The stock market was higher in the past week and pushed the U.S. dollar index down towards the 84.00 support region. The overall price action howeve...
The stock market was higher in the past week and pushed the U.S. dollar index down towards the 84.00 support region. The overall price action however, was very slow on forex, even when the Wall Street session saw a bounce for more than 3% on Wednesday, the most since May 11th 2010.
The Eur/Usd moved higher from 1.2555 Sunday open to 1.2722 weekly highs, but on a very thin volume and slow price action. The reason for a slow, upward price action could be a falling trend line from 1.5140 region (December 3rd, 2010), which in fact reacted as a huge resistance on Friday during the European session when the Eur/Usd fell from 1.2722 highs towards the 1.2600 region. The weekly close on the pair was around 1.2640, 80 pips below the trend line resistance, and that could be a bearish signal for the start of the coming week (Monday, Tuesday), as traders were unable to push the pair above the trend-line.
Dollar, however, will strengthen only if stock market finds sellers. But for the mid-term, that could be a problem, especially because of the S&P 500 wave structure. From an Elliott Wave Perspective a bearish run on S&P 500 from 1.2220 top is not over yet, no doubt, but the question is how to count a decline?! Well, we are monitoring two wave counts and important price points that will confirm the correct count. Anyway, what we know, and what is the most important, is that a recent bounce from 1010 region is only a correction, a short covering rally from an oversold bounce. But where this correction will end?! It may trade up even to 1140-60 region, IF YOU COUNT A DECLINE FROM 1220 A LEADING DIAGONAL as shown on the chart below.
Well, if 1140-60 region is reached while the 1010 support holds, then optimism will come back into the market, and investors will move from Short into Long positions and they will be sure that a decline from 12220 was only a correction and that new highs are next. But at that time it will be too late to buy the market!! Market will reverse and will fall like a stone, because when something is fully expected, the opposite reaction is seen!! Like the past week per example; a lot of traders and investors, even I, were expecting a huge move lower after the 1040 was broken, but market made an opposite move, it bounced higher and took out traders that were looking for a huge Short move and also those who were positioned Long with stops down there!!
If you are an Elliott Wave trader, then you exactly know what I am talking about. The Elliott Wave Theory is a detailed description of how groups of people behave. It reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific and measurable patterns. Elliott Wave Theory gives you an ability to predict the Long-term and Short-term market moves with some very simple rules and guidelines.
If you do not want to miss a trading opportunity, or if you don’t have time to analyze the charts everyday and monitor the intra-day wave counts…we are here for you!! Check out Our now and today.
While there are numerous ways that traders study the markets, they usually fall into three fields .
They either apply fundamental analysis, technical analysis or they apply strategies from both disciplines. While forex trading can be pulled off profitably when using only a single kind of analysis, traders that understand both fundamental in addition to technical analysis benefit greatly.
The foundation of technical analysis is based on volume, price plus past market data to ascertain currency as well as future pirce movements. Strict technical traders put their faith purely on these factors with no consideration to external factors.
Nonetheless, the approach the charts are viewed in addition to the forex indicators used for such an analysis are extremely wide. Forex trends, support as well as resistance areas, daily pivots in addition to pattern identification is also to utilized in technical analysis.
Strict Technical forex traders are only concerned with these factors as well as do not take economic factors into account, unlike Fundamental forex traders. Trend identification in particular plays a very big role in technical analysis. A lot of effort as well as forex indicators and tools are employed to establish the continuation or reversal of the current trend.
Because technical traders react to most trend changes, they tend to open many more trades that a fundamental trader would. As such, they can be considered short term traders in most cases. But when dealing scalpers, both parties execute hundreds of trades every month. We will touch on scalping another time.
The most popular form of market analysis is none other than technical analysis. Why is this so?. This is mainly because technical analysis is easily understood along with implemented by anyone. A good grasp on fundamental economics is not required.
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I remember well enough what it was like trying to get started with Stock Trend Analysis. The learning curve was torturing on occasion. It seems no matter what I studied, I didn’t understand quite enough to put it into practice. Over time with some serious tenacity I became good at enough to start earning some real money in the stock market.
My own major hurdle to gaining skill was there are so many well meaning people willing to extend advice and so many resources online for technical descriptions of disparate indicators, but nothing I picked up seemed to help me understand how all these indicator definitions and macroeconomic information fit together to form a decent understanding of technical trading. I think I can save you some time and lots of frustration with this handy little getting started guide.
An overview of technical analysis.
I imagine if you are interested in technical analysis sufficiency to read this far, you are already familiar with how the stock market functions and how to purchase and trade stocks. I hope so because it is a requirement. Bear in mind this is an casual overview of the learning path many traders, myself included have taken to understand Technical Analysis.
Technical Analysis – Fundamental Topics. What is Technical Analysis? For the unaware, there are two ranking sorts of Stock Analysis.
Technical and Fundamental Analysis Although the two are not , traders tend to prefer one over the other. Fundamental Analysis looks at a company s assets, debt, earnings and cash flow. It gives the analyst a clear characterization of a company’s health. When an analysis of one company is compared to its peers (groups of companies in the same business) it presents clues about potential weaknesses and strengths of the company. Its also useful in appraising a company’s long term chances for growth.
Technical Analysis looks to capitalize on the collective knowledge of open market players (other traders) who are by-and-large Fundamental Analysts. Technical Analysis is basically a study of supply and demand. So, lets determine exactly how Technical Analysts use the market as their guide to trading markets.
A Casual Technical Analysis Example: Price Speaks Volumes To begin, know that Price and Volume are both technical indicators. Price being naturally the chief indicator over any other. Each time a stock price moves up it signals a vote of confidence by all players. Sellers stood firm for a higher price than the predominating rate and buyers intervened and purchased at that price anyway. Sellers holding out for more money while buyers step in to pay the difference between the market and asking price shows market optimism.
Volume is the amount of shares traded over time. Technical traders look at price and volume together to estimate how optimistic or bearish buyers and sellers are and possibly are becoming. An increase in volume across a given time-frame indicates increasing involvement and hence conviction that prices will go on to travel in the ongoing direction. Whereas, when volume starts to decline it is an indicator that market participants are losing their strong belief that prices will remain in their current direction.
When volume is increasing along with prices, participants expect prices to proceed to rise. Technical traders hypothesize that prices will increase so long as volume is stronger than normal. If prices continue to mount while at the same time volume starts to drop, the participants are voting with less shares. This circumstance is a variety of technical breakdown.
Typical Volume Based Price Breakdown. One more phenomenon to consider is that once price direction changes, volume may begin to grow, once again corroborating the conviction of market participants of the new price direction. When an indicator such as volume starts to correspond with the price direction, this is known as a variety of price confirmation.
Technical Analysis Indicators Apart from the simple indicators of price and volume, there are infinite indicators and more are produced every day. An indicator can frequently be something as simple as a moving average or far more complex involving long formulas. As you’ve seen already, indicators are an operative part of understanding and anticipating market action. All technical analysis indicators fit two different classes.
It is important to remark that market circumstances prescribe which form you will use, but never brush off price. Indicators are predictors, but price speaks volumes, only prices are reality.
Leading indicators are used in sideways markets. Leading indicators react before price does. Most leading indicators try to demonstrate shifts in the strength or force of price direction, or momentum. Leading indicators are useful to assist traders anticipate price trends because they can depict the strength or weakness of prices at their current level. Leading indicators do not do well as buy/sell indicators in steady trending markets (up or down) because they indicate changes in momentum. They do well in sideways markets and give traders precise signals about when to buy or sell.
Some usable leading indicators include Momentum, Stochastic and the Relative Strength Indicator (RSI). The RSI (leading indicator flags the overbought condition).
Lagging Indicators / Trend Following Indicators Use in trending markets (moving up / moving down).
Lagging indicators follow price moves. A moving average is a simplified kind of lagging indicator. Lagging indicators are frequently employed when the markets are in a very strong trend. They rapidly show traders the average direction of a stock price. They can send erroneous signals in markets that are trading at parity / proceeding sideways. Their optimal use is in trending markets because they can clearly show traders when to enter and how long to remain.
The most popular lagging Indicators include Moving Average, Exponential Moving Average and Moving Average Convergence Divergence (MACD) The moving average is a Trend Following Indicator.
Technical Analysis Understanding time frames. In Technical Analysis, indicators are insignificant without understanding them in the context of time. Indicators, leading and lagging both use time and price as the very basis of any formula. It may help to consider time frames as magnification of detail. If you consider a one year weekly chart and zoom into a one year daily chart, you are straightaway aware that you can see price action in deeper detail. Likewise traveling from a one year daily chart to a three month daily chart affords even greater detail of the price activity.
More about time frames in technical analysis: Watching multiple time frames exposes greater detail.
What sort of trader are you? Do you buy into a trade and then watch impatiently at every tick in the stock price? Or are you more of a set it and forget it kind of trader who monitors the price every few days or weeks? Maybe your style is someplace in between? Why is this important and what does it have to do with time frames? read on.
The Day Trader Day Traders speedily buy and sell stocks multiple times a day to try to lock up quick profits. The Day Trader examines chart patterns and indicators which may span only a few hours or even a couple of minutes. Day trading is a high-risk job where great amounts are gained or lost in mere seconds. Day Traders pay very close attention to tick-by-tick price data as it appears on their screen in real time.
Under FINRA and NYSE rules, a trader once flagged and classified as a pattern day trader, must keep up a $25,000 account balance must obtain a margin account. For more info on day trading refer to the FINRA Notice to Members and the NYSE Information Memo.
The Active Trader – Momentum Trader Although there is no standard definition as with the Day Trader, the Active Trader looks for trends that cross from a few months to as little as a few days. A typical trade for an Active Trader trader can be very brief, possibly a day or may last for some months as long as the on-going trend is intact.
Active Trader Strategy – The Swing Trader Although the strategy used by the swing trader is very similar to that of the Active Trader, the central departure is that the swing trader looks to maximize gains by capitalizing of the normal downswings in an broad upwards trending stock. The Swing Trader cycles in and out of the trade repeatedly until the broad trend softens before making a last exit. Swing traders must watch the price activity more frequently than the active momentum trader since the swing trade requires frequent attention.
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