Technical Analysis - Reiman Group

Forex Technical Analysis

It comes down to identification of the most appropriate moment to enter the market in order to “buy cheaper, sell dearer” – it can be a point of trend reversal, determination of whether its direction is suitable for market entry at the current moment or, for example, identification of potential opportunities to earn even in the flat period. It is possible to earn on an ascending or bullish trend as on the rise of currency pair price, as well as on temporary reversals (correction).In case of an unforeseen price reversal against the open transactions the trader has to determine at least an approximate time for closing the transactions with profit. Manual closing, Stop Loss (fixing of losses) and Take Profit (profit) orders are used. The search for the closing point is carried out on the basis of the same rules of technical analysis.

For ease of application of thechanalysis, the trading period from the beginning of trading on Monday until its completion on Friday is divided into equal intervals – timeframes. Thanks to them it is possible to analyze the most important parameters. They include the price at the moment of opening/closing of the period, the price minimum/maximum, and volumes.

The basic tenets of technical analysis are the basis of almost any trading strategy

Prices take everything into account
Their change is influenced by absolutely any political or economic factor (sometimes climatic). The degree of influence is determined by the importance for the state, whose currency is being traded.
Price obeying trends
The value of currencies is constantly changing. As a result, currency pairs rise and fall in price. During certain periods there may be a flat – a time of uncertainty, when the price does not change much over time.
History repeats itself
A trend reversal, a flat market condition is observed at the same price levels. Once a trend can be repeated many times, which traders use in their trading systems.

Standard and non-standard timeframes

The trading platform offers several standard timeframes – from M1 (minute) to MN (month). The chart is divided into nine timeframes, besides the extreme ones, M5, M15, M30, H1, H4, D1 and W1 are used. The dynamics of the visual price change depends on the choice of period. Short-term trading systems use timeframes no older than M30.

Sometimes traders resort to the formation of non-standard timeframes. Their task is to compensate the disadvantages of the typical values. For example, if the indicator on H1 shows a late value, and on M30 it is “rushing”. Presumably the “average value”, i.e. time-frame M45 should show the most accurate time to open the deals.

Technical analysis tools

Technical analysis tools
Periodic repetition of previous events allows you to prepare for them and, having timely identified the trend to return to previous positions, earn profits. The trader has a lot of tools at his disposal: support/resistance levels, ascending and descending channels. The terminal features built-in functions for drawing the necessary lines on the chart of a currency pair.

In addition to the standard lines, there are tools available:

– Grid, fan, arcs, time zones, Fibonacci Channel

– Grid, lines, Gann fan.

– Fourier series

The listed trading “add-ons” are an attempt to mathematically predict the subsequent price movement on the basis of the previous trend dynamics in the market. The use of channel tools allows trading at the moments of price reversal inside the channel, taking into account the current trend. The channel lines show where the correction reversal is most likely to occur if the price moves against the trend, support/resistance lines show the price level where a change in trend is likely, the beginning of a prolonged correction. All technical analysis tools are based on mathematical calculations and are used mainly as a basis for determining the trend, and more precisely the moment to enter the market is determined by indicators.

Using Japanese Candles
In the forex theanalysis includes the control of such components of the Japanese candlesticks as:

– Candlestick Body. The color indicates the direction of price movement. By default, white is used for rising candles and black for falling candles.

– Candle size. It indicates the strength of sellers/buyers pressure. There are Doji candlesticks, when the opening price is equal to the closing price.

– Presence of a tail and its size. Indicates indecisiveness of sellers/buyers on the market, which leads to price fluctuations around a constant level.

Different kinds of candles form shapes, their combination can be used to determine the current trend (trend), the approaching reversal. In the absence of certainty on the candle period H1 trader switches to lower timeframes, and thus provides a more accurate forex trading analysis. If we are talking about scalping, the opposite is true – they work mainly on the lower timeframes, and the general trend is watched on the higher ones.

The candlesticks also show the volatility of the currency pair. If we switch to periods of H4 and higher, it will become clear in what range the price is moving this month or this week, whether there is a risk of reversal, of the market entering a long-term flat. The exact result is achieved with the help of additional instruments, search for patterns, indicators. When a trader counts on the long-term perspective, a more dynamic picture on the TF below H1 allows to react faster to the signals that appeared on the H4 and higher intervals.

Graphic figures
Triangle. There are bullish, bearish and symmetric (the latter means the continuation of the previous trend).

Diamond. Visually, a rhombus-like pattern is formed on the chart, with its tops resting on resistance/support levels.

Double Top. A reversal pattern, suitable for use both as a separate instrument and as an additional signal.

Wedge. One of the “long-playing” patterns, it can be formed during a long period, which is convenient for long-term trading strategies.

Triple bottom. Allows you to determine the direction of the breakdown during a flat period.

Triple top. One of the tools for determining the trend reversal point, which works during consolidation moments.

Double Bottom. One more figure, indicating the change of the downtrend to an uptrend.

Flag. Observed after news impulses, indicates its continuation in a previously determined direction.

Saucer. A pattern used by long-term trading amateurs.

Pennant. A pattern similar to a flag with a similar definition.

Types of indicators
Indicators are divided into several categories:

Trend indicators. They show the direction, the trend strength, the probability of reversal.

Oscillators. They show a mathematical model of measuring the rates of changes on the market.

Bill Williams and Volumes. Work on a “separate theory”, but have quite high efficiency in short-term and long-term trading.

The key task of indicators is to indicate the recommended direction to enter the market (Buy or Sell orders), volatility indication for profit forecasting. Without their use the trader will have to be guided by “simpler” signals – support/resistance levels, trend channel lines.

Many trading strategies contain rules for combining readings of different indicators. When conditions appear on one of them (conditionally the main one), the trader looks for confirmation on the others. And only in case of coincidence the decision to open a deal is made. If not, the trader waits for the next signal of the “main” indicator.