When your trading strategy involves a technical analysis
you will need to chart the data, which means that you must
become comfortable with using charts to determine trends
and indicators. You must able to spot ongoing trends and
recurring patterns that disrupt the continuity of data.
Charted data may be divided into two categories, which
includes reversal patterns and continuation patterns.
Reversal patterns indicate a market entry point or time to
liquidate an open position. Continuation patterns indicate
that a trend was disrupted and then continued in the
direction of the original trend.
Market trends present a pattern of the market's broad
movement. Trend lines are determined by connecting two
points on a linear graph of historical market data as
either peaks or troughs in the data. Even though a trend
may be established with only two points, more points
provides a better picture of true market trend. Trends may
be established for any chosen timeframe, from minutes to
years. Trend lines may indicate an upward or downward
pattern or they may not point in either direction. Data
sometimes settles into familiar charting patterns
A common analytical technique is to analyze the
intersection of trend lines with the most recent price. If
a downward trend intersects with the most recent price, it
indicates that you should buy. If an upward trend line
intersects with the most recent prices, it indicates that
you should sell.
Trend lines are controversial because many traders become
confused as to where to actually draw the lines. Since
trends are defined by price actions, trend lines are
intended to be a tool for determining the direction of a
trend. Upward trends represent higher lows and indicate
that prices are going up while downward trends represent
lower highs and indicate that prices are going down. With
an upward trend, you should draw a straight line that
connects the lowest low to the highest high and in a
downward trend; you should connect the highest low to the
lowest high. Prices are then expected to fall within these
boundaries. Many traders are confused as to whether they
should draw the lines at closing price highs and lows or
the highs and lows of a particular period. They are
confused as to whether the lines should be adjusted to
account for spikes in the data, whether spikes in the data
should be ignored or whether trend lines should be adjusted
to the scale of the chart.
Advocates of trend lines use more sophisticated trend line
channels. These channels connect the lows of price actions
on one side and the highs of price actions on the other
side and a purchase is made at or near the support trend
line and a sale at the line of resistance. The objective is
to buy cheap and sell at profit several times over the
length of a price action. This can very profitable so long
as price remains within the chosen channel. Should the
price break out of the channel, traders need to make
consideration for several factors and establish parameters
for their measurements.
----------------------------------------------------
Andrew Daigle is the creator and author of many successful
websites including ForexBoost at http://www.ForexBoost.com
and http://forex-trading-system.typepad.com , Free Forex
Training Resource for the Novice and Advanced Forex trader.
No comments:
Post a Comment