Technical Analysis Guide

Technical analysis can be applied to all kind of financial markets like stock-markets, commodity markets and the currency exchange market.The Full Technical Analysis Guide

Technical analysis is a trading method that aims to forecast the future price movement of a financial-traded asset based on past market data such as price movement and volume.

1. Introduction to Technical Analysis

Technical analysts use charts, patterns, indicators, and oscillators in order to identify similarities in the current and past market activity that can suggest future price movements. Technical analysis can be applied to all financial asset classes and assets such as stocks, indices, Forex pairs, and commodities. Technical analysts focusing on two major aspects:

(i) What is the current price of a financial-traded asset 

(ii) What is the history of price movements of this financial-traded asset

Technical analysis cannot predict the future, but it can help investors to evaluate the possibility that a certain trend will continue or reverse. Furthermore, and most importantly, technical analysis can help investors to identify the perfect timing to enter/exit the market.

 

2. Major Assumptions of Technical Analysis

These are the major assumptions of technical analysis:

(a) Fundamental conditions and news are already incorporated in the current price level

A technical analyst doesn't care if an asset is fundamentally overvalued/undervalued in financial terms, he is focusing solely on strong trends that may generate trading profits.

(b) Prices are moving in trends

When a major trend has been established, the future price movement is likely to follow the same direction.

(c) Price movements are not totally random

(d) Historic trends usually repeat in the same patterns

This is happening as human psychology tend to repeat over time. Technical analysis uses chart patterns and indicators to analyze and evaluate these market movements and trends.

(e) There is no particular time-frame when you trade the market

Technical analysis can be applied in multiple timeframes.

 

 

3. Popular Technical Analysis Indicators

Technical indicators are mathematical calculations based on price volatility and volume activity. These tools are used to identify or to confirm the price trend, but also to generate buy or sell signals.

Commonly used Technical Analysis Indicators {Press the Following Slider}

1) MACD (Moving Average Convergence Divergence)

2) Relative Strength Index (RSI)

3) Moving Averages (MAs)

4) Bollinger Bands

5) Stochastic Oscillator

6) Accumulation / Distribution

7) Put/Call Ratio

8) Average Directional Index (ADX)

9) Correlation Coefficient

10) Chaikin Money Flow

11) Balance Volume -OBV

12) William %R

13) Volume-Weighted Average Price (VWAP)

More on Technical Analysis Indicators

Major Forex Indicators

In this section, you may find the major technical indicators for trading the Foreign Exchange market.

Forex Technical Indicators |  Forex Seasonal Statistics

 

4. Major Types of Charts

Charting is a key tool for all technical analysts, there are four major types of Charts:

  • (1) Line Chart | (2) Bar Chart | (3) Candlestick Chart | (4) Point and Figure Chart

Major Types of Charts |  Trading Chart Patterns

Major Chart Types Combined

 

5. Harmonic Chart Patterns

Harmonic trading is based on geometry and fractals. The core of this trading practice incorporates the primary ratio and its derivatives (1.618, 0.618, etc.). Harmonic price patterns work as a sign of potential trend retracements. These patterns can be combined and confirm trade ideas deriving from other technical analysis tools.

There are a lot of different harmonic price patterns and include:

  1. ABCD Pattern
  2. Three-Drive Pattern
  3. Gartley 222 Pattern
  4. Harmonic Bat Pattern
  5. Harmonic Crab Pattern

 More on Harmonic Price Patterns

 

6. Elliott Wave Principle and the Stock-Market

The two Phases of the Elliot Wave PrincipalAn American accountant called Ralph Nelson Elliott studied price movements in the US markets in the 1930s and suggested that some particular price movements (chart patterns) have the tendency to repeat during different time periods. Elliott wave patterns consist of two phases: impulsive and corrective phase.

In this section you may learn also about:

-Short-Explanation of the Elliott Wave Principle

-The Correlation of the Wave Principle and the Fibonacci Sequence of Numbers

Elliott Wave Principle

 

7. Exclusive Technical Analysis Tools by Trading Center -The unique TCI System

TradingCenter is always striving to provide the trading community with innovative technical analysis tools and techniques. The aim is to help traders better analyze the financial markets and accurately understand the cyclicality of certain asset classes.

Trading Center has developed its own technical analysis system called TCI (Trading Center Indicator). From time to time, you will be able to find free trading signals generated by TCI. The TCI system can be applied in any Financial Market (Forex, Stocks, Indices, Commodities) and in any timeframe. But what makes this system unique is its ability to turn backward/forward:

“Looking back to identify what to buy, then looking forward to deciding when to buy it”

Here are some basic TCI features:

1. Analyzes financial-traded asset, in any timeframe

2. Identifies Overbought/Oversold levels

3. Identifies time patterns

4. Recognizes divergences between the TCI and price chart

5. Indicates specific dates to enter/exit the market

6. Compares the conditions of different markets

7. Draws historical TCI Charts (technical analysis can be applied directly on a TCI chart)

TCI Signals are offered for free on TradingCenter.org.

 Trading Center Indicator (TCI) |  Old Forex Trade Signals based on TCI

 

8. ΔMP & Σ(ΔMP) -Τhe Latest Technical Indicator by TradingCenter

ΔMP is the latest technical analysis tool by TradingCenter. ΔMP is an indicator that can be used on any financial asset and almost on any chart timeframe.

Introducing ΔMP & Σ(ΔMP) Technical Analysis Indicators

Forming ΔMP

ΔMP is formed by summarizing the historical divergence between closing rates and intraday ranges.

ΔMP Calculation

ΔMP reflects the daily difference between the Closing Price and the Mean Price

□ Where:

Mean Price = (Daily High + Daily Low) / 2

ΔMP = {(Closing Price – Mean Price) / Mean Price} %

 ΔMP and Σ(ΔMP) Indicators

 

Introducing ΔMP -Measuring Momentum using Historical Intraday Ranges

ΔMP was introduced in TradingCenter's latest eBook. The mission of ΔMP is to measure and illustrate the historical momentum of any Forex pair, or any other financial-traded asset. The book is found here:

 The Hidden Patterns Behind 15 Forex Pairs based on 18.5 Years of Exchange Rates

 

 

9. More on Technical Analysis

Pivots

A pivot point is a mathematical calculation based on the average of the closing, high, and low price from a previous period of time. Trading above the pivot is thought a bullish sign, while trading below the pivot is thought a bearish sign. The pivot points are used also as support and resistance levels. Most important pivots include the Daily, Weekly, and Monthly pivots.

Calculating Pivots:

Pivot point (PP) = (High + Low + Close) / 3

  • Support

First support (S1) = (2 x PP) – High

Second support (S2) = PP – (High – Low)

Third support (S3) = Low – 2 x (High – PP)

  • Resistance

First resistance (R1) = (2 x PP) – Low

Second resistance (R2) = PP + (High – Low)

Third resistance (R3) = High + 2 x (PP – Low)

Price Gaps

A price gap evolves when a stock opens at a higher price than it closed. Post and pre-market activity are no importance for defining gaps. Gaps are usually the outcome of news realized. Gaps are also common phenomenon to low volume activity stocks. There are three main types of gaps.

Fibonacci Sequence of Numbers

Fibonacci numbers were introduced by the Italian Leonardo Fibonacci in early 1200. In the Fibonacci sequence of numbers, each number equals the sum of the previous two numbers.

Here are the first numbers of the sequence: 1,2,3,5,8,13,21,34,55,89,144,233,377,610,987 etc.

In addition, any given number of the Fibonacci sequence equals 1.618 times the previous number and 0.618 of the next number.

Learn more about Fibonacci Sequence of Numbers on TradingFibonacci.com

 

10. Building a Trading Analysis Framework

These are some basic components of a Technical Analysis framework:

(i) Identification of the current market trend (Using trendlines, moving averages, indicators, etc.)

(ii) Identification of major historical Support & Resistance levels

(iii) Identification of a major price channel (Forex pairs usually trade within price channels)

(iv) Recognition of recent changes in volume or price volatility (Technical analysts always keep an eye on market volatility in order to identify significant changes as sudden changes in volume/volatility may trigger the birth of a new trend)

(v) Recognition of key patterns (Chart patterns, candlestick formations, or harmonic patterns)

(vi) Confirmation of the momentum in shorter timeframes (i.e. if MACD is above its 9-day Moving Average then the momentum is considered bullish)

 

Reviews on Trading Center: Expert Advisors (EAs)Forex Brokers Review

 

■ The Technical Analysis Guide

George Protonotarios for TradingCenter (c)

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