Trading Analysis

Let’s go technical!
Technical analysis is the process of analyzing historical data over the price of an asset and other statistical data generated by market activity, in a try to define probable future prices.

For many years, traders in Forex and stock exchange market have found that one successful way to forecast the possible future movements in rates is to analyze their behaviors of the past. This approach dates back to the 1800s, and it is called technical analysis. It has gained a more extensive usage started in 1990 because of the internet, computer and applied mathematical models and advanced charting techniques.

Technical Analysis with Charts

Organizing price patterns and visualizing them as a chart is one of the classic technical analysis techniques. Charts are historical records of price movements that give important information needed to analyze the trend of the currencies. There is no standard way to interpret charts, but having the right expertise to take out of them the most valuable information which is able to help on the prediction of future price movements.

Pattern recognition is a hands-on and intensive work requiring careful interpretation of the price charts. Below, there are introduced various chart patterns, and you can combine them or even use other patterns which might adapt better to your trading strategy.

The Bar Charts

Bar Charts is a famous and very useful provider of market data and services to the global financial world, media, and industry as the whole. Specifically for the day trader, it provides enough information since they are easy to read and interpret, so they can make a good decision.

The Candlestick Chart

A Candlestick is a chart that gives a nice picture of market prices. The body of the candle represents the difference between the open and the close for a period. If the opening rate is higher than the closing rate, the candlestick is solid. When the closing rate exceeds the opening rate, the candlestick is hollow.

Trend Lines and Chart Patterns

Trend lines are lines drawn that connects either a series of highs or lows in a trend. They are used to track the progress of price movements.

Support and Resistance Levels

A resistance level is a price level at which a rising market has stopped advancing and will either move sideways or begin to decline. Support and resistance levels are psychological barriers that cause temporary changes in the underlying trend of the market.

Applying Technical Analysis

Charts can be generated hourly, daily, weekly, or monthly basis. You will choose charts to study depending on how long you plan on holding a position. If you are trading short- term, you need to look at 5- minutes or 15- minute charts. If you plan on holding a position for a couple of days, you will look at an hourly, 4- hour or daily chart. Weekly and monthly charts compress price movements to allow for much longer-range trend analysis.

Fundamental Analysis

Defining prices based on future earnings- it is focused dominantly on factors such as the general state of the economy, interest rates, production, earnings, and management.

Fundamental analysis is a way of evaluating an asset; it tries to measure price movements by examining the underlying forces that could affect the assets.

Supply and Demand

The theory of supply and demand is the most fundamental economic principle that drives prices and explains consumer behaviors.

Law of Supply and Demand:

  • Demand < Supply … Prices go down (recession)
  • Demand = Supply … Prices are stable
  • Demand > Supply … Prices go up (inflation)

Political News

In times of crisis or war, investors would usually buy a safe-haven currency (flight to quality) which has traditionally been the US Dollar. However, in recent years, the US Dollar seems to have lost its safe haven status and has been has been replaced by Gold and the Swiss Franc

Market Expectations - "Buy the rumour, sell the fact"

It has been observed that prices tend to move primarily on expectations of certain events, economic data and political news rather than the actual data or news being released.

Interest Rates

Interest rates are considered the single most important economic factor determining exchange rates. The interest rate can be defined as the price paid for the use of money.

Unemployment & Non-farm Payroll

The number of people in employment in the US is perhaps the single most important economic variable the Federal Reserve base their interest rate policy on. It is also regarded as the most important monthly report about the status of the economy, released on the first Friday of every month.

Unemployment Rate

Unemployment Rate is the percentage of unemployed workers within the working population. High unemployment is a major social problem due to lessening of living standards and personal distress. When unemployment is very high, it is considered as the major social and political issue.

Consumer Price Index (CPI)

CPI is a measure of prices at the consumer level for a fixed basket of goods and services. It is regarded as the most important measure of inflation. The relative expected inflation rate is a key factor affecting the expectation of changes in a country’s exchange rate.

Producer Price Index (PPI)

The producer price index is similar to the CPI; it is a measure of prices at the producer level. It is the first inflation report that is released on a monthly basis.

Central Bank Operations

Central Banks in each country have different tools with which they can influence the economic situation. Most Central Banks are worried about inflation and price stability. The paths which are used to achieve price stability and controlled inflation rates depend on the independence of these Central Banks.

Monetary Policy

Fiscal Policy

Encouraging Demand

Increase Money Supply

Decrease Taxes

Discouraging Demand

Decrease Money Supply

Increase Taxes

Increase Interest Rates

Decrease Government Spending