Learning Technical Analysis Terminology
As a forex trader, you should learn technical analysis. You need to understand the various terms that are frequently used in Technical Analysis. Technical Analysis is the study of historical and ongoing price data through charts, price patterns and chart indicators. Charts display price moves in time intervals using bars and candlesticks.
Technical Analysis is based on the following assumptions. 1) All available information is already impounded in the market prices of the securities. 2) Prices always move in trends or patterns. 3) History repeats itself meaning you can predict the future market by studying the past market prices.
Historical studies have shown that once a trend is in motion, it is most likely to continue rather than reverse it. Only a bigger force in the opposite direction can reverse a trend once set in motion. The more one studies chart patterns, the clearer it becomes that reading and interpreting chart patterns are more an art form than a skill in technical analysis.
Charts come in two types: Bar and Candlesticks. Bar charts display price data in vertical lines which represents price action during a given time period. The tip at the top is the high for the period and the tip at the bottom is the low for the period. The open and close are represented by small horizontal dashes called tics. The tic to the left of the line is the open and the tic to the right of the line is the close.
Candlestick charts are similar to bar charts. Like the bar charts, the top of the vertical line represent the high and the bottom of the vertical line represents the low. However, the price action between the open and the close is represented differently by the use of candlestick bodies. A shaded body represents a lower closing below a higher opening. A hollow body represents a higher closing above a lower opening.
The price action above and below the body is referred to as tails or wicks. A forex day trader may use any one of the 3, 5, 10, 15, 30, 60 and 180 minutes charts. A swing and position trader may use a daily, weekly or a monthly chart while doing technical analysis. These charts all use the Greenwich Mean Time (GMT) or the Eastern Standard Time (EST) depending on the software that your broker platform uses. But you can always adjust these times according to your local time.
While doing technical analysis, you need to understand what are markets patterns? What are Uptrends? What are downtrends and what are sideway trends? Markets expand and retrace constantly. Market prices may continue to expand for sometimes either upward or downward. It is the nature of the markets to surge then pause and retrace.
Trends in currency markets make a series of peaks and troughs as they move. An uptrend consists of a series of ascending peaks and troughs. Each peak higher than the last peak! Each trough lower than the last trough! A downtrend consists of a series of descending peaks and troughs. A sidways trend consists of a series of horizontal peaks and troughs. All peaks and all troughs almost on the same level indicate a sideways market.
Technical Analysis is based on the following assumptions. 1) All available information is already impounded in the market prices of the securities. 2) Prices always move in trends or patterns. 3) History repeats itself meaning you can predict the future market by studying the past market prices.
Historical studies have shown that once a trend is in motion, it is most likely to continue rather than reverse it. Only a bigger force in the opposite direction can reverse a trend once set in motion. The more one studies chart patterns, the clearer it becomes that reading and interpreting chart patterns are more an art form than a skill in technical analysis.
Charts come in two types: Bar and Candlesticks. Bar charts display price data in vertical lines which represents price action during a given time period. The tip at the top is the high for the period and the tip at the bottom is the low for the period. The open and close are represented by small horizontal dashes called tics. The tic to the left of the line is the open and the tic to the right of the line is the close.
Candlestick charts are similar to bar charts. Like the bar charts, the top of the vertical line represent the high and the bottom of the vertical line represents the low. However, the price action between the open and the close is represented differently by the use of candlestick bodies. A shaded body represents a lower closing below a higher opening. A hollow body represents a higher closing above a lower opening.
The price action above and below the body is referred to as tails or wicks. A forex day trader may use any one of the 3, 5, 10, 15, 30, 60 and 180 minutes charts. A swing and position trader may use a daily, weekly or a monthly chart while doing technical analysis. These charts all use the Greenwich Mean Time (GMT) or the Eastern Standard Time (EST) depending on the software that your broker platform uses. But you can always adjust these times according to your local time.
While doing technical analysis, you need to understand what are markets patterns? What are Uptrends? What are downtrends and what are sideway trends? Markets expand and retrace constantly. Market prices may continue to expand for sometimes either upward or downward. It is the nature of the markets to surge then pause and retrace.
Trends in currency markets make a series of peaks and troughs as they move. An uptrend consists of a series of ascending peaks and troughs. Each peak higher than the last peak! Each trough lower than the last trough! A downtrend consists of a series of descending peaks and troughs. A sidways trend consists of a series of horizontal peaks and troughs. All peaks and all troughs almost on the same level indicate a sideways market.
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading and swing trading stocks and currencies. Trade Dow Futures. Learn Forex Trading.