Technical Analysis
Technical analysis is one of the oldest market disciplines, yet the majority of the investment and academic communities consider it, at best, a minor supplement to their own work.
Charts will give you a clear picture of what your fundamental research is saying. Remember the fundamentals describe currency VALUE as a whole. Technical describe how the currency is performing.
What we are trying to do Amaro Capital (AC)
- Enhance your returns
- Help you avoid bad trades
- And Get you to think in terms of probabilities.
With technical analysis is the art of identifying market turning points at a relatively early stage. However, remember; you will not be able fully understand the technical analysis overnight, it needs; time, practice, diligence. Like others said, “you will not going to change from a karaoke singer to Frank Sinatra overnight.”
Introduction to Forex
What is FOREX?
The Foreign Exchange market, also referred to as the “FOREX” or “Forex” or “Retail forex” or “FX” or “Spot FX” or just “Spot” is the largest financial market in the world, with a volume of over $4 trillion a day. If you compare that to the $25 billion a day volume that the New York Stock Exchange trades, you can easily see how enormous the Foreign Exchange really is. It actually equates to more than three times the total amount of the stocks and futures markets combined! Forex rocks!
What is traded on the Foreign Exchange market?
The simple answer is money. Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the euro and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).
Because you’re not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.
In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country’s economy, compared to the other countries’ economies.
| Symbol | Country | Currency | Nickname |
| USD | United States | Dollar | Buck |
| EUR | Euro members | Euro | Fiber |
| JPY | Japan | Yen | Yen |
| GBP | Great Britain | Pound | Cable |
| CHF | Switzerland | Franc | Swissy |
| CAD | Canada | Dollar | Loonie |
| AUD | Australia | Dollar | Aussie |
| NZD | New Zealand | Dollar | Kiwi |
When Can Currencies Be Traded?
The spot FX market is unique within the world markets. It’s like a Super Wal-Mart where the market is open 24-hours a day. At any time, somewhere around the world a financial center is open for business, and banks and other institutions exchange currencies every hour of the day and night with generally only minor gaps on the weekend.
The foreign exchange markets follow the sun around the world, so you can trade late at night (if you’re a vampire) or in the morning (if you’re an early bird). Keep in mind though, the early bird doesn’t necessarily get the worm in this market – you might get the worm but a bigger, nastier bird of prey can sneak up and eat you too…
| Time Zone | New York | GMT |
| Tokyo Open | 7:00 PM | 0:00 |
| Tokyo Close | 4:00 AM | 9:00 |
| London Open | 3:00 AM | 8:00 |
| London Close | 12:00 PM | 17:00 |
| New York Open | 8:00 AM | 13:00 |
| New York Close | 5:00 PM | 22:00 |
Support and Resistance
Simply stated, support and resistance are respective price levels at which price stops going down or up. A price in any market is one at which bulls and bears have agreed upon fair value. If bulls this that the price is low, they will attempt to buy. This, in turn, raises demand and prices rise. As prices rise, bulls become less aggressive in their actions and bears become more aggressive. At some point, bullish and bearish aggressiveness will balance and that price level becomes resistance.
The converse I true for support as the aggressiveness of the bears falls while the aggressiveness of the bulls rises. When they balance, prices stop falling and support is established.
Notice that aggressiveness balances. Supply and demand are always in balance at any given price because a trade price was agreed upon. Because the markets have memory of previous support and resistance levels, they can be used as target or limit prices when the market have traded away from them.
Moving Averages
Moving Average 1
Moving Average 2
A moving average is the average price of a stock or market over a defined period. In the stock market, a 200-day moving average is used to determine long-term trends. It smoothes out the short-term wiggles to help make the trend more clear. Short average are used to measure or smooth shorter term trends.
The term “moving” comes from the calculation of the average. For a daily average, each day’s value is calculated from a moving window of days doing back in time. Each successive day’s average is calculated from a successive range of daily data.
There are 3 types of moving average:
- Simple Moving Average
- Exponential Moving Average
- Smoothed Moving Average
Volume
Volume is said to be the fuel that drives market moves. The more shares or contract s that change hands, the more committed the buyers and sellers and the more important that period’s trading becomes.
“In price, there is knowledge” Ralph Acampora, Chief Technical Analyst, Knight Securities
“And in volume there is truth.” Dennis Jarrett, Chief Market Analyst, Jarrett Investment Research
According to perceived wisdom, volume should generate during healthy rallies. If the market is rising and more and more people are being pulled into the market to participate, volume will rise.
If the rally is not healthy, such as when the public does not follow the early buyers into the market or when a trend is nearing its end, volume will begin to decline. Fewer people buy smaller amounts and that can be read as a loss of conviction.
Relative Strength Index (RSI)
RSI was invented by J Welles Wilder, Jr. As a momentum indicator, the RSI measures the velocity of price movements. In this model, prices are generally considered to be elastic in that they can move only so far from a mean price before reacting or retracing. Rapid price advances result in overbought situations, and rapid price declines result in oversold situations. The slope and values of the RSI are directly proportional to the velocity and magnitude of the price move and are extremely helpful in identifying overbought and oversold situations.
Stochastic
The stochastic indicator, made by George Lane, can be a valuable tool for identifying near-term tops and bottoms to help in timing trades closer to local reversal points. It measures the placement of a current price within a recent trading range under the theory that as a market rises, close prices tend to occur nearer to the high end of their recent range. When prices trend higher and closes begin to sag within the range, it signal internal market weakness.
Fibonacci Retracements
Many years ago, mathematicians discovered that a certain number kept appearing throughout the natural world. The ratios of consecutive numbers at the start of the sequence are 0, 0.382, 0.5, 0.618, 1… This indicator is simply refined versions of what traders have been using for years. These retracements often reclaim constant percentages of the original trend’s move and can be predicted with good accuracy by Fibonacci Ratio.
MACD
Technical analysts often apply studies to the results of other studies, such as moving averages of spread and RSI or RSI. Technician Gerald Appel took a simple oscillator chart, which measure the distance between two moving averages, and overlaid a moving average of the result. This study was named Moving Average Convergence-Divergence (MACD).
The underlying theory is that as a market moves higher, the shorter of two moving averages is above the longer average. This is because the shorter average reacts faster to price movements. The longer average will always lag behind. When the shorter average crosses below the longer, it is a signal that the trend may be reversing.
Candlestick
Like a bar chart, the candlestick line contains the open, high, low, and close for the market on a specific day. However, unlike a bar, the candlestick has a wide part that is called the “real body”. It represents the range between the open and close. When the real body is black (filled), it means the close was lower than the open, and it means bear occur during the period of time.
The thin lines above and below the real body, which resemble the wicks of the candle, are called the “shadows”. The shadows represent the high and low of the day. The shorter the upper shadow on a black body, the closer the open was to the high. A short upper shadow on a white body means that the close was near the high. The relationship between the day’s open, high, low and close determine the look of the daily candlestick. Real bodies can be long or short and black or white. Shadows can be long or short as well.
There are pattern of candlestick that needs to be understood:
- Morning Star / Evening Star
- Piercing Pattern / Dark Cloud Cover
- Bullish Engulfing / Bearish Engulfing
- Harami
- Doji
