Forex Online Secrets

Posts Tagged ‘book of calculations’

Technical analysis (TA) is one of the most versatile and accurate methods of measuring the pulse of the market. By implementing TA you will be able to identify recurring patterns in the market as they take place. Once you become familiar with important formations and recurring patterns, you will be able to take full advantage of significant events in the financial markets as they unfold.

Traders who use TA in conjunction with Fundamental Analysis have a distinct advantage over those who just use news data and events to trade. What is important to realize is that TA does not conflict with the fundamental consensus, it merely measures it. By combining the two it will help you interpret the underlying fundamentals that influence price and vice versa.

Keys to successful TA: 3 Methods to Interpret the Studies

Although there are hundreds of different studies and variations that fall under the TA grouping, the most effective methods are usually the simplest. By integrating basic charting tools such as Candlesticks, Moving Averages, Relative Strength and Pivot Points, you will be able to make trading related decisions more effectively. We will start with the most simplistic form of TA, and that is Support and Resistance.

1. How to find Support and Resistance

The most effective attribute a trader can have is to be cable of identifying levels of significant Support (S) and Resistance (R) as they evolve. If a trader is able to do this effectively he can place orders in strategic locations to yield profits and shield losses. Thus, upon iteration of the process he is capable of experiencing growth in account equity.

Technical and flow analysis can help traders discover S and R prior to the arrival of price at the respective levels. By the end of this course you will have the knowledge necessary to:

• Find S/R levels
• Pinpoint places to place entry and exit orders based on S/R
• Trade with peace of mind

Another method to interpret the studies is…

2. Trendlines and Channels

Trendlines are just as straightforward and easy to apply as S/R. They should be interpreted in a nearly exact same way as well. In this case the Trendline is tracing the price lower, however Trendlines can be applied to both falling and rising markets.

To draw a Trendline all you have to do is simply connect two or more price extremes with a line, below is an example.

As you can see on this chart by connecting the first two peaks in price you were able to discover the descending resistance or as traders refer to it as Trendline Resistance.

Creating Channels on your price chart is just as simple creating a Trendline plus one step. Most packages include a utility to create them, however they can be created by simply drawing two parallel Trendlines.

Channels and horizontal levels will give a trader means of placing entry and stop orders strategically based on historical price data.

It is important to realize the lines do not represent a path the market will follow exactly. All Channels and S/R levels are eventually broken through. What the lines will do for you is give you a clear method for measuring the pace of the market so you can place orders accordingly. Below is an example of a channel using parallel Trendlines.

This brings us to our third method to interpretation…

3. Fibonacci Retracements and Projections (Fractals)

Leonardo Fibonacci was a mathematician born in Italy nearly 1000 years ago. Dubbed the “greatest European mathematician of the middle ages”, and authored The Book of Calculations credited for implementing the Hindu-Arabic numerals, also known as the decimal system replacing roman numerals in Europe.

Among these extraordinary accolades Fibonacci was sought after by many powerful rulers of his day to solve problems in trade, finance and urban planning.

In his book Fibonacci describes what is known today as the Fibonacci Sequence, or what the ancient Greeks coined the Golden Ratio (Phi or ?), while modeling trade and exchange rates amongst several Mediterranean nations for The Holy emperor of Rome. Similar observations were made in the Far East at an undocumented time in history.

The Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers:

0 + 1 = 1 + 2 = 3 + 5 = 8 + 13 = 21 + 34 = 55 + 89 = 144 + 233 …… ?

This simple two-stage iterative process results in a number of intriguing interrelationships and self-similarities, such as that any given number is approximately 1.618 (Phi) times the preceding number and any given number is approximately 0.618 (Reciprocal of Phi) times the following number.

We observe the occurrences of this sequence in many instances of dynamic systems including financial markets. However, it is not entirely necessary that you fully grasp the significance of the relationships to utilize it. Rather it is of much greater importance that you understand how to apply it to a chart.