Education
Technical Analysis
Technical analysis can be defined as a discipline for forecasting the direction of prices through the study of past market data. Technical analysis is differs from fundamental analysis in that it analyses price, volume and othger market information whereas fundamental analysis looks at the actual facts of a currency, company or market. Technical analysis is comprised of a great many kinds of technical indicators. you can choose those that best suit your trading strategies. We have listed some technical indicators below which can be found on our trading platform.
Simple Moving Average
A Simple Moving Average (SMA) is calculated by adding the closing prices of a currency for a period of time and then dividing this total by the number of time periods. Short length moving averages are more sensitive and respond quickly to new trends but also give more false signals. Longer moving averages are more reliable but slow to react to price changes.
Simple Moving Averages are used to make buy and sell decisions based on whether the currency's current price is above or below the SMA.
- Buy when price crosses above the moving average from below.
- Sell when price crosses below the moving average from above
Calculation
Daily Closing Prices: 10, 11, 12, 13, 14, 15, 16,
- 1st day of 5 day SMA: (10+11+12+13+14)/5 = 12
- 2nd day of 5 day SMA: (11+12+13+14+15)/5 = 13
Exponentially Smoothed Moving Average
An exponentially smoothed moving average is similar to a simple moving average, except that it reduces the latency by applying more weight to recent prices. The shorter the time span, the more sensitive the moving average will be to price changes. The longer the time span, the less sensitive or the more smoothed the moving average will be.
Ichimoku Kinko Hyo
Ichimoku Kinko Hyo is meant for the determination of market trend, support and resistance levels and it also provides trading signals. In general, it tends to work best for weekly and daily charts.
- Tenkan-sen displays the average price level for the first period of time. It is defined as (High+Low)/2 for this time frame.
- Kijun-sen indicates average price level for the second time period;
- Senko Span A displays the midpoint between the previous two lines, moved forward in the length of the second time period;
- Senkou Span B displays the average price level over the third time period, moved forward in the length of the second time period.
- Chinku Span indicates the closing price of the current bar, moved backwards in the length of the second period.
The distance between Senko Span A and Senko Span B is shaded on the chart with another color and known as "Kumo" ("cloud").
- If the price stays in the cloud, the market is considered to be trendless, and then borders of the cloud form levels of support and resistance.
- If the price stays above the cloud, the market is considered to be in an up trend, and its upper line becomes the first support level and second line becomes the second support level;
- If the price stays under the cloud, the market is considered to be in a down trend, and the first line becomes the first resistance level, and its upper line becomes the second resistance level;
- If Chinkou Span crosses the price from the bottom upwards, it is considered a buy signal. If it crosses the price from the top downwards it is considered a sell signal.
- Kijun-sen is used as a market movement ratio. If the price is higher than Kijun-sen then it potentially may continue to rise. When the price crosses the line,it is possible that the trend may reverse.
- If Tenkan-sen crosses Kijun-sen from the bottom upwards, it is a signal for a buy. If Tenkan-san crosses Kijun-sen from above downwards, it is a sell signal. Tenkan-sen is used as market trend indicator. If this line rises or falls, the trend exists. When it is horizontal the market has become trendless.
Bollinger Bands
Bllinger Bands indicate overbought and oversold levels relative to a moving average and are helpful to determine if a current value is behaving normally or breaking out in a new direction. Bollinger Bands measure volatility, and an interpretation of Bollinger bands is based upon the fact that prices usually stay in the range of upper and bottom bounds of a band.
- When the market is more volatile and volume is high, the bands become wider. It indicates that the prevailing trend is strong and likely to continue, or a new trend has just started.
- During periods of low volatility the bands will narrow. It is a period of consolidation to continue the prevailing trend or just before the reversal of the trend.
Some Characteristics of Bollinger Bands:
1.Sudden price changes usually occur after the band's consolidation, which indicates low volatility.
2.When the price moves outside the bands, the trend is likely to continue.
3.The peaks and cavities inside the band follow if after the peaks and cavities outside the band, then the trend reverse is probable.
4.When the price is near the upper (overbought) or lower (oversold) band, the trend will possibly reverse.
Parabolic
- The Parabolic indicator (sometimes referred to as SAR) was developed for analyzing trending markets. It helps to define the direction of a prevailing trend. If a trend is bullish (Up Trend), the indicator is below the price. If it is bearish (Down Trend), the indicator is above the price. If the price crosses Parabolic lines, the indicator turns, and its next value is placed opposite to the price.
- When the price crosses the Parabolic, it may signal a reversal or may indicate temporary consolidation, hence, it is considered as a classic signal to initiate a position.
- Parabolic and trend direction are the same. If parabolic moves higher, then the trend is upwards and vice versa.
- If there is a significant divergence between the price and the Parabolic, then they may converge shortly.
Envelopes
Envelopes consist of two moving averages, which form upper and lower bands. The selection of an optimum relative number of band margins is determined by market volatility. They are used to indicate overbought and oversold levels. If the price reaches the bottom boundary, there appears to be a buy signal. If the price touches upon the top boundary, there appears to be a sell signal.
Envelopes are similar to Bollinger Bands. The logic behind envelopes is based on the fact that prices tend to bounce off the bands. even after periods of high volatility where price has been pressured both up and down, it should stabilise and return to normal level found within the envelope.
Stochastics
- The Stochastic indicator compares the current closing price with its price range for a certain time period and is represented by two lines that appear in a sub-chart below the price chart. The main line is called %K. The second line, called %D and is a Moving Average of %K. At the level of 80% and 20%, the overbought areas (higher than 80%) and oversold areas (lower than 20%) are indicated.
There are a couple of ways to interpret a Stochastic indicator.
- Buy when the indicator (either %K or %D) falls below 20% (oversold) and then rises above this level.
- Sell when the indicator rises above 80% (overbought) and then falls below this level;
- A new high in price without a new high in the Stochastic indicator may imply a false breakout.
- If both lines move in the same direction, then they move in the trend direction;
RSI
The Relative Strength Index (RSI) is a price-following oscillator which ranges from 0 to 100. RSI typically stays between 30 and 70 and it is considered overbought when above 70 and oversold when below 30. One of the popular methods of the RSI analysis is to look for a divergence in which the price forms a new high and the RSI is failing to surpass its previous high. This divergence is an indication of a potential reversal. Welles Wilder, who designed the RSI, referred to another case of RSI divergence. For an example, the RSI rises above 70 and turns down. If it then falls below its most recent trough, it means that the RSI has completed a "failure swing". The failure swing is considered to be a confirmation of an immediate reversal.
Kairi Indicator
This indicator is used in technical analysis to chart the percentage difference between the latest closing value and a moving average. It can serve as a trend indicator or as an overbought/oversold signal.
Psychological Line
The Psychological Line is a "sentiment indicator". For indicators of this type, an attempt is made to look behind the obvious mood of the market and to detect signs for a trend change.
1) If the line rises above 75% and then falls below this level, it indicates a sell signal.
2) If the falls below 25% and then rises above this level, it indicates a buy signal.
Directional Movement Index
The Directional Movement Index (DMI) is designed to identify the strength of an upward or downward trend in the market. In its most basic form, buy and sell signals can be generated by +DI/-DI crosses. A buy signal occurs when +DI crosses above -DI and a sell signal is generated when -DI crosses above the +DI.
The Rank Correlation Index
The Rank Correlation Index (RCI) was adopted from the field of statistics. A combination of price change data and time change data is used to identify possible changes in the market, thereby exposing turning points.
- Buy when the RSI turns in the positive area from the negative.
- Sell when the RSI turns in the negative area from the positive.
The Rate of Change
The Rate-of-Change (ROC) is designed to detect trend weakness and possible reversal points. It measures the percentage change in price from one period to the next. The ROC calculation compares the current price with the price "n" periods ago. The difference is returned as a percentage. When the Rate of Change indicator is above zero, it indicates that the market is overbought. When the indicator is below zero, it indicates that the market is oversold.
- Buy when the ROC crosses below the oversold level and then rises back above it.
- Buy on bullish divergences - where the first trough is below the oversold level.
- Sell when the ROC crosses above the overbought level and then falls back below it.
- Sell on a bearish divergence - with the first peak above the overbought level.
MACD
- The MACD is a refinement of the two moving averages system and measures the distance between the two moving average lines. In general, it is calculated by subtracting the value of a 26-day EMA from the value of a 12-day EMA. Closing prices are used for these moving averages to detect price trends. These two lines are generally traded against a 9-day EMA of its value called its Signal Line. When the MACD increases, the prices are in uptrend, and the prices are in downtrend when the MACD is decreasing.
Also,
- Buy when the MACD crosses its signal line from below.
- Sell when the MACD crosses its signal line from above.
William's %R
- William's %R is designed to indicate overbought and oversold levels of the market. William's %R is very similar to Stochastics except that its scale ranges from 0 to -100 with readings from 0 to -20 considered overbought, and readings from -80 to -100 considered oversold.
Ultimate Oscillator
The "Ultimate" Oscillator combines a price action during three different time frames into one bounded oscillator. It is used to measure overbought and oversold periods of markets and price. Values range from 0 to 100 with 50 as the center line. Values below 30 are considered oversold while values above 70 are considered overbought. As a default, three time frames are equal to 7, 14 and 28 periods. Note that these time periods all overlap. The 28-period time frame includes both the 14-period time frame and the 7-period time frame. This means that the action of the shortest time frame is included in the calculation three times and has a magnified impact on the results.
A bullish divergence is said to occur if prices reach a new low but the oscillator does not follow. Conversely, a bearish divergence is said to occur if prices reach a new high but the oscillator does not follow.
Heikin Ashi
Heikin Ashi is similar to candlesticks in that they show similar information (OHLC) but it calculates the information differently. Instead of using the open-high-low-close (OHLC) bars like a standard candlestick, Heikin Ashi uses a modified formula:
1- Close price: the close price in a Heikin-Ashi candle is the average of the open, close, high
and low price.
2- Open price: the open price in a Heikin-Ashi candle is the average of the open and close of
the previous candle.
3- High price: the high price in a Heikin-Ashi candle is chosen from one of the high, open
and close price whichever has the highest value.
4- Low price: the low price in a Heikin-Ashi candle is chosen from one of the high, open and
close price of which has the lowest value.
The Heikin-Ashi is used by to identify a given trend more easily. White candles with no lower shadows are used to signal a strong uptrend, while black candles with no higher shadows are used to identify a strong downtrend.
