In search of profits

Technical analysis can be defined as the study of past price movements to identify patterns and trends, which are believed to be predictable in the future. At the heart of this approach is the assumption that human behavior, by its nature, is iterative. We all recognize that, although human behavior may be of current trends, they usually do not recur in exactly the same mechanical way every time. Even with this in mind, technical analysis is able to give us the opportunity to make price predictions with high probability the expected results. This can help us achieve our goals, which leads, ultimately, to long-term follow-up success.

There is a broad set of technical approaches. Some are better suited to specific traders and their trading styles than others. This article presents some of these approaches, which may be useful in the interpretation of intra-day market behavior and the formation of short-term forecasts follow the price dynamics.

I'm using intra-day trading period, primarily because it provides the greatest degree of immediate feedback. An important element for success - the ability to quickly understand their mistakes. Within-day sale offers us the opportunity to feel the pulse "and be prepared to take swift action when we talk about the market behavior is incorrect. Technical analysis tells us, quite informative, what happened in the past, but this does not provide us with absolutely no guarantees about the future.

Analysis of the oscillators

The nature of intra-day trading requires the trader to do continuous assessment as to whether a market develops in the range of or trend. If the option that the market will be traded in the range, then we need appropriate means to determine the short-term turning points. On the other hand, if the option that the trend will grow, we needed a means to determine (1) the appropriate entry point based on the current trend and its effect, and (2) the appropriate entry point based on the probable subsequent exhaustion of the trend.

Effective means of identifying such short-term intra-day market turning points is to assess the pulse, the core of the subsequent market fluctuations. Price momentum - this is the measurement of the degree or rate of change in prices. Usually, if we assume that subsequent market volatility will continue to create new records or new minima, it is expected that the degree of price change to increase along with traffic to the new maximum or the new minimum. If the subsequent oscillation is not an increase in the pulse, the reliability of any new push higher or lower than challenged.

One very effective tool for measuring price momentum oscillator is 3 / 10. This is - a simple indicator constructed by subtracting the 10-periodnoy exponential moving average of the 3-periodnoy exponential moving average. As an alternative, most charting software offers building Indicator MACD (convergence-divergence moving averages). Oscillator 3 / 10 can be modeled using the MACD, by setting short-term option for 3, and long-term at 10, and the smoothing parameter to 1.

When using an oscillator 3 / 10, we are trying to identify one of two states of the subsequent market fluctuations, which will either move to a new peak, a new minimum. The first of these states is referred to as "the divergence of the oscillator, and the second as" Confirmation of momentum. " These two terms describe the opposite condition. Typically, each successive higher maximum fluctuations or variations will be accompanied by at least one or the other state.

At markets, developing trend to lower prices, the divergence of the oscillator is described as a fluctuation in the new price level, which is accompanied by a higher minimum oscillator. At the market, move to higher prices, it is described as a fluctuation in the new price records, which is accompanied by a lower peak in the oscillator. The graph shows examples of both states.

In fact, the divergence of the oscillator indicates that the current market movement is losing momentum. It was at this time, most likely spread. If we considered the trade in the direction of the expected turn, it would be appropriate time to carry out the entrance to the market. On the other hand, when the confirmation of momentum, we know that the current direction fluctuations is a virtue, and it would be best, or to retain the existing position or to look for opportunities to enter in the direction of motion.

If you use properly, Oscillator 3 / 10 can be a very useful tool for the intraday trader. This is - a fast and effective means of measuring market momentum, the disclosure of valuable information about the main intention of the market. But it should be understood that he, like any other tool, is not the litmus.

The system of control points

Judgments made on the likely market behavior, which are based on an analysis of the momentum may be more effective if we first determined the levels of which can act as price benchmarks in the interpretation of activity of the trading day. "The system of control points" is one such approach.

Traders trading in the exchange hall, generally used very similar systems to evaluate the price of market-based instruments in the absence of significant external influences. This system of control points determines the relative price levels, based on the previous day's price activity.

Price levels of the control points act as a potential area of support and resistance throughout the day. They serve as guidelines for professionals in the exchange hall, where they adapted their proposals, especially with low trading activity. Traders who trade outside the stock exchange floor may use those same values to aid in identifying appropriate areas to enter the trade, placed stop orders and output.

The formulas for calculating support and resistance levels of the System control points as follows:

DP = (H + L + C) / 3
R1 = 2 * DP - L
S1 = 2 * DP - H
R2 = DP + (R1 - S1)
S2 = DP - (R1 - S1)

DP represents the daily reference point. R1 and R2 define the resistance levels above Daylight reference point. S1 and S2 determine the levels of support below Daily reference point.

A fundamental level is a daily reference point. Generally, when every day we start to trade, we consider this level as a point of balance between the force of bulls and bears. It is believed that the demonstration of a significant price activity above Daylight reference point is byche values, while lower activity is bear sign. While the actual entry and exit from the market is determined by a variety of other market factors, we first look at the dynamics of prices on the level of Day reference points as a support tool in the overall market sentiment.

Within-day trading activity can be generally regarded as a rotation around, and the pursuit of Day reference point. When the price moves away from this zone and is close to the first level of resistance (R1) or the first level of support (S1), market behavior is becoming more and more important. Any deviation from those recently reached levels that increase the likelihood of a return to daytime reference point. On the other hand, the violation of any of these initial levels is regarded as the market welcomed the change in the assessment sales tool.

In addition, whether the market will continue to move further away from the Daily reference point? Penetration through each subsequent level of support or resistance, in general, is regarded as a greater involvement of market participants. The increase in market participants, a great likelihood that will be open long positions, leading eventually to a greater potential for the further continuation of the trend. Any subsequent violations by the level of support or resistance systems GCP generally regarded as increasing the interest of an increasing number of long-term participants.

As soon as the market made a convincing violation of a certain level of support or resistance, this level is considered to change its role to support the resistance and vice versa, and, subsequently, becomes a test point for further market activity. For example, the graph right, when price action develops after the break-up the first level of resistance (R1) and to restore the price has moved back to this level, it is considered a test of its reliability. The successful test occurs when movement is unfolding, and the restoration of price moves further upwards, which increases the credibility of this level as a new level of support. Additionally, any further movement on this level has the potential to go through the next levels of support or resistance, attracting more long-term players in the market and ever-expanding range of market activity.

When using the level of support and resistance to the System control points can be a very useful tool for intra-day trading. The approach is not only the fastest way to measure the intra-day levels of support and resistance, but also offers an effective means of applying the guidance to the market activity in order to better understand market behavior and opportunities for trade. These levels help to determine when and where the short-term intraday trends are likely to fluctuate, and they can also serve as "test points" in the decision-making, whether the market will continue moving forward or change its current direction.

Dynamic support and resistance

One of the major disadvantages of using the System control points is that they are calculated on the basis of the price activity of the previous day, and may not accurately reflect recent changes in market behavior. Effective intra-day trading also requires a means to determine support and resistance, which can more easily adapt and provide more accurate pricing activity in the rapidly changing market conditions. 20-periodnaya Exponential Moving Average (20EMA) can be used to build these "more dynamic" levels of support and resistance. In contrast, levels of support and resistance to the System control points, which remain constant throughout the day, 20EMA changed according to immediate changes in the price. This feature makes them very effective tool, especially when there are significant changes in the market movement between levels of control points and after the large surge motions.

My main intra-day schedule is a 5-minute time scale, but I often turn to other periods to confirm the market conditions. For this reason, 5-minute 20 periodnaya EMA is a moving average, which is most often being referred to. However, also useful for further graphical analysis are 15-minute and 30-minute 20-periodnaya EMA on the same 5-minute chart. This is achieved as follows:

5-minute 20EMA - construct a 20-periodnaya Exponential Moving Average.
15-minute 20EMA - construct a 60-periodnaya Exponential Moving Average (15 / 5 * 20)
30-minute 20EMA - construct a 120-periodnaya Exponential Moving Average (30 / 5 * 20)
It is important to understand that the values for 15 and 30 minutes, obtained by this method is not accurate and does not accurately represent the 15 - and 30-minute 20EMAs, but for purposes of determining the potential levels of support and resistance, you will find this technique very useful.

20-periodnaya EMA is considered as any other potential level of support or resistance. In a market environment with a tight trading range, these levels can be quite easily violated. However, when the price begins to trend, 20EMA can provide valuable assistance in identifying appropriate areas that can be seen as to open new positions, and for the failure of existing ones.

One of the most frequent use of this indicator is included in the game when we start some day trading, with the expectation that the trend set by the previous day to continue. The usual strategy in these days is to look for an opportunity to re-entry into the first movement of the restoration, which moves the price likely to support (with an upward trend) or resistance (in descending trend). The first level of support or resistance faced by the market is likely to be, or 5-minute 20EMA, 15-minute 20EMA or 30-minute 20EMA (upper graph). It is important to monitor these levels as we look forward to continuing the trend. Once the trend has been set, it is often one of these levels (usually 5-minute 20EMA) would constrain the price action very effectively.

20-periodnaya EMA can also come into play immediately after the news caused significant price shocks (middle graph). Trading conditions can often be so volatile during these periods, it is better to do try to stay on the sidelines until the initial hysteria not spadet. Typically, a strong impulse impulse that accompanies such events, is starting a new trend-setting movement. This price movement will usually undergo some rehabilitation before raising will not be sustainable. Once again, the 20-periodnaya EMA is an excellent tool to measure the degree of recovery and eventual return to trend.

As mentioned earlier, namely, "dynamic" characteristics of the 20-EMA periodnoy make such an important indicator tool. His ability to respond in accordance with the direct changes in market conditions, make it a valuable tool in shaping a sense of structure of, by and large, unstructured events.

Maximum and minimum previous day

Each of the intraday trade practices, discussed above, referring to the levels obtained by mathematical calculations. Engineering, which will be discussed in this section, by contrast, will have to deal with a set of support and resistance levels that are much more apparent. In short, we will discuss the technique of using the previous day's price extremes as a way to determine the levels of support and resistance.

If you think about the market activity as of the auction, where buyers and sellers constantly vie for the best price, the daily maximum and minimum represent the last period of the outer limits of the values of the prices during any given day of trade. The highest price reached during the day, represents the maximum that buyers will offer for the goods and the lowest price represents the minimum that the sellers wanted to take. For this reason, the subsequent price action tends to remain within the boundaries of the obvious price values, which were identified during the previous trading day.

Under normal market conditions (driven by news of the price surges are the exception) the successful breach of the maximum or minimum of the day is usually preceded by several failed attempts. After a successful breach, this price action is often an important change in market psychology with the potential formation of a new trend of movement.

One approach is to exploit the benefit of this market scenario, is to use the actual maximum or minimum break the previous day as a signal to enter the market - opening long position in the breakthrough peak and a short position in the break level. Use this method for market entry is quite viable, and, in a rapidly changing market conditions, may be the only way to participate. However, it is believed that this is a fairly aggressive technique, because forays into new market can sometimes be a very quick turn around. A more conservative and unwilling to risk approach is to wait to sign until a specific rollback of price movement. Such short-term reversals often occur before a new trend movement did not begin in earnest. Often, the violation of the maximum or minimum of the previous day would return back to the original point of breakthrough. Otherwise, the next most likely level of recovery will be a 5-minute 20EMA.

Price analysis on the maxima and minima of the day may also be useful when the market is in a long narrow range. This market scenario is often accompanied by a significant movement out of the range, and sharp increases in volatility. Sometimes increasing the variability can be very sudden and quite severe, leading to trading days, which allows to capture more profit, but only if you chose the correct direction of a breakthrough.

Whenever conditions were identified by low variability, the maximum or minimum break the previous day can often serve as a signal that the expected movement of the range, and this may allow us to enter into the market to take part in it, with little risk. But even before such a breakthrough occurs, there are several methods that allow us to make a preliminary assessment of the likely direction of a breakthrough and to an earlier entry. For example, we often can determine the direction from the price activity on the maximum or minimum of the previous day and current daytime reference point. If the market first, suited to minimize the previous day and then ottolknuvshis, goes up through the day's reference point, the direction of a breakthrough is likely to occur in the higher prices (left figure below). Similarly, if the market is approaching the maximum previous day, reflected, and the price then moves through a daily reference point down, then the likely direction of a breakthrough will be down (bottom right graph). In addition, often the key to the possible direction of a breakthrough can be found in the behavior of the market about Daylight reference point. If the price is not able to disrupt this level, the expected breakthrough will often grow in the direction against the original motion.

Maximum and minimum previous day's price points represent extreme values. Also, they contain the potential to act as support and resistance levels during the trading day. The dynamics of prices near these levels can communicate valuable information about the subsequent behavior of the market.

Conclusion

Typically, new traders are coming to the study of technical analysis tend to identify a single indicator, system, or trading method that, in the performance of the precision and discipline, will bring good results in most attempts. Many traders, especially beginners, in its never-ending search for the only and ultimate technology trade, tend to look at this technology as a magic key that opens the hidden secrets of the future market direction. It is important to understand that we do not appreciate a technical tool in this light. Instead, these instruments are rather regarded as a mere aid in summarizing and simplifying some aspects of our business routine. As mentioned in the beginning, the technical analysis effectively explains what happened in the past, but it does not make any guarantees about the future.

The methods discussed in this article, you will step to the understanding and interpretation of the evolution of prices and the major driving forces of the market, but do not expect that they will become your "Holy Grail cup." Probably need more practice before you can comfortably incorporate them into their normal trading routine. Some will be more effective under certain market conditions than others. Plan to undertake a significant amount of time with each tool before you begin to fully understand its advantages and its disadvantages. As with all effective trading tools and techniques, the nuances and peculiarities become more evident over time, with enough practice.