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  • Technical Analysis

    //Technical Analysis
    Technical Analysis2018-09-10T12:43:29+00:00

    Technical analysis is review of market information such as trading volume, trying to predict future-date market activities with past and existing price information. Past price information is the most appropriate info used to form analysis. Past market information is recorded and generates the charts composed of various time slices. Technical investors analyze various periodical charts in some time slice with the purpose of determining main opening and closing levels in trade.

    Experts can provide the information they expect for management of future documents at first stage.

    Unending discussion is found between conservative and technical researchers about the analysis method giving best result. Technical researchers state that all fundamentals are already shown in prices and so out of natural disasters and unexpected worldly effects; current price shows the price expected in market formed by taking account of all known claims. Experts consider the repetitions and samples in price movements to predict possible results in future prices.

    Stated in other words, they struggle to determine trends.

    Technical analyses are evaluated in 3 main points:

    • Fundamentals are included in price.
    • Date is a fact repeating itself – we can direct the future by knowing past.
    • Trends are a key – documents go towards a trend and follow that. In general, there are 3 types, rising, downing and static. While setting direction of trend, entry point is located in start of trade.

    Various mathematical processes have become efficient in market prices and capacity during years. (seen from researches) these processes help to define trends of technical analysis, points of start and ending.

    This discipline like every analysis constitutes most important side in studies. If your studies show result, continue to follow them- do not allow market changes influence your plans. If you have made mistake you did it but continue to stick to your plans.

    TYPES OF GRAPHS

    3 main charts (graphic) types are present; line, bar and candlestick.

    • Line graphic is the simplest and basic chart type merging a closing price period with another one.
    • Bar graphic includes more detail than a line graphic. Each period is shown with a bar. Bar does not only shows price movements from a bar to other but also shows price movements in periods at the same time.
    • Candlestick graphic is very similar to bar charts. Coloured surfaces provide us to see movements more detailed in periods at first stage. Each period is indicated with a candlestick bar- candlestick bars are formed from candle thread and columns ant both sides. Candle body is coloured. (usually it can be red, blue or green). While the body shows whether periods are open or closed, candle thread shows high or low periods; we can understand from colours if prices rise or decrease in these periods. If the body of candle is red, upper side of candle shows opening price and the lower part shows closing price, green or blue candle shows reverse directions- while lower part of candle is opening, the upper part can be closing.

    SUPPORT / RESISTANCE POINTS

    Support and resistance points are two concepts that you face much in forex market. In fact, everyone has a support and resistance point eligible for itself.

    Support Point: Resistance of market to prices going down.

    Resistance Point: Reaction of market to prices increasing.

    EUR/USD parity; blue lines show support and resistance points.

    TREND CHANNEL

    Trend channel comprising resistance and support lines shows optimal change corridor of prices. In case increase trend is available in prices, channel is upward; in case of fall trend, it is downward.

    • As long as any direction is not available in price changes, trend channel is seen at horizontal surface.

    Head & Shoulders Formation

    This formation taking its name from the shape it forms resemble human is a frequently seen formation, its correctness rate is quite high. Head& Shoulders formations can emerge at the end of rising trend, also seen at the end of going down trend; right and left shoulder have the feature of symmetric trend.

    ORDER TYPES

    Forex markets are the most liquid market of the world with its trading volume. Many factors such as global state of market, high trading volume, 24 hours trade also increase risk coefficient at the same time. However, apart from other investment markets, that advantage is present that investor can stop his/her loss with Stop Loss in spite of possible floats; assure his/her profit with “Take Profit”. Although investor is not at his/her account, T.P/S.L and Limit orders are the assistants making risk control.

    This order called as “Stop Loss” a risk shield preventing growth of your loss for the possibility of move of your position against you. It is position closing order for the future and single function of this order type is to protect investor against possible loss. Investor can put stop order to the price he/she wishes for his/her open position.

    This order known as “Take Profit” close your position and put your profit in your cash when your open position is in profit. It is a position closing order for the future and single function of this order is to conclude position with profit.

    The function used to enter in a buy trading with a price higher than current price in market. Logically while buy at lower price is more profitable, why do we enter in buy over price with Buy Stop?

    You have determined a resistance point and you believe market will go upper if resistance breaks. But due to existence of non breakage possibility of resistance, you do not want to start buy. In such conditions, by giving Buy Stop order, you begin buy automatically when price level you have determined before is reached.

    The function; used to enter sell transaction with a price higher than current price in market. You believe market will drop and you want to make sale. But at first you wait for upper movement. If you believe market will drop after testing a level above. In such condition, you can give sell limit order by determining a price higher than that of market. Thanks to this, system will open your sell position automatically when high price is reached.

    The function, used to enter a sell transaction with a price lower than current price in market. You want to start sell but you see a powerful support point is found. You know if this support is broken, market will drop more. But you do not begin sell due to existence of non breakage possibility. In such conditions, by giving Sell stop order, sell trading will realize automatically when it reaches to the level you have written under market price.

    TECHNICAL INDICATORS (INDICATOR)

    The most used Indicators

    • Moving Avarege
    • MACD (Moving Average Convergence / Divergence)
    • Commodity Channel Index (CCI)
    • Relative Strength Index (RSI)
    • Bollinger Band
    • Momentum
    • Volume
    • Stochastic Oscillator

    Other Indicators

    • Williams’ Percent Range
    • Standard Deviation (Volatility)
    • Accelarator Oscillator
    • ADX (Average Directional Movement Index)
    • Average True Range (ATR)
    • Envelopes
    • Fractals
    • Parabolic Sar
    • Bears Power
    • Bulls Power
    • Alligator
    • DeMarker
    • Gator

    Moving averages are trend indicators; used as an instrument to arrange existing trends, determine formed trends and show end of trends by traders. Moving Averages is a smooth line helping traders to see long term price movements without being affected from short term fluctuations.

    Each new point eliminates time slice and makes the newest time slice in moving average. Moving average line will show change based on figures of period selected. The biggest figure indicates the slowest average. Some traders are interested in moving average in different number in different periods until moving average emphasizing results of documents ideally is formed.

    While selecting a moving average to work on, existing price should not drop below moving average line selected in a market with increasing trend. Moving average should generate a support line throughout increasing trend and a resistance line throughout decreasing trend. If rising trend continues, moving average line will break in may times; therefore high fastness of moving average line is a good indicator and not become smooth sufficiently. For instance, 30 day-moving average is used, then 45 day- moving average line will be suitable to obtain some information.

    If trader is glad from moving average line against current prices, he/she can benefit from this line to show result or continuity of trend. If price is closed below moving average line in both situations in a market with rising trend, this case means that end of trend has come and position should be ended. With the same logic, current price needs closing over moving average in both situations that decrease trend is ended in the markets with decreasing trend.

    Another way of applying moving average is also pairs. Most of traders firstly use long term moving average described above and bring out a faster moving average (in shorter period) informing end of trend before. If shorter moving average hinders slower moving average, this case points at an earlier finish point for trend.

    Most widely used one is massive stochastic. Stochastic oscillators are used to determine strength of trend and when end of trend will close. Stochastic is introduced in two ways, known K% and D% going and returning between scale of 0-100.

    Mathematics remains insufficient in existence of oscillators; important thing is meaning and place of lines. If line is over 80, this shows a powerful increasing trend, if it is below 20, this also shows a strong decreasing trend. If K% line passes over D%, this case means a change exists in trend and shows possible exit point. If price fluctuation is found, passing over the one with medium value showing trend inadequacy can be seen normal for stochastic.

    When both lines also changes place as is the case in existing price, stochastic give best signal. This situation is a good indicator for continuance of trend. However, if stochastic shows different directions in continuous trend, this case points out a closing or key directions.

    Relative Strength Index is another strength oscillator. Relative Strength Index tries to couple the reverses in trend together. As the case in stochastic, 0-100 are commented in a stage. A comment above 80 stresses an excessive rising market and the comments below 20 points out an unnecessary decreasing market. As RSIs frequently can stay below or above 80-20 level in extended time slice in markets with strength trend, trade occurs in change directions below or above 80-20 lines.

    As RSI period shortens it becomes faster and will form more signals. Here a trader needs to establish balance.

    Daily traders use mostly short lines to obtain more regular signals and long time traders also use long RISs.

    Bollinger Bands are volatility indicators and used to describe excessive high and low points with relevant current prices.

    Bollinger Bands are based on amount of Standard deviations from moving averages. They show especially support and resistance level and expected trade groups.

    As the case in moving averages, by using Bollinger Bands and Standard deviations, trader can arrange and adjust moving average here. Trader can make up these times in suitable manner to his/her own trade style. Ordinary use in general is a moving average of 20 days and two standard deviations can take place from moving average.

    They can show a broken exit point and reverse change occurred below or above Bollinger Bands.

    Moving Average Convergence Divergence is a study increasing moving averages and makes duty as an oscillator. MACD displays the difference between an exponential moving average of 26 days and an exponential moving average of 12 days.

    A moving average of 9 days is utilized as trigger line; this also means that if MACD is below this trigger line, this is “bearish” signal and if it is above, this is also “bullish” signal.

    Traders utilize MACD in reverse trends. For instance, if MACD indicator is high, prices will show decreasing trend, this case can mean a exit point or a possible reverse trade.

    Although it is seen as “Fibonacci” indicator, it confronts us as an indicator required to be in a separate category. It is one of the most important properties for you to become successful in Forex Market.

    FIBONACCI ANALYSIS METHODS

    “Fibonacci”

    Fibonacci price movement level is a number sequence marking changes in trends from former rise and fall. following significant price movements, prices will often repeat important part of its normal movement. While prices are repeated, support and resistance levels take place mostly in the level or near of Fibonacci price movement. In current markets, frequently used rates are 23.6%, 38.2%, 50% and 61.8%.

    Fibonacci’s price movement level has emerged with occurrence of trend line from some high point to some low point. It is easily description of an arrangement in regression trend, does not mean the end of trend. The most important regression is in the level of 38.2% and 61.8%.

    FIBONACCI RETRACEMENT LEVELS

    Most widely used Fibonacci analysis method in technical analysis. In this analysis method, with the help of line drawn from deep level of trend to summit level, Fibonacci support and resistance levels are obtained.

    This method which does not produce buy sell signal lonely is quit successful in detection of especially medium and long term supports and resistances. This method can also be used for short term. However, success rate is a little bit lower than medium and long term. Basic logic of this method is that the difference between deep and summit in trends detects a separate correction level of its multiplying with each Fibonacci coefficient successfully. When looked at long term in particular, the success in detection of these correction levels is understood better.

    FIBONACCI FANS

    Another widely use of Fibonacci ratios is Fibonacci fan lines. As in the case in other Fibonacci analysis methods, at first, reference line is plotted between deep and summit points in Fibonacci fans too. But in this method, reference line plotted should be plotted to the summit of main trend not from deep of trend to its summit. The points that vertical line plotted from second point of reference line intersects with fan lines are %38.2, %50.0, %61.8, Fibonacci levels.