Posts Tagged ‘technical analysis’

In the Tokugawa era, a man named Munehisa Homma, a rice merchant from Sakata, was said to had first incited the idea of Japanese Candlestick which is now used for futures market analysis. It was then used to predict the price of rice in the Ojima Rice market in Osaka.

Later on a man named Steve Nison, a technical analyst, made a study on it which also pave to its graphical representation.

The Japanese Candlestick chart is made up of individual candlesticks that connotes certain actions that the trend may take. Each candlestick is molded up by 4 attributes namely; Open price, Close price, Low price, and lastly High price. A candlestick is made up of a real body and shadow.

The candlesticks comes in different sizes of the body and the shadows that accompanies it. Each type indicates unique behaviors of the market.

Long Body – long body but with a short shadow

Short Body – short body with a short shadow

Marubozu – candlestick without a shadow. It gives a good confirmation signal of an upward or downward trend

Doji – a candlestick that almost have no body. It is a result of the equal opening and closing price.

Long legged doji – a subtype of doji that have a long shadow of the same length. It shows the strength of the bull and bear are equal and a new trend will soon emerge.

Dragonfly doji – another subtype of doji with a long lower shadow that denotes that there is an impending down falling trend.

Grave stone doji – looks like an inverted dragonfly doji that makes an opposite remark – an evident uptrend may soon occur.

Spinning top – a type of doji that posses a long shadow that signifies that uncertainty encompasses the market. The longer the shadow is, the higher the possibility of a new trend formation.

Hammer or Hanging man – also another type of doji whose name depends on the trend that it belongs. It has a medium size body accompanied by a long lower shadow.

Inverted Hammer or Shooting star – the opposite of hammer and hanging man.

There are certain patterns that may be observed when 2 or 3 candlesticks are merged.

Stephen Stevenson

29.05.2012 Post in Trading

binocTraders analyze Forex market in order to make a forecast that will enable to increase the profitability of transactions. Forecast is the part of a trading plan. Different methods of analysis are used to define long-term trends, favorable conditions for opening and closing of deals, prospect price rebounds etc.

As a rule, there are two main methods of analysis on Forex:

  • fundamental analysis
  • technical analysis

Fundamental analysis is based on the investigation of different economic indicators as interest rates, inflation, business activity indices, employment, GDP. The instruments of the fundamental analysis include news, directly or indirectly connected with world financial markets, economic calendar, various statistical reports, statements of main politicians and even rumors.

Traders that follow this type of analysis must know how to separate the key aspects from secondary ones and find cause-and-effect relations between events. To make the proper use of the fundamental analysis one should be aware of the global economy and financial markets, knowing what factors and what information may affect the price of currencies and securities.

The technical analysis is based on the historical data of prices. The study of previous price changes enables to forecast the future situation. The instruments of the technical analysis are price charts, technical indicators and trade advisors. This type of analysis allows to define trends, support and resistance levels etc.

There are several types of price charts: linear, candlestick, bar. It is possible to place various indicators on charts. Most of them are integrated in trade terminal. Indicators are mainly subdivided into two groups –trend indicators and oscillatory indicators. Trend indicators define the current price tendency, oscillatory ones work better while the sideways movement indicating the oversold and the overbought market.

Also trading advisors enable to automate the trading process partially or completely. These are certain programs aimed at performing operations on Forex without trader’s participation, i.e. that advisors (robots or experts) can make deals basing on the received signals automatically.

To compile the trading forecast many traders combine different types of analysis. It is crucial to keep in mind that the forecast is just the forecast: it may not be justified. Even professional analysts sometimes make mistakes in their analysis as Forex market is not stable. The usage of various methods of analysis is crucial for successful work, but the main task of a trader is to trade in accordance with the market and respond quickly on any changes.

Added by Alexandr Kornilov,
InstaForex Clients’ relationship manager

07.03.2012 Post in Trading

countCharles Dow is often considered as the founder of the technical analysis. Jointly with his companion he implemented the famous Dow Jones industrial average, created one of the leading world financial information agencies and began the publishing of the comprehensive financial data. Moreover, he wrote several articles concerning the financial market.

The suggestions described in these publications were later summarized. Today they are known as Dow theory. This theory became fundamental for the modern technical analysis. Though Dow described the processes occurring at the securities market, his theory is applicable to the other financial markets.

Charles Dow paid a lot of attention to the well-known principles as directed character of the price changes, cyclical character of the market processes, the interrelation between the trading volume and exchange rates etc. The theory is based on 6 tenets

1. The market has three types of movements

    Dow confirms that trends can be subdivided into primary (long-term) trends, secondary (intermediate) trends and minor (short-term) trends. Each type of trend is in turn an upward or downward. The upward trend means that each high and low is higher than the previous one. In the downward trend each high and low is located lower than the previous one.

    The primary trend may last from less than a year to several years. The secondary trend serves as a correction and usually lasts for over 3 months. The minor trend is defined as lasting for less than three weeks reflecting the short-term market fluctuations.

    2. Market trend has three phases

      Phases of the long-term trend are: an accumulation phase, a public participation phase, and a distribution phase.

      During the first phase provident investors with significant capital make trade operations that appear to be against the general opinion of the market. The second phase begins when active and technically oriented traders take part. These traders are intended to follow the market trends. The phase is accompanied by the strengthening of the trend and price changes. Then begins the third phase: the public is fully involved in the market resulting in agiotage. Thanks to the experienced investors begins the new accumulation phase.

      3. The stock market averages must confirm each other

        According to Dow, the industrial and transportation averages must confirm the current trend and provide signals of its reversal with slight divergence in time.

        4. The market discounts everything

          Everyone knows the expression “the price accounts everything”. Charles Dow supposed that the market responds very quickly to any information. Any factor that can affect the demand or supply is immediately reflected in dynamics of price and averages.

          5. Trends are confirmed by volume

            moneyThe increase of the trading volume takes place when the prices are moving within the main trend. Otherwise the price changes do not reflect the real market opinion.

            6. Trends exist until definitive signals prove that they have ended

              A trend will be changed in any case, but if the signals of price changes are not clear, this fact can be considered as a signal of temporary corrective movement, but not as a sign of a trend reversal.

              Thus, it is evident that some part of these assumptions is applicable to the Forex market. The ideas of Charles Dow are relevant even now despite more than 100-years history and the fact that the modern analytical tools emerged.

              Added by Kristina Leshkevich,
              InstaForex Clients’ relationship manager

              28.05.2010 Post in Trading

              Popularity of Forex market is growing from day to day and due to development of the Internet and modern technologies currency trading became available for everybody. Thereby, many people with lack of experience and knowledge came to the Forex market. However, sooner or later every beginning trader faces the necessity of learning the basis of currency trading. So books about Forex will teach traders the essence of currency trading on the international currency exchange market Forex.

              At present day, Internet carries a great number of literature on Forex trading – these are books on fundamental and technical analysis, books on the psychology of trading, books on capital management and so on. Thus, not only the beginning but also the experienced traders have a huge variety of literature on Forex to choose.

              Below let us discuss a few categories of books on Forex, why they are useful and what every trader can find useful in them.

              The books on fundamental analysis comprise the literature on economy, which dwell on different financial sides of not only Forex market but the whole global economy. Though not all books on the economy will be identically helpful, you should select only those who are destined for traders.

              It is necessary to remember that in the process of trading not all traders keep to fundamental analysis. However, those traders who do, will have a handicap as due to the fundamental factors the international currency market starts to move more often. From the stated above it follows that even those traders who do not adhere to a based on fundamental analysis trade should definitely study the books on Forex fundamental analysis.

              The books on technical analysis

              The books on technical analysis are most popular among novices of the market. This happens because technical analysis is easier and in simple words deepens a trader into the principles of Forex trade. Exactly with reading these books the majority of traders begin their Forex work. Nowadays it is possible to find plenty of books on technical analysis in the Internet. Though there exists one disadvantage, connected with applying this analysis in trading process. Most part of the available books are too old, so a trader will not get the desired effect. Nevertheless it does not mean that technical analysis should be avoided, simply every trader using technical basis for operating on Forex should modify the applied strategies for himself.

              The books on trading psychology

              This type of literature should be read by absolutely every trader irrespective of his experience on the market. As it is psychology of a trader’s behaviour which can determine the traders correct actions and the correct schedule for the working day with no harm to health and your funds. Very often traders are making actions not in the accordance with the situation on the market but overwhelmed by emotions. The books about Forex psychology will teach you how to suppress your emotions without letting them into your trade.

              The books on capital management

              This section of Forex literature is very important and it cannot be omitted. Every participant of the market should study the books about managing the capital. These books help a trader to work out the maximally profitable and correct trading strategies. Moreover, this type of books is significant also because in the Internet there is not so much information devoted to capital management and reading it will not take much time.

              Absolutely every participant of trade irrespective of his experience on the market should practice self-education. Analyzing Forex literature together with permanent practice will make your trading profitable and exciting.

              Many of the described above sources of information can be found on the educational website of InstaForex Company – www.instafxeducation.com. This is the largest Forex library in pdf-files.

              Added by Olga Vitkovskaya,
              InstaForex Clients’ relationship manager