fx technical analysis
DESCRIPTION
Introduction to FX analysis by the Warwick FInance SocietiesTRANSCRIPT
Technical analysis
Presentation overview
• Chart Patterns Indicators and Oscillators Capital Management Psychology of Investing
Three basic assumptions
1. Market discounts everything
2. Price moves in trends (bull vs bear market)
3. History tends to repeat itself
Trends (short, medium, long term)
Correction
Fibonacci levels n/(n+1)0.618 & n/(n+2)0.382
Support and resistance levels
Chart patterns (continuation vs trend reversal)
Double top
Double tops and bottoms (signs of trend reversal)
Triple tops and bottoms
Head and shoulders (reversal chart pattern)
Flag – continuation of a pattern
19/02/2013 Daryl Chia, Warwick Finance Societies
Symmetrical Triangle
Triangles generally predict a continuation of a trend.
19/02/2013 Daryl Chia, Warwick Finance Societies
Indicators and Oscillators
MACD (lagging indicator)
Vs.
RSI (leading indicator)
Moving averages
1st chart – 12-day simple moving average
2nd chart – 26-day simple moving average
3rd chart – 12 & 26-day simple moving averages
4th chart – MACD based on
12 & 26-day EXPONENTIAL moving averages
MACD=shorter term EMA(12) – longer term EMA(26)
The idea behind this momentum indicator is to measure short-term momentum compared to longer term momentum to help signal the current direction of momentum.
RSI (Relative Strength Index)
Fundamental analysis+
Chart patterns +
Indicators
If all generate the same signal
stronger confirmation
Capital Management
• Always remember about setting a STOP LOSS
• Setting up a TAKE PROFIT is also recommended
• Maintain at least 3:1 TAKE PROFIT to STOP LOSS ratio
FX is a leveraged market
Invest £10,000
Leverage 1:100
Makes your purchasing power £1,000,000
Execute an order by engaging 50% of your initial
capital due to the leverage your exposure is now
£500,000.
If the market moves in the opposite direction by 2%,
you lose everything (2% of £500,000 = £10,000)
Psychology of Investing
Investing virtual money is much easier than trading your own. When you are emotionally attached to your money, you stop making rational decisions.
Only 5% of traders generate a profit. Out of these 5%, only 1% make more than 100% profit.
Stick to the same strategy. If your position starts generating a loss, do not lower the STOP LOSS – it never leads to anything good.
If you are long in the market and start generating a profit, you can increase the STOP LOSS (not the other way round - do not decrease it).
Analogically, if you are short, then lowering the level of STOP LOSS is desirable assuming the downtrend continues.
Don’t be too greedy (very difficult in the beginning). Closing a trade is much more difficult than opening it. If you make a profit and are close to reaching your TAKE PROFIT level, do not push it higher. If there is a correction, you might end up with no profit (or even a loss).
Resources
Babypips.com Investopedia Forex Walkthrough, Technical Analysis Dailyfx.com MetaTrader 4 download
http://www.metatrader4.com/traders Stanley & Wojciech
