When you here the term
fundamental analysis you should be aware that it is mostly connected to various
fundamental economic and financial indicators that show general health of a
given economy. If you here the term ’technical analysis’ you can be pretty sure
that the matter will definitely include technical charts of stocks, commodities
or Forex paris. If you want to be a good technical analyst and a day, swing or
trend trader you will have to learn to read the charts of securities you are
trading. That will involve seeing major trend, major support and resistance
areas, various major and minor ranges, reversal and continuation patterns and
etc.
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When doing any technical
analysis you should start from longer term charts: monthly, weekly and daily. These
will help you to identify major trends and even current trend a security is in.
So, if we look at eur/usd monthly chart we will see that for many years it was
in a bullish market. However, starting from 2008 we saw sharp reversals and the
pair failed to make new highs. On the opposite, it started making lower highs
and bombarding major support area of 1.2400-1.2000.
If you look at weekly chart
of the pair you will see that since November of 2008 it has been in wide ranges
and the best way was to trade swings in the pair from the top of the range to
the bottom of it. Knowledge about various reversal patterns would be of great
use here. You know that you have to wait till the security gets to the top,
forms a reversal pattern and you short below the pattern of candle formation.
The same is true when the security visits the bottom.
Now, if you go to daily
charts you will see even smaller type of ranges (mid term ranges) that would enable
you to trade more often as those present you more opportunities at shorter time
intervals. Looking at the same eur/usd pair you will see break of a channel and
possibility to go long and break of support and possibility to go short.
You then go on to hourly
charts: 4 and 1 hour charts. These help you to see small daily range breaks,
short term support and resistance levels and various opportunities connected
with that. You would either look for a level to hold (support and resistance
not broken) or you would look for a breakout of a level. Hourly charts have
more noises and a lot more false signals than longer time charts.
You would then go to minute
charts: 30, 15 and 5 minute charts. These are good for scalping and also for
determining your entry and exit points. Even if you are a trend trader it is
good to be as exact about your entries as possible and these small time frames
will help you to achieve it. You also have to remember that these are full of
various daily market noises and give you a lot of false signals.
You should follow this
top-bottom approach in your trades if you want to become a good technical
analysis expert. You always start from longer time frames and go to shorter
ones.
Hope that was helpful.
See also:
Disclaimer
Trading
financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.