TECHNICAL

ANALYSIS

CHARTS

• Bar

• Line

• Candlestick

• Charts are the basis of

technical analysis

• They are a graphic display of

price action

Notes:

Candlestick charts have become the industry

standard for technical traders.

CANDLESTICK CHART

Notes:

Most charts will have “down” candles as red,

which means that the price opened higher

than it closed. Conversely, “up” candles

usually shown as blue or green which means

that the price opened lower than it closed.

Therefore, a downtrend will be made up of

mainly red candles whereas an uptrend is

made up of mainly green candles.

HOW CANDLESTICKS WORK

Notes:

The body of the candle is the difference

between the open price and close price. The

high or low price is displayed as the wick

(thin line) on the top or bottom of the body.

RESISTANCE AND SUPPORT

• Resistance, the high point, is the price level where the supply starts to become greater than the demand.

• Sellers step in and resist the rise in prices. Essentially, the sellers are taking over from the buyers.

• Support is the price level where demand starts to become greater than the supply

• Buyers step in and support the price from going lower. Here there are more buyers than sellers.

Notes:

Resistance is the recent high price, relative

to the current price. The support is the recent

low price relative to the current price. How far

back to look for support or resistance must

depend on the time frame. So, when looking

at a 5 minute chart then look back to the start

of the session, Asian, European or North

American session. When looking at the

hourly chart, you can go back to the start of

the trading day, i.e. the recent 5pm EST

DRAWING

RESISTANCE AND SUPPORT LINES

• Find the clear/obvious price levels which were previous turning

points. Either high points (resistance) or low points (support).

• Majority rules – if you’re not sure, neither will anyone else be.

DRAWING RESISTANCE AND SUPPORT

CONTINUED

• The most important lines to

note, are those where support

becomes resistance (or

resistance becomes support).

Notes:

Include the wicks (the high and low) when

drawing in resistance and support levels. If

the price could not go higher than a certain

price previously then we assume that it will

not go higher than that same level when it is

approached again. The same would apply at

a support level and if a price could not go

below that price on it’s previous attempt, it

will not go below when tested again.

When a resistance has been a previous

support, or a support has been a previous

resistance, these levels will usually prove to

be significant and therefore effective when

using these levels in you strategy.

WHAT ARE TRENDS?

• Trend lines are basically

resistance and support lines

• Trends will differ depending

on the time frame on which

you are working

• There are three kinds of

trend:

• Uptrends

• Downtrends

• Sideways Trends

Notes:

The trend is the direction in which the pair is

moving. Whether the price is getting higher:

an uptrend, or going lower: a downtrend, or

levelling off with neither buyers or sellers

dominating: a sideways trend.

UPTREND

• A pattern/trend consisting of higher highs and higher lows in

sequence

• This indicates more buyers than sellers, thus the price is going up.

DOWNTREND

• A pattern/trend consisting of lower highs and lower lows in

sequence

• This indicates that there are more sellers and less buyers. Thus,

the price will move lower or go down.

SIDEWAYS TREND

• No obvious direction

• Neither highs or lows are

dominating. Therefore the trend

Notes:

does not go upwards or downwards.

The trend will be sideways when the buyers

and sellers are the same and there aren't

more buyers or sellers to make an uptrend or

downtrend. There are always buyers and

sellers in each currency pair. E.g. in the

EUR/USD pair, there are people buying the

euro and selling the USD; at the same time

there are people buying the USD and selling

the EUR. The trend will be determined by

which is dominating. If neither dominates, the

trend is sideways.

TRADING RANGE VS.

TRADING BREAKOUTS

Notes:

When price action is contained within

resistance and support we call this a range.

Range traders will trade within this channel,

expecting that buyers will buy off support

levels until the price reaches resistance.

Then, sellers will take over and the price

should come down until it reaches support.

Hence, trading within the range between

resistance and support.

The other strategy is waiting until the price

breaks through the resistance or support

levels (after the range) i.e. buying after price

breaks above resistance or selling when the

price breaks below support – breakout

trading strategy.

TWO TYPES OF

CANDLESTICK PATTERNS

• Candlestick patterns either signal trend reversals or trend

continuations

• To identify the pattern we look at the preceding trend/direction

leading up to the pattern. This determines whether the

formation is signalling that the pre-existing trend will continue

or reverse and change directions.

• Candlesticks often reflect the sentiment of traders and the

patterns which they form will signal the direction we expect the

trend to move in.

REVERSAL: HANGING MAN,

HAMMER, SHOOTING STAR

• When there is a long tail/wick following a strong trend, and then a

sharp reversal in the opposite direction.

• The logic is that the pre-existing trend has run its course and there

are no longer any sellers (if a preceding downtrend) or no longer any

buyers (if a preceding uptrend).

REVERSAL: ENGULFING

• Following a strong trend, e.g. downtrend and succession of red

candles, a big green candle which is higher and lower than the last

red candle – it engulfs the red candle – signals a reversal and an

uptrend expected to now begin.

• Alternatively, after a strong uptrend and succession of green candles,

a big red candle then engulfs the last green candle (meaning it has a

higher high and lower low) and a downtrend is expected to follow.

Bearish Bullish

REVERSAL: DOUBLE TOP

• The “Double Top” is a very strong reversal pattern – when the price

reaches a high point (resistance), comes down and then tries again

without breaking the resistance (so comes down again). This double

top emphasizes that the resistance is strong and after trying for a

second, or even third time (triple top) the signal is for a trend reversal

in the opposite direction.

REVERSAL: DOUBLE BOTTOM

• The “Double Bottom” is the same logic except it follows a

preceding downtrend – attempting support level twice and

being rejected, and then a reversal of the downtrend and a new

uptrend expected to begin.

TRIANGLE PATTERNS

• A Triangle is usually a slower forming pattern and needs a

number of candlesticks to develop.

• This situation is great as it gives the trader time to watch the

pattern develop and plan the expected move/trend which will

follow.

• Triangles are continuation patterns (as opposed to reversals),

meaning we expect the preceding trend to continue.

• Triangle pattern recognition requires a more subtle and

nuanced understanding as the timeframe and range boundaries

are variable..

CONTINUATION:

ASCENDING TRIANGLE

Breakout

Resistance gives way

Support levels are rising (uptrend)

Notes:

Here we see an uptrend develop with higher

lows being formed. However the price is

unable to make higher highs and resistance

does not give in and allow higher highs to be

formed. The trader is expecting a break

above the resistance as we see the

ascending triangle being formed. A preceding

uptrend would add strength to the pattern.

CONTINUATION:

DESCENDING TRIANGLE

Breakout

Notes:

This is the opposite scenario – the formation

of a downtrend with lower highs, but the lows

don’t get lower as support holds strong. The

trader is waiting for support to give way as

the descending triangle is being formed. Resistance levels are dropping

(downtrend)

Support gives way

CONTINUATION:

SYMMETRICAL TRIANGLE

Resistance

Breakout can go either way

Support

Notes:

Here the trader sees the candles getting

smaller and price action getting tighter...

waiting for a breakout in either direction

TIME FRAMES AND POSITIONS

• Daily

• 4 hour

• 1 hour

• Multiple time frame analysis

• Mixing up or confusing time frames is probably the single biggest and most common mistake of all traders

• We usually scale down from the longest period to the shortest

• Although the live price will be the same on all time frames, the trends will differ

• The shorter time frames will pick up all of the “noise”

Notes:

There is no more important lesson for traders

to learn: stick to the timeframe which

signalled the trade and don’t look at all

different time frames once in the trade. The

amount of time to stay in a trade should

match with the timeframe on the chart. If the

trade was taken looking at a 5min chart, stay

in the trade for a number of 5 min periods

(roughly 6). If the trade was taken looking at

an hourly chart, stay in the trade for a

number of hours (roughly 6). Be sure to

understand this concept in order to trade

successfully.