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What is technical analysis?

Technical analysis

Technical analysis is the most accurate of today's market and timing instruments. It is the study of historical prices and activities by means of graphs to predict future price rises and falls. The skill of technical analysis lies in identifying the types of price changes that govern the direction of future market development. Basic factor analysis is to analyze the basic economic factors that affect supply and demand, is to study the cause of the exchange rate movement, and the rule of technical analysis is the way to focus on the exchange rate movement, technical analysis, argue that all basic factors have been reflected in prices, in whole or in part for the chart for analysis has really accumulation and shows the actual supply and demand information, reflects the traders happiness, anger, sorrow and joy, hope and mental activities such as estimates and speculation. Chart analysis is therefore too important for traders.

Technical analysis USES past market data to analyze future price trends. Technical analysis believes that there are certain patterns to follow in price fluctuations and that historical trends will repeat themselves.

The starting point for technical analysis: learn to look at pictures

The first step in technical analysis is to learn to look at pictures. There are many types of charts, but they are all similar. The most basic and common is the K diagram, also known as the candle diagram. A column indicates a time period, and if 30 minutes are selected, a column indicates 30 minutes of trading. If a day is selected, a column indicates the day's trade. When the closing price is higher than the opening price, the solid part is usually painted red or blank, which is called "positive line". When the closing price is lower than the opening price, the solid part is usually painted green or black, called "Yin line". Each candle line on the K chart represents a high, low, opening and closing price over a period of time. The rectangle in the middle is called the entity, the thin line above the entity is called the shadow line, the thin line below the entity is called the shadow line. Through the shape analysis of the k-line chart, we can mainly analyze when the market will reverse, in a wave of rising prices to determine the earliest time to turn down, so that we can make more profits by shorting at the first time; Also in a wave of decline in the judgment of the earliest when will rebound from stability, so you can be the first time to take advantage of the first. K chart also part of the form is to study the situation in which the market will continue, if master these forms can better homeopathy trading, holding favorable orders will also be more confident to hold, or even on the way to increase the gain more.

Step 2 of technical analysis: learn to draw trend lines, resistance levels, and support levels

Support level refers to the level with greater support, when the exchange rate falls to the vicinity of the price is easy to rebound; Resistance level refers to the existence of greater pressure level, exchange rate rise to the vicinity of this level is easy to fall. The method of calculating support and resistance level mainly USES the method of drawing trend line, but also can combine technical indicators, such as golden section, moving average system, polygon channel and so on. Trendline: in an uptrend, an uptrend line is formed by connecting two rising lows in a straight line. In a downtrend, a downtrend line is formed by connecting the two falling highs in a straight line. In order to make the trend line drawn in the future in the analysis of market trends with a higher accuracy, we have to use a variety of methods to draw the experimental trend line screening, remove the useless trend line, retain the effective trend line. To get a trend line that really works, it needs to be verified in many ways before it is finally confirmed. First, there has to be a real trend. In other words, in the rising trend, you must identify two successively rising lows; In a downtrend, the existence of a trend can only be confirmed if two successively declining highs are identified, and a line connecting the two points can become a trend line. Second, after the line is drawn, the third point should be verified to confirm that the trend line is valid. Generally speaking, the more times the line drawn is touched, the more its validity as a trend line is confirmed, and the more accurate and effective its prediction is. In addition, we need to constantly revise the original trend line. For example, when the exchange rate falls below the uptrend line and then quickly rises above it, the analyst should draw a new line from the first low and the latest low, or revise a more effective trend line from the second low and the new low.

The third step of technical analysis: confirm the judgment of market trend by combining technical indicators

Commonly used technical indicators and application traders in the analysis of the chart, often use some technical analysis indicators, in order to more clearly identify market trends, better grasp the market entry and exit points. Here are some of the most widely used indicators that have been tested in practice:

Moving Average

A moving average is a line drawn to average closing prices over the past several periods. Unlike the candle chart, it is a more reliable guide to price trends.

Here are two different moving averages:

  • The simple moving average (SMA) is the sum of the closing prices for a number of (n) periods (e.g. Then, the average value of each period is plotted on the graph and connected with curves to obtain the average line of n period.

  • Smoothed moving averages (EMA), because moving averages are a lagging indicator, give more weight to recent data when calculating the average in order to move closer to the market. This will give you a better idea of what's going on in the market.

Moving averages have many USES, primarily for identifying/confirming trends, as well as identifying/confirming resistance levels and support levels. For example: the fast line up above the slow line, called a "gold cross," is a buy signal. When the fast line crosses the slow line downward, it is called a "dead cross" and is a sell signal.

Random index (STC)

The random index, also known as the KD line, measures the position of the closing price within the range of the highest and lowest price to determine the trend and the entry and exit of the market point. The random exponential coordinates are in the scale of 0 to 100. The K line represents the percentage of the closing price to the highest and lowest price in a given period of time. For example, 20 represents the 20% position of the price in the most recent period. The d-axis averages the k-axis. The specific mathematical formula of random exponential (KD line) is complicated, but its application is relatively simple and intuitive. The random index helps us judge the trend. An index above 80 indicates a strong uptrend and the market is in a so-called "overbought state". If the index is below 20, a strong downtrend, the market is in a so-called "oversold state."

Judging buying and selling signals:

  • The K line is above the D line, but below the D line in the overbought zone is a sell signal (dead cross)

  • K below d-line, but above d-line in oversold zone, buy signal (gold cross)

  • A sell signal is when the K and D lines cross at least twice in a row in a high-priced area

  • K, D line in the low - price zone two or more consecutive cross, a buy signal

  • When line K and line D deviate from the price trend, it is a reversal signal

Relative strength index (RSI)

RSI is a relative strength index, which measures the strength of the market's rise and fall. If the rising force is larger, the calculated index rises; If the force of the fall is larger, the index drops, which measures the strength of the market trend.

Application of RSI:

  • In general, RSI turns down a sell signal at a high and up a buy signal at a low.

  • RSI appear M top can sell, appear W bottom can buy.

  • RSI a top deviation can be sold, a bottom deviation can be bought.

  • A break in RSI's support line is a sell signal, while a rise in its resistance line is a buy signal.

  • The parameters of RSI are usually 5 -- 14. The index line with large parameters has a strong tendency, but the response lags behind, which is called the slow line. Small parameters of the index line sensitive, but easy to produce a sense of drift, known as fast line. If the slow line and the fast line are up together, the rise is stronger; If the two lines down, the decline is strong; The fast line crossing the slow line is a buy signal; The fast line below the slow line is a sell signal.

Poly channel (Bull)

The polygon channel is a method developed by Dr. Polygon to determine market resistance/support levels by standard deviation. The channel consists of three lines. The midline is its simple moving average, usually a simple 20-day moving average. The top of the channel is the 20-day mean plus 2 times the standard deviation, and the bottom of the channel is the 20-day mean minus 2 times the standard deviation. If the price is above the moving average, it is appropriate to "sell", whereas if it is below the moving average, it is appropriate to "buy". Traders often use the poly channel to detect price changes, capture trend changes, identify potential support/resistance levels, and find breakout levels by widening and narrowing the amplitude.

Moving average gallop indicator (MACD)

MACD is a more specific way to look for trading signals in price charts using moving averages. It was invented by Gerald Appel to show the difference between a 26-day exponential average and a 12-day exponential average. In addition, the 9-day moving average is often used as a strong or weak trigger line, meaning that when the MACD and this line cross downward, this is a down signal; When the MACD crosses the 9-day line, it is a rising signal. Like other indicators, traders study the MACD for early signs of technical divergence from market prices. If the MACD rises and its phase bottom is improving while prices are falling to new lows, that could be a strong buy signal. On the other hand, if the MACD is falling and its phase high is gradually falling, but the exchange rate is hitting a new high, this is a strong bear divergence and sell signal. Looking for market opportunities based on deviations from market prices:

  • When prices continue to rise and the MACD continues to fall, it indicates a weakening of buyer power, indicating that the market may enter a decline

  • When prices continue to fall and the MACD begins to move higher, indicating a weakening of seller power, the market may move higher

Golden ratio callback/forecast (Fibonacci)

The golden ratio is a rule of the universe discovered by the Italian mathematician Fibonacci, which is 0.236, 0.382, 0.500 and 0.618. Market prices are sensitive to the golden ratio. The gold ratio helps us calculate resistance and support levels. Gold ratio forecast: after a wave of rising prices, the callback will be 0.382, 0.500, 0.618 of the previous rise is supported; Similarly, the rebound after a wave of declines will often encounter greater resistance at the previous declines of 0.382, 0.500 and 0.618. In the chart we add the gold ratio pullback whenever the lowest and highest points of the previous wave are selected, these three important support or resistance levels are shown. In the chart, we add the golden ratio prediction. By selecting the lowest and highest points of the first wave and then the starting point of the second wave, the golden ratio prediction of 0.616, 1,1.618 will be displayed. You only need to use the mouse to select A, B, the trading platform will automatically calculate the corresponding golden ratio callback value for you.

It is worth noting that all technical indicators, in the final analysis, are historical price calculus, so are lagging indicators. It is very unwise to use one indicator alone. It should be used in conjunction with trend lines and so on to identify trends and exits.