23 – Using Multiple Time Frame Analysis
While using a combination of technical indicators can help confirm price movements and filter out false signals, most traders opt to conduct multiple time frame analysis for additional confirmation. This method simply involves looking at the same currency pair across various time frames, from the short term 15-minute to...
22 – How to Trade Divergences
As you've learned in the previous sections, technical indicators and price action tend to move in tandem. For instance, when stochastic starts heading lower from the overbought zone, the corresponding currency pair usually sells off. On the other hand, stochastic climbing out of the oversold area indicates that the...
21 – Understanding Harmonic Price Patterns
Harmonic price patterns comprise another set of chart formations involving Fibonacci retracement and extension levels. The rule of thumb in trading these patterns is to wait for the entire formation to be completed before entering any long or short positions.
There are six main kinds of harmonic price patterns, namely...
20 – Elliott Wave Analysis 101
A combination of repeating price patterns with Fibonacci analysis yields another branch of technical analysis known as Elliott Waves. This is named after its founder Ralph Nelson Elliott who analyzed 75 years' worth of stock data before formulating and compiling his theories in a book entitled The Wave Principle....
19 – Basic Forex Chart Formations
Aside from technical indicators and Japanese candlestick patterns, another main component of technical analysis is chart formations. Remember that the concept behind technical analysis is that price patterns tend to repeat themselves, which means that these chart patterns more or less result to the same price behavior later on.
The...
18 – Using Momentum or Lagging Indicators
As opposed to leading indicators which generate early trade signals, momentum or lagging indicators give confirmation signals when the trend has already found directional momentum. Because of that, lagging indicators are also known as trend-following indicators.
One of the most basic examples of lagging indicators is the moving average crossover...
17 – Using Oscillators or Leading Indicators
When it comes to using leading indicators, a good way of remembering how they work is to understand that they "oscillate" between two points, hence the name oscillator. This means that they bounce back and forth from point A to point B, which is another way of saying that...
16 – Types of Technical Indicators
Technical indicators are grouped into two main classifications: oscillators or leading indicators and momentum or lagging indicators. Moving averages, as discussed in the previous section, typically fall under the category of lagging indicators but the parameters can be modified or shifted to allow it to act as a leading...
15 – How Moving Averages Work
This section covers the basic technical indicators used in forex trading, the most common of which is the moving average.
As the name suggests, this kind of technical indicator measures the average closing price of the currency pair for a specified period. For example, using the moving average (20) on...
14 – Using the Fibonacci Tool with Technical Indicators
The use of Fibonacci retracement and extension levels could also be combined with technical indicators. For instance, one can enter at market when stochastic has already made a turn from the overbought or oversold area and price is showing signs of bouncing off a Fibonacci level.
Similarly, one can decide...
13 – Using the Fibonacci Tool with Trend Lines
As discussed in the previous sections, Fibonacci retracement is often used during trending market environments so it makes sense to combine it with the use of trend lines.
Of course this also requires one to be able to draw trend lines properly, and the rule of thumb is to use...
12 – Using the Fibonacci Tool with Support and Resistance
This section further illustrates how the Fibonacci retracement and extension levels tend to have a higher probability of holding when they coincide with other types of support and resistance.
For instance, a price breakout tends to pull back to the broken support or resistance level as a retest. A downside...
11 – Fibonacci Extension
As introduced in the previous section, Fibonacci extension levels serve as excellent points for setting profit targets. After all, it's not enough that you try to pick the best entry levels for your trade. You must also be able to determine how long you plan to hold on to...
10 – Fibonacci Retracement
Fibonacci retracement levels, which are commonly used to specify potential entry levels during a trending market environment, comprise another group of inflection points. These retracement levels were based the work of Leonardo Fibonacci, who is a famous mathematician known for his discovery of the golden ratio.
According to Fibonacci, this...
09 – Different Types of Inflection Points
There are several types of horizontal inflection points that can be employed in forex technical analysis. Among these, the most common ones are the psychological round numbers, which tend to hold well as support or resistance for major currency pairs and yen pairs.
Major psychological levels refer to price levels...
08 – Pivot Point Calculation Methods
Pivot point calculation can be tedious for some but there are traders that find this method very reliable when coming up with shorter-term trade setups. Trading the news or economic events can also be combined with intraday setups using pivot points.
In particular, range traders look at pivot points for...
07 – Trend Lines and Channels
Forex traders often say that "The trend is your friend" because a market uptrend or downtrend provides several reliable opportunities to catch pips. During these kinds of market behavior, trend lines and channels can be the most reliable technical analysis tools.
Trend lines are drawn simply by connecting the recent...
06 – Support and Resistance
Support and resistance are two of the most frequent forex terms you will come across in technical analysis. Simply put, support refers to a floor in price action where a downward movement changes course. On the other hand, resistance stands for a ceiling in price action where an upward...
05 – Group Candlestick Patterns
Group candlestick patterns are more creative but take time to form. Generally, these are believed to be more effective signals when they occur on the longer-term time frames.
First is the three-inside-up or three-inside-down pattern, which is basically indicative of a possible reversal. It can be considered a harami double...
04 – Double Candlestick Patterns
Memorizing double candlestick patterns can be a bit more challenging, but the trading results can be very rewarding. As with the single Japanese candlestick patterns, these come in bullish and bearish versions.
The most basic type of dual candlestick formation is the bullish or bearish engulfing pattern. Simply put, the...
03 – Common Candlestick Formations
Single candlestick patterns are perhaps one of the most straightforward ways of reading price action and interpreting market psychology. Candlesticks with long bodies and short wicks signify strong buying or selling momentum that is likely to carry on until a reversal candlestick is formed. Meanwhile, candlesticks with long wicks...
02 – Japanese Candlestick Basics
Candlestick charting originated around the 17th century among Japanese rice traders. Munehisa Homma developed this methodology to monitor daily changes in the prices of rice in order to help him make better decisions when it comes to buying or selling the commodity. These methods were eventually compiled and improved...
01 – Types of Charts
One of the most basic foundations of technical analysis is watching price charts. There are three popular types of charts used by forex traders and these are line charts, bar or open-high-low-close charts, and candlestick charts.
The line chart is the simplest among the three, with a price line connecting...
00 – A Beginner’s Guide to Technical Analysis
Technical analysis refers to the study of past price action as a guide in forecasting future price movements. This involves looking at candlestick formations, chart patterns, and indicators.
The Dow Theory, which is based on the collective writings of Charles Dow, is used as the framework for modern technical analysis....