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Forex technical analysis

Technical analysis refers to the use of certain historical data to analyze and judge the future direction and degree of change of the entire foreign exchange market or a currency.

Technical analysis has the obvious characteristics of comprehensiveness, directness, accuracy, strong operability, and wide application scope. The response of technical analysis to the market is relatively direct, and the results of the analysis are closer to the local market.

Technical analysis is more suitable for short-term forecasting than fundamental analysis. For long-term analysis, you must refer to fundamental analysis. This is a problem you should pay attention to when applying technical analysis. Because technical analysis is a summary of experience rather than a scientific system, the conclusions obtained through technical analysis and the resulting trading operations need to bring benefits to investors in the form of probability.

Morphological analysis
Candlestick
Wave theory
Golden sequence
Analysis of technical indicators

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Morphological analysis

Morphological analysis is to use the exchange rate changes in a certain period of time, such as the opening price, the highest, the lowest, and the closing price, to systematically draw a chart to find the future exchange rate development trend. Morphological analysis usually has no specific criteria and is a very subjective analysis method. The same set of data and the same chart, different investors will get different interpretations. Investors should cooperate with various analytical tools to speculate on future development trends and formulate Trading strategies, try to avoid decision errors caused by subjective judgments.       

Support and resistance levels - The trend of the market is that the wave is not a straight line, so there are two concepts of "support" and "resistance". The exchange rate is taken over at a certain level without further decline, or the exchange rate rebounds rapidly after falling to a certain level. This level is called the "support level". The level at which the exchange rate fails to rise after repeated attempts, or the level at which the exchange rate loses its upward momentum and begins to turn around and decline, is called the "resistance level." In addition, when the exchange rate fails to break through the support or resistance level after many attempts, once successfully broken through, the original support level will become the resistance level of recovery, and the original resistance level will become the support level of the fall. (figure 1)

Upward trend - The upward trend is because buyers and sellers continue to trade with each other, and the buyer's power is stronger than the seller's power, forming a wave higher than a wave, and the exchange rate shows a trend of repeated rise. Generally, two lows are connected, drawn into a straight line and extended. The more connection points, the more convincing it is to predict exchange rate trends. When the upward trend is established, investors can wait for the exchange rate to pull back to the upward trend line and buy to obtain profit. If the exchange rate falls below the upward trend line, it means that the exchange rate has a chance to turn. Investors should set a stop loss below the upward trend line to reduce losses caused by incorrect judgment. (figure 2)

chart1&2

Downtrend - When the market buyer's power is weaker than the seller's power, forming a wave of less than a wave, the exchange rate shows a trend of repeated decline. Generally, two high points are connected and drawn into a straight line and extended. The more connection points, the more convincing it is to predict exchange rate trends. When the downtrend is established, investors can wait for the exchange rate to rise back to the downtrend line and sell to make a profit. If the exchange rate rises below the downtrend line, it means that the exchange rate has a chance to turn. Investors should set a stop loss above the downtrend line to reduce excessive losses due to misjudgment. (figure 3)

Horizontal trend - Exchange rate fluctuations depend on the relationship between supply and demand. After a round of ups and downs, the market needs to make adjustments or take profits. In the absence of a clear direction in the market, buyers and sellers have similar forces, so that the trend enters a state of horizontal expansion. The market needs to wait for consolidation to complete Only then will new development trends emerge. A lateral trend is formed during the consolidation process, and the lateral trend can be in the consolidation period of an upward trend or a downward trend, or it can be in the process of trend development. The exchange rate fluctuation of the horizontal trend is limited to a certain range. Investors can sell at the top of the volatility, buy at the bottom of the volatility, or take a wait and see change, wait for the exchange rate to break through the top or bottom of the volatility, and establish a new trend Before making a strategy. (Figure 4)

chart3&4

Head and shoulders - "Head and shoulders" as the name suggests is like a person's upper body. There are small hills on the left and right sides, namely the left shoulder and the right shoulder. The hill formed in the middle is the head, and the vertices are higher than the left and right shoulders The graphic is composed of three hills. In confirming the head and shoulders top graphics, there are specific rules to note. First, from the lower support position of the first ascending track, and the lower support position of the second ascending track, straighten the two points into a line, this is the " "Neckline", when the third ascending track is completed, the exchange rate tests the support level downwards, and the neckline must be broken to confirm the formation of the head and shoulders. The rebound after breaking through the neckline is based on the neckline as an important measure of resistance, and the subsequent decline is expected to be no less than the peak from the second upper mound, the head, to the neckline. (Figure 5)

Head and shoulders - The shape of the "head and shoulder bottom" is exactly the reversal of the head and shoulders. There are two reverse hills on the left and right sides, that is, the left shoulder and the right shoulder. The reverse hill formed in the middle is the head, and its bottom point is low. For the left and right shoulders, the figure of the head and shoulders is composed of three inverted hills. When confirming that the head and shoulder bottom pattern has specific rules, it is necessary to measure a neckline like the top of the head and shoulders, and form a straight line from the first wave of rising resistance to the second wave of rising resistance. It is the "neckline", but the third drop support level cannot be lower than the support level of the left shoulder and the head. When the third drop wave is picked up by the receiving power, the height of this increase will exceed the neckline to confirm the head and shoulders The formation of the bottom. If the exchange rate rises after the adjustment of the neckline, the neckline is used as an important measure of support, and the subsequent increase in the measurement range is expected to be no less than the amplitude from the bottom of the second reversal hill to the position of the neckline. (Figure 6)

chart5&6

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Candlestick

In the seventeenth century Tokugawa Shogunate of Japan, a businessman, Masamoto Honma, used the candlestick analysis method to gain huge wealth in the rice market, and was widely used in Japan. The candlestick is composed of the opening price, closing price, highest price, and lowest price. The youngest straight line above is called the "upper shadow line", the top of the upper shadow line represents the highest price; and the youngest straight line below is called the "lower shadow line", the bottom of the lower shadow line represents the lowest price; the middle vertical The square part is called "candle body", when the opening price is lower than the closing price, it is called "black candle." The candle body is generally distinguished by green, but the opening price is higher than the closing price, which is called "black candle." The candle body is generally distinguished by red. (Figure 7)

chart7

Basic form Name Morphological meaning
大陽燭 Big white candle The opening price is the same as the lowest price, and the closing price is the same as the highest price. There is no lower shadow. It means that the buyer in the market occupies the absolute main force, and the rally is strong and the momentum is like a rainbow
大陽上影線 Dayang Shangying The opening price is the same as the lowest price, with a small upper shadow. The exchange rate tried to hit a high point, but the selling pressure above was heavy and the exchange rate fell. This pattern indicates that multiple parties dominate, but the selling price at the top is very high, which means a reversal. The longer the upper shadow, the greater the selling pressure and the greater the reversal.
大陽下影線 Dayang Lower Shadow The closing price is the same as the highest price, with a small underline. The exchange rate was pulled back a little bit, indicating that the buyer's power is dominant. The longer the lower shadow, the stronger the buyer’s power
下影陽燭 Lower shadow white candle The lower shadow is very long, at least 2 to 3 times the length of the white candlestick. This pattern indicates that the buyer is at an advantage, and there is a constant buying of buyers, which pushes up the exchange rate. If this pattern appears at the bottom of the recent exchange rate, it is a strong reversal signal and should be noted
上影陽線 Sunshade Candlestick The upper shadow is very long, at least 2 to 3 times the length of the white candlestick. This pattern indicates that the buyer is still at an advantage, but is already at the end of a strong crossbow, and is a strong reversal pattern. If this pattern appears at the top of the recent exchange rate, the reversal is more meaningful
小陽燭 Small white candle The length of the upper and lower hatches are basically the same. This form indicates that the buyer and seller are competing fiercely, and the buyer still occupies a certain advantage, but the seller’s strength cannot be underestimated
大陰燭 Black candlestick The opening price is the same as the highest price, and the closing price is the same as the lowest price. There is no lower shadow. It means that the sellers in the market occupy the absolute main force, and the exchange rate continues to fall.
大陰上影線 Big overcast shadow The closing price is the same as the lowest price, with a small upper shadow. The exchange rate was pulled back slightly, indicating that the seller's strength was dominant. The longer the lower shadow, the stronger the seller’s power
大陰下影線 Undercast shadow The opening price is the same as the highest price, with a small underline. The exchange rate tried to hit a low point, but the buying pressure below was heavy and the exchange rate rebounded. This pattern indicates that the seller is dominant, but the buying price at the lower price is very high, which means that it reverses. The longer the lower shadow, the greater the buying pressure and the greater the reversal.
下影陰燭 Lower shadow black candle The lower shadow is very long, at least 2 to 3 times the length of the black candlestick entity. This pattern indicates that the seller is still at an advantage, but is already at the end of a strong crossbow, and is a strong reversal pattern. If this pattern appears at the bottom of the recent exchange rate, the reversal is more meaningful
上影陰燭 Black shadow candle The upper shadow is very long, at least 2 to 3 times the length of the black candlestick entity. This pattern indicates that the seller is at an advantage, and that some sellers are constantly joining the market, pushing down the exchange rate. If this pattern appears at the top of the recent exchange rate, it is a strong reversal signal and should be noted
小陰燭 Small black candle The length of the upper and lower hatches are basically the same. This form indicates that the buyer and seller are competing fiercely, and the seller still occupies a certain advantage, but the buyer’s strength cannot be small.看
十字線 Crosshair The opening and closing prices are the same, and the sales are evenly matched. If this pattern appears at the top or bottom, it is a strong reversal pattern; it appears during a long-term consolidation period and is a strong breakthrough signal
十字線 Crosshair The opening and closing prices are the same, and the buyer's power is dominant. Should pay close attention to the development of the late form
十字線 Crosshair The opening and closing prices are the same, and the seller's power is dominant. Should pay close attention to the development of the late form
T字線 T line The opening and closing prices are the same. The buyer is actively buying below the closing price, and the buyer has strong support at this price. This pattern at the bottom is a strong reversal signal
倒T字線 Inverted T line The opening and closing prices are the same. The seller is actively selling above the closing price, and the seller has strong support at this price. This pattern at the top is a strong reversal signal
一字線 Word line The opening price, closing price, highest price and lowest price are the same. This pattern rarely occurs, if it appears it is a precursor to a sharp rise or fall
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Wave theory

Wave theory, also known as Elliott Wave Theory (Elliott Wave Theory), was developed by American securities analyst Ralph. Nelson. Elliott (Ralph N. Elliot) found from the Dow Jones Industrial Average that changes in stock price fluctuations form a variety of patterns and waves, and these structural patterns are repeated repeatedly, but the time interval and amplitude distance are inconsistent. .

chart8

(1) When a movement trend of the market is formed, there must be an opposite movement trend, that is to say, the price or index will fluctuate alternately like a wave.

(2) The basic form of market volatility is composed of an ascending main wave and an adjustment wave. An ascending main wave is composed of 5 waves, and an adjustment wave is composed of 3 waves. Therefore, these 8 waves form a complete Elliott cycle. In this cycle, among the 5 waves of the main wave, each wave can be divided into 21 small waves, and among the 3 waves of the adjustment wave, each wave can be divided into 13 small waves, so that a 144 small wave appears. The complete big cycle. In other words, Elliott waves can be divided into countless tiny waves by one super big wave.

(3) After the completion of the 8 waves (5 rising waves and 3 falling waves), one cycle is completed, and the trend will enter the next 8 wave cycle.

(4) The market pattern does not change with time, the wave sometimes expands and compresses, but its basic form remains unchanged. (Figure 8) Back to top


Golden sequence

The golden section series, also known as the Fibonacci ratio, was created by the famous Italian mathematician Leonardo. Fibonacci discovered.

Fibonacci retracement - Traders often use Fibonacci retracement levels as support and resistance levels. Because so many traders observe these same horizontal positions and place buy and sell entry orders and stop-loss orders near these positions, these support and resistance levels become a self-fulfilling expectation. In an upward trend, the general idea is to make a long market in a callback, and the specific entry position and timing are to wait until the callback is near the Fibonacci support level, and the Fibonacci level The effectiveness of resistance is often confirmed by the reversal of the candle line. In order to know a callback level, investors need to click on a significant band low and then move the cursor to the nearest band high, so that each callback level position between the high and the low will be displayed at the same time. The callback rate is usually marked. The common ratios for Fibonacci retracements are 0.236, 0.382, 0.500, 0.618 and 0.764.

Fibonacci extension - Traders use Fibonacci expansion levels as the target position for profit cashing. Since so many traders observe this horizontal position and place profit cashing orders at this position, this tool often brings the phenomenon of self-fulfilling expectations. In an upward trend, the general idea is to cash out a long position in a Fibonacci expansion position. By using the mouse to click 3 points, you can draw an extension line. First, click on a significant low of the band; second, drag the cursor and click on the high of the most recent band; and finally, drag the cursor down to click on the low of the price callback, and finally give each price extension Key levels and corresponding specific drawdown ratios. The commonly used ratios for Fibonacci expansion are 0.382, 0.618, 1.000, 1.382 and 1.618.   Back to top


Analysis of technical indicators

Technical index analysis is the use of various technical methods and mathematical models on market prices to obtain results with index properties. By analyzing and judging these structures and the charts they form, we can make predictions about the future trend of the market.

Moving Average - The moving average is a more commonly used analysis tool in technical analysis. The so-called "moving average" is to add the past closing prices and take their average value, for example, to calculate the average value of the 20th, the closing price of the day and the previous Add the closing prices on the 19th, and then divide by 20 to calculate the average value, and subtract the closing price of the furthest day after each day, and add the closing price of the most recent day to calculate the average value. When the values are added together, an average line is formed, which can be used to analyze future trends and provide buy and sell signals.

When the exchange rate rises above the moving average, it reflects the upward trend; on the contrary, the exchange rate falls below the moving average, reflecting the downward trend. These signals can also be used to test their support and resistance levels. When the exchange rate falls below the 5-day or 10-day moving average, it shows that the exchange rate has lost support in the short term, while the exchange rate falls below the 100-day or 250-day moving average, indicating that the exchange rate has lost. Long-term support reflects that the uptrend may end the decline. In addition, the use of moving averages to make a more sophisticated trading strategy is to use two moving averages of different days. When the moving average of shorter days goes up and crosses the longer moving average of days, it shows the buying signal, and The short-term moving average fell towards the longer-day moving average, showing a sell signal. There is no standard for the number of days selected by the moving average. Moving averages of different days will produce different signals. Generally speaking, the 5-day or 10-day moving average is used for short-term analysis, and the mid-term analysis will use On the 20th or 50th, in the longer term, a 100-day or 250-day moving average will be used for analysis.

Relative Strength Index,RSI - The Relative Strength Index in the technical indicators is a more commonly used swing indicator, which mainly measures the strength of the exchange rate. The Relative Strength Index shows the relationship between past rising closing prices and falling closing prices, which divides the average increase in rising closing prices by the average decrease in falling closing prices.

The relative strength index was originally published on the 14th as a standard parameter, and later developed to 7, 9, 11, 21, 25 and other parameters. The relative strength index is within the standard range of 0 to 100. If the closing price of each day is higher than the closing price of the previous day, the result is 100; otherwise, the closing price of each day is lower than the previous day The closing price is 0. In general, the relative strength index uses 30 and 70 as indicators. When it is at 70, it means that the exchange rate is overbought, and when it is at 30, it means that the exchange rate is oversold, but this should not be regarded as a signal to buy or sell. It should be used as a warning signal, because when the overbought or oversold signal appears, it does not mean that the exchange rate will react immediately, but the exchange rate can continue to be overbought or oversold, even more seriously. Therefore, when the relative strength index is at 30 or 70, you should pay more attention to the market situation and turn it up at any time.

The Relative Strength Index not only measures the strength of the exchange rate. Under certain circumstances, it can measure the exchange rate peak or bottom. When the exchange rate continues to hit new highs or lows, but the relative strength index fails to follow, but the highs are getting lower and lower. , Or the lows are getting higher and higher, this phenomenon is called "backward divergence". If there are three divergences in the market, it means that there is a high probability that the market will turn around.

MACD - The moving average convergence divergence indicator is composed of a group of moving averages with different speeds. The first group is the moving average convergence divergence indicator. The difference between the fast and slow moving averages is calculated. Generally, 12 days will be selected. Shorter days are fast moving averages, while slow moving averages generally choose 26 days longer days. The second group generally sets the 9-day moving average as the signal line, and the third group is the bar chart, which shows the moving The average gap between the divergence indicator and the signal line. The moving average convergence divergence indicator is published by Gerald Appel. From the change of the moving average, the strength and trend of the exchange rate are judged.

When the moving average convergence divergence indicator goes up through the signal line, indicating that the upward trend is a buy signal, on the contrary, the moving average convergence divergence indicator goes down through the signal line, indicating that the downward trend is a sell signal. A moving average convergence divergence indicator at a positive number indicates a high exchange rate strength with signs of overbought, while a negative number indicates a low exchange rate strength with signs of oversold, but this only shows the strength of the exchange rate and should not be used as an immediate trading strategy. It should be combined with other indicators analysis. Another way to use it is to predict the reversal of the exchange rate trend. When the exchange rate and the moving average convergence divergence indicator appear to diverge, it means that the two sides have failed to cooperate. A wave indicates that the possibility of a market turnaround is very high.

Bollinger Bands - The Bollinger Band channel is composed of three lines. The upper and lower lines represent the top and bottom of the channel, respectively. The line in the middle of the channel generally sets the 20-day moving average as a parameter. The calculation method adds 2 from the moving average of the past 20 days. The standard deviation is the upper line, and the lower line is the 20-day moving average minus 2 standard deviations. Based on the moving average, John Bollinger developed and improved it, and named it after his surname, creating a power-plus channel, and effectively judging the exchange rate support and resistance levels.

The exchange rate generally runs within the channel, and the top and bottom of the channel become the upper and lower limits of the exchange rate volatility. When the exchange rate moves close to the top or bottom of the channel, it means that the exchange rate is under pressure to adjust, and an appropriate trading strategy can be made. When the exchange rate rises to the top of the channel, consider selling it to stop the loss above the top. However, the exchange rate rises above the top and continues to rise, and the exchange rate may have a chance to strengthen. At this time, the strategy should be changed to buy after the callback; conversely, when the exchange rate falls to the bottom of the channel, you can consider buying to stop the loss below the bottom. However, if the exchange rate falls below the bottom and continues to fall, the exchange rate may weaken, and it should be sold after a rebound.   
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