP/USD rate on an hourly basis, your goal here would be to know how much the price of the pound was at the beginning of the previous hour and at the end of which the opening price and closing price for this hour and also want to know how much the price Is the lowest price reached the Fairy in the previous hour, the highest price and the lowest price and these are things that you are interested to learn in the previous hour and the hour before it, which was accepted for several hours earlier.
Each bar will represent an hour
The top of the bar represents the highest price of reaching the Fairy during this hour.
The bottom of the bar represents the lowest price reached the Fairy during this hour.
The small line to the left of the bar represents the opening price, which is the price at which the pound was at the beginning of this hour.
The small line on the right of the bar represents the closing price, which is the price at the end of this hour.
Japanese Candle Sticks
Another way to express the price movement developed by Japanese traders since the seventeenth century in the futures markets of rice so its name has been associated with them is the best and most obvious method of the former method has become the expression of prices is the prevailing method around the world and in all markets Financial and preferred by most traffickers.
What is the Japanese candle?
The candle takes the following form:
The rectangle represents the body of the candle and the opposite lines represent the tail of the candle.
Each candle represents one unit of the selected time period, just like the bars.
Japanese candle comes in two forms: Rising and down
Rising Candle: A candle whose body is empty and expresses a rise in the price where:
The bottom of body represents the price at which the currency was at the beginning of the time period.
The highest body represents the price at which the currency was at the end of the time period.
The upper tail represents the highest price of the currency during the same time period.
The bottom tail represents the lowest price of the currency during the same time period
Down candle: A candle whose body is shaded and reflects a drop in price where:
The bottom of body represents the price at which the currency was at the end of the time period.
The highest body represents the price at which the currency was at the beginning of the time period.
The upper tail represents the highest price of the currency during the same time period.
The bottom tail represents the lowest price of the currency during the same period.
As a candlestick expresses a price drop, the price at the end of the period (the closing price) is lower than the price at the beginning of the period (opening price) where the price is in decline, it started at a price and ended at a lower price.
What is the trend?
The trend is the general direction of price action.
The price of any currency doesn't come out of one of the three possibilities:
Up Word, which tends to rate the price of the currency to rise little by little.
Down Word, which tends to rate the price of the currency to down little by little.
Side line, which trends to rate the price of the currency to be close to one price.
In fact, the most important thing that traders are keen to know is the trend. As you know, price action fluctuates steadily and then goes down and then returns to the upside. however, the price is generally going up or down. If you know that general direction of the currency is about to rise, that is, the currency tends to rise in general will make It easier for you to decide to buy this currency because even if it dropped a little, it will rise again.
How can you determine the trend of currency?
First we set a time frame for the currency we want to follow.
Then we look at the chart on the last period close to the current hour.
Trend Line Drawing up
If we find that the majority of candles are rising and that the lowest price for each period is gradually rising with the time higher lows, it means the price tends to rise.
We draw a line between the two most prominent candles so that no candle falls between them.
They are continuance models and represent a break or break in trading.
This model is easy and simple to understand because it consists of two parallel lines, one of them Support and the other resistance, so the price of the stock moves in a certain pattern up and down.
This model doesn't change the direction of the stock and is consisted in the up or down trend.
This model may extend for several weeks or months. This model usually consists in 3 months.
Confirmation of the rise or down is by breaking one of the two sides of the resistance or support rectangle.
It is assumed that the amount of trading during the break will increase to confirm it.
Target price is the distance between the support line and resistance to the rectangle plus the broken point.
It looks like a triangle, but instead of be like a triangle in shape, the shape is closer to flag, and then the price continues in its former direction so it is a continuation of the trend.
For the target price it is determined by knowing the amount of flag Pole (the distance between the point of penetration of the flag and support or resistance near the flag) and then add it to the point that was broken up or down.
It can be seen that these models are very similar to some other models, but what distinguishes them is their small size and short duration.
Head & shoulders
The price continues to rise until it reaches a certain point to call it point "A" and the price begins to decline until it reaches a certain point to call it point "B" and then return the price to rise above the point "A" to reach the point Call it "C" and then return to the same level as the previous drop at point "B" to return and rise again to reach the level of about - equal to the point "A" at point "D" and then back to drop again to a point equal to the level of the price of point "B" Thus the price has risen 3 times the second time higher than the other two times, forming a head-like shape on both sides. The line which the price down to it, the price goes back and rises, is called "Line Nick".
You can see, the price after the shape of a head and shoulders changed direction after it was in a rise before the left shoulder, its tendency is to decline after the right shoulder. Therefore, it is said that this form of change in the direction Reversal pattern.
When a trader watches a currency and notes that the currency rate chart has started to resemble a head and shoulders shape, he can expect the price to fall in the near future and may decide to sell the currency directly or buy the currency indirectly.
Inverted head & shoulders
It is the same as the previous form, but in reverse, where the currency is in down and then change the direction to rise after the form consists, as you see in the following shape:
It is a shape consists as follow, The price is at a high until it reaches a certain price to call it "A" and then returns and drops to the price point call it "B", and then return to rise again until it reaches the same price at the point "A", then back down again form a shape similar to his mountain As you can see, the price was in a bullish trend and after the previous pattern was reversed, so the appearance of this figure on the chart is a sign of a possible change in the price direction.
As you see in the following shape:
The use of the moving index is one of the most common indicators in technical analysis. It has written about it in a lot of books. In some books, however, the door to how to use a moving is greater than 200 pages. All the writers gathered that it was not possible to rely on the moving only. And it gives many false signals, and this is clear from it. Not to mention that they say that it is not suitable for use in the case of the fixed market and is used during the trend only. And even to predict the trend is not valid. As for the moving, I don't think that it is suitable for daily and even weekly use. It can be used for long-term trader. How to extract the moving or moving average:
1 -Simple moving average SMA
It is the average price (often close) for a certain number of candles, and comes using the following equation:
SMA = SUM (prices) / n
Where "n" is the number of candles. The SUM is the total price (often close) per candle
When "n" is increased, the average is valid for long-term operations and the signals from which it can be drawn are delayed. Another disadvantage is that the current movement of the currency is very weak (this disadvantage was avoided by the EMA).
2 -Exponential moving average EMA
And here is to avoid the fact that the current price takes the same share as any price, but was given more space for the current price, the relation of the index in the currency relationship closer and affected by the currency faster. Not to mention the possibility of increasing the period used in the index without the fact that the problem mentioned in the simple motor average.
For example, when calculating SMA for 10 candles, the last (current) price share is 10% of the SMA. In the case of calculating EMA for 10 candles, the current share price is 18.18% of the EMA. As will be shown in the following equations:
EMA(t) = EMA(t - 1) + (K x [Price(t) - EMA(t - 1)],
K = 2 / (n + 1);
So the EMA is always closer to the currency indicator than the SMA. Because of the way it is calculated, the value of the old EMA still has an impact on its value. This effect is reduced but will not end. For this you find that the EMA is better in the case of fast daily trading and SMA better in the case of long-term trade. The moving index is often used in the "n" period of more than 20 and even 100. This indicator is considered to follow the trend, so this indicator is wrong in the case of commercial turnover of the currency and in fixed price situations. If it is used to detect resistance or support in the trend, the shift in the MetaTrader can be adjusted to be identical on the tops or bottoms of the trend.
3 -Smoothed Moving Average
This index is derived from the following equations and is considered to be an SMA average whose movement is slower than the SMA in the case of equal length of use It is to simplify the equation SMMA = SUM SMA / N
Then after this be
SMMA = SMA (PREVIOUS) x (N-1) + CLOSE / N
It means, we have taken the SMA's moving average and are thus more fluid. As for its advantages and disadvantages is not much different from the SMA, but the number of signals derived from him are few and less error.
4 -Linear Weighted Moving Average
This average is different from the rest of it because it gives great value to the price which resulted in a high trading volume. The price of its effect on WMA varies depending on the volume of trading.
MA = Sum (Price x Volume) / Sum Volume
Sum (price x Volume) is derived from multiplying each price by its trading volume.
Sum Volume is the trading volume collected in the period.
The advantage of this indicator is that it gives a value to the trading volume and avoids the fragile or weak trend that is in simple trading periods. If we rely on volume it is very important because I consider it an attractive indicator (the currency index is attracted to it or the currency index is moving towards it) but I don't see any interest in the trading volume here in the forum. This indicator will explain with volume indicators.
Uses of moving average:
1 -Know the currency trend:
You can see the currency trend from:
A) The abstract look at the moving indicator.
B) If the moving is under the currency index, the trend is up and if the currency is higher, the indicator is down.
C) If the moving at least above the larger moving is the up trend and the moving with the lowest "n" value under the moving with the largest n value is the down trend of the currency. Many analysts concluded that it was important to use two indicators for the moving. and measuring the difference between them, to know the trend. as the attached pictures showed us.
2 -Used as support and resistance:
It has also been noted that this indicator is used only in case of trend. It gives good results for support in the case of the rising trend and resistance results in the case of the down trend as in the index in the annexes (SMA10 blue indicator is resistance and support for the trend). It also has another use, making sure that the strong horizontal resistance line is converted to strong horizontal support and vice versa after breaking this indicator for this line.
In the end, it is never recommended to use this indicator alone. Markets should balance their advantages and disadvantages before using them as a signal. The professional trader changes the value of "n" according to the trading conditions and according to the currency type.
If you were using a moving average cross over you would have entered a short transaction here!
Depending on your trading strategy you may have exited in a few places with a lot of profit.