Technical Analysis

Charts
A price chart is a sequence of prices drawn over a specific time frame.
Technicians, technical analysts, traders and investors can use charts to analyze a
wide range of currencies in order to forecast future price movements. Any
currency with price data over a period of time can be used to form a chart.
Example GBP/USD
Charts can be shown in a variety of time scales according to the request of the
trader, for example; hourly, daily, weekly and monthly charts.
There are several types of charts that can be used in order to make decisions, for
example:
1) Bar charts.
2) Candle-stick Charts.
3) Dot charts.
4) Line charts.
Originating from Japan, candlestick charts have become the most popular
method for analyzing currency pairs.
The body of the candle will vary according to the intraday volatility.
Trend lines
Trend –The movement of highs and lows that constitutes a trend.
Trend line- A straight line that connects two or more prices on the chart.
A trader will often extend the trend line into the future to act as a line of support
or resistance.
Trend lines are also used in order to confirm the price trend.
Support and Resistances
Support and resistance represent key junctions where the forces of supply and
demand meet.
Support- A certain price which is strong enough to prevent the current trading
price from declining further.
Resistance- A certain price which is strong enough to prevent the current
trading price from advancing further.
Popular Technical Indicators:
Moving Averages – An average line that appears on the chart. This line is
calculated according to the amount of days requested
by the trader. For example:
SMA(30) – Moving average over the last 30 days
Moving averages are often used to indicate a change in trend, the cross-over
between two or three moving averages will hint to the trader that the current
trend has possibly come to an end.
Macd- A momentum indicator that shows the relationship between two moving
averages of prices. The Macd is calculated by subtracting the EMA(26)
from the EMA(12), while comparing the subtraction to an EMA(9).
The Macd is used in three different ways:
1) Divergence/convergence of the current trend.
2) Tracking the crosses of the averages.
3) Crosses over the 0 point.
RSI- (Relative strength index) – The RSI quantifies the current direction and
strength. This indicator is often used to follow the current trend in
order to see if the trend is losing its current strength.
Traders often class RSI>70 to be overbought and RSI<70 to be oversold
Technical analysis is a tool that assists traders to make decisions regarding their
future trading strategies. Together with fundamental analysis, a trader can build
an arsenal of tools in order to beat the market.