Financial statements involve a story to be told quarter by quarter, charts a story which a trader is taught to read as fluently as possible and which provides a timing advantage which cannot even be acquired by fundamental analysis however thorough the research on which it is based. The site at www.fxcm-markets.com/insights/technical-analysis-2 will provide traders with practical educations on the subject of technical analysis that bridges the gap between what the novice trader thinks should be taught in a course on chart analysis and what should be taught in a course of chart analysis, as far as distance between theory and practice is concerned, creating a vast rift in what most beginner traders expect to learn in a chart analysis education course when they first step onto the chart analysis scene. Technical analysis is founded on the supposition that price has captured all available information at any given time that the markets have tendencies to move in a manner that extends beyond that which random action would propose and is that human psychology creates recurring patterns in price behaviour which are sufficiently repeatable across time and across different instruments, time periods and eras of market activity to be truly statistically significant when pursued in a disciplined manner.
Support and resistance is the cornerstone of technical analysis and these areas of reference where the price decisions are undertaken and price structures constructed. The buying interest has been high in support, where the force of falling movement in price has been sufficiently counteracted, and the movement reversed, towards a higher mark, also called floor, which the market has on more than one occasion, been ready to sustain. The ceiling is synonymous with the resistance, in which case, selling pressure often constrains profits and reverses the price downwards. These levels are formed because the market participants are not uninformed and those traders who bought a support level and realized that the price has risen remember the support level as a reasonable addition point to positions during subsequent retreats whereas traders who had not managed to make a profit during a movement recall the resistance levels in the hope that they will have another opportunity to buy into a level that they felt at ease in before. It is this self-reinforcing process that is brought about by this collective memory that makes technical levels to take effect more often than pure coincidence should warrant the technical levels that have been tried and honored numerous times over a span of time.
The area where technical analysis has the most short-term actionable information, is trend identification, as trading on trend basis by a significant margin has a much greater probability of a specific setup performing favorably as opposed to trading a price reversal using counter-trend trades, which are vulnerable even to minor price fluctuations. The simplest pattern of the market based on an uptrend is a straightforward series of higher highs and higher lows and the practice of taking only long formations when in an uptrend and short formations when in a downtrend gets rid of a whole category of expensive and low-paying trades that consume capital and confidence. Moving averages provide a smooth graphical analysis of direction of the trend that removes the noise of individual candles and an association between the price and significant levels of the essential moving averages is a comfortable filter to direction of trade that keeps traders on the side of the direction rather than continuously attempting to discover reversals before direction of the direction actually reverses.
This is so since the direction is not a measure of price change as the measure of price change is used in momentum indicators which give an extra timing feature to trend and structure analysis as a way of helping traders in identifying when a trend is strengthening, weakening or about to reverse. RSI is the ratio of the average gains to the average losses over a specified period and it leads to the values that show overbought and oversold states with a high level of consistency such that the value can be used to make meaningful contributions to the entry, and exit time decisions. MACD tracks two moving averages and produces crossover signals and divergence patterns that the experienced trades include as confirmation filters and not entry signals. The distinction between use of indicators well and poorly is that the indicators should be used as a context provider that augments the quality of the already price-supported decisions but not as a machine signal generator that enters into automatic trade without any consideration of the larger market context in which the indication-based trades are occurring.
The volume analysis adds final touches to the technical image the price alone can not possibly fill in, either proving or disproving the belief behind the price movement in a way that would not influence the traders to act on movements that are not of genuine interest. Price advanced on rising volume reveals that the market is mostly in agreement of the direction, whereas price advanced on decreasing volume reveals that there is a danger of a market not being able to sustain the direction the move is making hence the market may be set up to turn around in the other direction when all the energy is exhausted.