Technical T echnical analysis analysis Technical Technical analysis analysis represent represent the homework homework of a trader or investor before before they can can make better decision about their activities in markets. There are various approaches but roughly we can put them into two main category. Those traders and investor who give more weight to studying charts and price action to understand where price may be going - Technical, and those who think overall economic climate denes the direction of the price - Fundamentals.
1)Trends Technical Technical nalysis nalysis contains contains lots of di!erent di!erent aspects and and sub"ects . #ne of the Topics that we are going to cover here is $Trends%.
What is a Trend? To To keep it it simple, say that that a trend is really really nothing more more than a $direction $direction% % in which a currency pair is trading.
Type of trends? &f you would ask the ma"ority of the traders what they know about trends, they would probably tell you that there are ' types of trends( an ptrend, *owntrend and a +ideways trend. owever, there are in reality only types of trends. There is an ptrend ptrend and a *owntrend. *owntrend. $+ideways Trend% really really doesnt e/ist, e/ist, because even if price moves in a $sideways% range, price is still trading up and down....lso there are only types of orders that can be placed, either a 0uy order or a +ell order. There is no sideways order -)
2e can see that on the left side of the picture, price is trending down and that it is trending up on the right side of the picture. 2hen price is trending in either a down or uptrend , it is not trading in a straight line. &f you observe how price tends to move, you will certainly recogni3e a $repetitive pattern%. &n a *owntrend, price will tend to move down while making 4ower ighs 54) and 4ower 4ows 544) and in an ptrend price will tend to move up while making a series of igher ighs 5) and igher 4ows 54). +o in other words, price would have to make new highs or new lows in order to remain in an up or down trend.
+tart of new Trends +ince we rmly believe in the +upply and *emand dynamics, we e/pect price reversals or Trends continuations to take place at a signicant igher Timeframe +upply or *emand levels. +ee +upply and *emand basics article here . &n other words we would e/pect to see a new ptrend forming at a signicant *emand 4evel and a new *owntrend at a signicant +upply 4evel. Trend 6ontinuation would most of the time occur once an nfresh +upply or *emand 3one would break. +ee 707 8 *0* for more info about breaks of +9* levels.
The following chart is all about the igher Timeframe 5in this case :h TF) trends at +upply or *emand. ;ou can clearly see price trending up in yellow and down in blue, if you would 3oom in, on a 4TF, you would see price making s in the yellow bo/ and 44s in the blue bo/.
nd the chart below is a representation of an nfresh *emand 4evel that got broken, allowing the downtrend to continue. ere again, looking at a 4TF such as a 1< min and lower, you would clearly see 4ower ighs and 4ower 4ows in the blue highlighted areas.
=nd of a Trend 2e would e/pect to see a trend ending when price arrives at a fresh +upply or *emand level. owever if the +upply or *emand level isnt Fresh anymore, two things can happen.
a trend reversal a trend continuation There are clues that can help us to determine if a +upply or *emand 4evel will hold or not but this in itself is whole other topic +ee +9* or >rice 6ompression. 4ooking at s94s and 4s944s can also help us in our Trend analysis. 4ets take a *owntrend for an e/ample. 2e would have been trading down from a signicant igher Timeframe +upply 4evel, while arriving at an opposite level, in this case a TF *emand level, we would look at price movement, we would like to see price making a new high aswell as 4s. ?ote that a Trend is relevant to the Timeframe we are looking at( while on a :h 6hart we may see an ptrend, when we 3oom in at a 4ower Timeframe such we may see an opposite trend there. See charts below for an explaination on a chart .
Trendlines trendline is a tool that is used to connect the igher 4ows 5in an uptrend) or the lower highs 5in a downtrend) . This techni@ue will help visuali3e the current trend and can be used to add $6onAuence% to a trade setup.
#n the rst chart, we can see that the trendline got broken once price bounced up from the TF *emand 4evel and vice versa for the second chart and the +upply 4evel.
*rawing Trendlines 2hen drawing trenlines, connect the obvious 4s or 4s. &n a downtrend, look for a high followed by two lower highs. &n a downtrend, & look for a low surronded by two higher lows.
This way we%ll be able to pick the @uality ighs and lows from the other ones. 4ook at the charts below... the @uality highs and lows are circled, the rest do not @ualify since they do not meet the wanted criteria.
