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Basic Technical Analysis

Thu, Oct 19 2006, 15:56 GMT
by Richard Regan

FX Chicago

TREND

Trend is simply, the overall direction prices are moving, UP, DOWN, OR FLAT. Without a current trend, prices will stay relatively the same, and without changes in price, trading will not be profitable.

Up trend: As the trend moves upward, the U.S. dollar is appreciating in value.

Down trend: As the trend moves downward, the U.S. dollar is depreciating in value.

Sideways trend: Prices are moving within a narrow range. (The currencies are neither appreciating or depreciating.)

DRAWING TREND LINES

The basic trendline is one of the simplest technical tools employed by the trader, and is also one of the most valuable in any type of technical trading.

For an up trendline to be drawn, there must be at least two low points in the graph where the 2nd low point is higher than the first.

A price low is the lowest price reached during a counter trend move.

DRAWING BULLISH TREND LINES:      After prices hit the trendline for the 3rd time, the trader should be confident that the trend is established.

PRICE ACCELERATION:  As prices accelerate upward, a 2nd or 3rd trendline may be drawn to follow the price trend.

ANALYSIS AND TIMING

Markets don't move straight up and down. The direction of any market at any time is either Bullish (Up), Bearish (Down), or Neutral (Sideways). Within those trends, markets have countertrend (backing & filling) movements. In a general sense, "Markets move in waves," and in order to make money, a trader must catch the wave at the right time.

DRAWING TRENDLINES

The spot Forex market is the largest and most liquid market in the world with a daily volume of over $1.4 trillion. Because Fx Chicago has access to the largest banks in the world, our clients consistently receive the best prices, spreads, and execution.

• Drawing Trendlines will help to determine when a trend is changing.

• Trendlines show support boundaries under prices. These boundaries may be used as buying areas.

• Temporary trendline penetrations are not as significant as a close beyond the trendline. Prices retrace a portion of the current trend before resuming in the original direction. These counter trend moves tend to retrace to certain predictable percentages. The best known application of this movement is 50% retracement.

• When prices trend between two parallel trendlines, they form a Channel.
  
  
• When prices hit the bottom trendline, this may be used as a buying area, and when prices hit the upper trendline, this may be used as a selling area.

Published on  Thu, Oct 26 2006, 11:48 GMT