How to properly use Technical Analysis
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Thread: How to properly use Technical Analysis

  1. #1
    This thread is much more to jot down my thoughts and put them in order, I do encourage discussion. I've done a thread about the use of technical tools, yet this one is a bit different, if anybody decides to pitch , just know that any technical tool which you bring up, you have to know the PURPOSE supporting the invention, what is actually computing and how is this useful on the analysis of the market.

    The power of the moving average:

    first of all lets start by stating what is a typical, and why it is crucial to understand the mean of a statistical information. In my view the best moving average to use is your Simple Moving Average, as another averages are made upon the intent of price prediction WMA, EMA, SMMA.... And so on.

    Why do I say this? The SMA is regarded as a indior In case you go on line, and its uses are regurgitated again and again, as support advertisement resistance, or moving average cross over price prediction in trending markets right? They indie to use a 50sma and a 200 sma as traders use them and you find the identical thing. So the WMA,SMMA,EMAs were made to smooth or burden the typical as to be affected by current price quicker and not be as slow as a SMA.

    My personal opinion is that train of thought is simply rubbish, the SMA is just as statistical Typical, and was thought to as a way to find the mathematical mean. Might be common sense to many experienced traders, nevertheless I took studying quotes move in order to grasp the thought, of charts and proper uses of specialized tools. For each and each newbie before you look at your high tech gadget filled platform start trading from simply the quotes and start brain storming on how to make sense of the seemingly random motion, this workout will help save you years at the learning curve.

    Back to my original thought: on sample pool we have many variable information, the dispersion may be concentrated on a central point or evenly distributed, but to get a sense of what is a fair value or an imagined normal point we try to get to the average of the sample pool. I.e
    lets say these are apples, and if you asked me how many apples are USUALLY about the desk, at any given day (we have 10 numbers for 10 days)
    1,1,6,8,5,5,2,2,3,7 I would tell you I dont understand, anywhere from 1 to 8, but this is very brought and I am giving you a range which is not helpful if you are trying to arrive to an expected fair value.

    So I say on typical 4, (1 1 6 8 5 5 2 2 3 7= 40) 40/10 days = average give and take we can expect 4 apples on a given day to be on the desk, and therefore this is the fair value, if occasionally we get 1 or sometimes 8 we can assume we had LESS or MORE apples now in connection to the mean.

    What exactly does this say so much as the market? Well enjoy most of technical tools it is on no account predictive but is a way to understand what the fair market value is as to make a determination if the currency is trading at a low or high price in connection to the perceived mean.

    Same goes with the euro, should ask me what was the price of the euro last month, I would say to you I dont know which day? That second? Month, What should you think about? The actual month or the days that are trading? Do you mean open, high, low, or prices? (you see I dont give you any helpful info, possibly an extremely broad range= 1.3421 to 1.4246)

    or can say it had been on average 1.3743 (include all final prices and divide by 20 trading days in the month (given is much more like 21.5 trading days but mathematical exactitude isn't imperative))

    so offer a take some pips on average it is safe to say that's reasonable market value, and the calculated mean.

    So in the event that you sign up for the idea of volatility and mean reversion, or whatnot this is the initial starting point in understanding whether the price now is cheap relative to the typical or high viz a viz the reasonable market value.

    However not everything is that easy, how do you understand is ordinary volatility or its own a change in direction? That is where bollinger introduced the notion of mathematically calculate price variations through deviations from a sensed mean we call this Bollinger Bands. Then there is the calculations of acceleration and momentum by speed of motion relative to a moving average.

  2. #2
    97086 similar use can also be used in square of 9 = 81. Here's a good example of yesterdays swing on eurusd m5

    the simplest basic ever.


    Swing was 82 pips into resistance, square-foot is 81. Why not know? Pa showed exhaustion and momentum dying out



    also use confluence of both fib projections or fib retracments, bollinger bands as an indicator for range and volatility as redlion uses.

    Supply need and PA of course is needed to project finest results

  3. #3
    89866buma can you, I do not understand SHUT THE HELL UP?

    I do not understand why reddish wants to edue individuals a little with a few actual concepts that may result in actual tiny edges, but I sure as hell do not understand why you desperately feel the need to come here and crap his thread along with your tea-leaf bullshit and trash what began as a scientific thread with your airy-fairy crap.

    SHUT UP AND LET RED HAVE HIS DAMN THREAD!

  4. #4
    89866
    Quote Originally Posted by ;
    Thank you for the detailed response.

    I feel the forecast of volatility is much more important than the forecast of whether price will proceed up/down and have been using some similar concepts you have mentioned here (and also in different threads). Looking forward to your posts.
    I can say yes and no at the exact same time,

    if you're looking for prediction in volatility the easiest way to do it in forex is by market hours.

    Asia usually is low in volatility
    while Europe open and Europe/America overlap bring more pronounced swings.
    Back to low volatility since America closes daily.

    Why I say that volatility forecast is not more important than price? The quicker and further the price moves the higher the volatility increases and when loss of momentum is volatility contracts.

    At the end of the day, even if trading on-line swaping using reference points where price will accelerate from

    pressing sell or buy sets you in directional forecast, so finding ways to place yourself in the ideal DAILY direction is imperative,
    and finding methods to reduce probabilities against you personally is just another important issue.

    Which is another subject, but if you are interested in volatility probabilities
    besides standard deviations you can also utilize Range, or implied volatility calculations

    my next post will be ATR and the derivatives I use to objectively read different statistical information

  5. #5
    89866ATR is Typical True Rage.
    Made to get what's the true range of the market in the commodities as they suffered a lot of gap up and gap , so this formulation was created, in forex there are not a lot of gaps, and the generally the sunday candle contains these gaps, the sunday candle could be dismissed is not too useful its a component of this monday candle than anything (in case you dont understand what I am talking about then you are good, your broker doesnt give you a sunday candle some do.

    The idea behind the ATR is not predictive in nature, but rooted in statistical analysis of what exactly a regular range of the instrument is. Far is it possible to anticipate the instrument to travel, and does exactly the current move has some gas?

    How to calculate it? It depends on what you are averaging, if averaging 20 phases initially you substract (high)-(low) of every day
    today, add all of the totals and divide by 20
    *that is really for forex because the open is normally the close we dont get many gap ups or down so I am not using the first formula to account for non existent gaps

    however for the next day a smoothing formulation is executed
    you take your last ATR and multiply by 19, locate the current TR for now
    add it, then take the total and divide by 20. You do this for each new moment.

    This calculation gives you statistical knowledge of possible max rage.
    It's helpful for swing positions to include stops away from volatility
    it is also helpful to compare the range the instrument is trading now in relationship to the mathematical average, keeping in mind that low volatility is followed by high volatility and vice versa.

    As you are trading performing periodic excel calculations of the current average from current low to current high comparing it into the ATR can give you an idea if the instrument has more room to go or whether its possible to range, correct ans so forth particularly when coupled with pivot points.

    When calculating pivots, substract the current open from R1,R2 the Central, S1,S2 from the current available, it is going to provide you a series of ranges from available price, choose your ATR and see which are probably targets in relationship to daily price action, S/D,S/R places, and if price is low or high in standard deviations, and what phase of price movement are you looking at? Couple that with the equities markets are doing for risk on, risk off. And you have a fantastic overall analysis of this market.

    Something I like to do is get the ordinary displacement Range (displacement is a mathematical name for beginning point to finish point in its shortest route) open-close, statistically you notice that price generally closes above or below open, and what's the usual distance.

    You are able to get the Average low range and Typical High Range
    do exactly the exact same to all of the lows and all of the highs,

    so with all the ATR you can add it into your open and get the maximum expected range and subtracted to your open for the maximum low range

    include your Typical Expected high into the open and do exactly the exact same to the Average expected low.

    I replicate the goal is not prediction but mathematical analysis of normal statistical ranges of the instrument traded, combining this analysis with pivot points, should MOST IMPORTANTLY price behavior and price action.

    This removes emotions and brings more science into the analysis, as you understand what is probable and what's likely to happen and you no longer allow your greed hold positions too long turning them into a reduction,

    ideally this brainstorming of my trading ideas are clear if not, ask me I could make it even more clear. That's what this thread is all about to create my trading clear. I would like to have the ability to educate my son if he grows up in a clear that is ordered manner. So thank you all for your contributions, and inputs

  6. #6
    89866I have bias, why I say that the volatility is much more important is because even if my bias is right it makes it much harder to profit. Additionally, it makes my trading alot less efficient. Should probably make the point I do not usually remain in a trade for very long

    Right now for volatililty the principal factors I use are
    -period of day
    -'sweet spots' as Scotty B put it (this sort of ties in with ranges and stuff covered in the orderflow threads)
    -momentum
    -news, for obvious reasons, but may also be used to forecast low volatility when the market is awaiting some news/announcement (I am not a news trader)
    -there's yet another'measurement' (for want of a better word) that I wont go into, it is nothing groundbreaking but is most likely the key for me personally rather than dependant on past price information.

    Great stuff up to Now, I'll stop hijacking your thread now

  7. #7
    89866no high jacking at all buddy.

    I am really very curious to know your views on matters, and what calculations are mathematically important for you.

    Trading is as old as the hills and what is being done now was done previously, nothing is new under the sun --jessie livermore

    so please dont feel like you will lose the edge by revealing it, I Want to have an intelligent conversation about the matter, exchange of ideas if you will

  8. #8
    89866
    Quote Originally Posted by ;
    buma can youpersonally, I don't understand, possibly SHUT THE HELL UP?

    I don't understand why reddish wants to edue individuals a little with a few real concepts that may result in real small borders, but I sure as hell don't understand why you desperately feel the need to come in here and spam his thread with your tea-leaf bullshit and garbage what started out as a scientific thread with your airy-fairy nonsense.

    SHUT UP AND LET RED HAVE HIS DAMN THREAD!
    Direct me to it. I was about to say how good this thread could be, let Red do his things...

  9. #9
    89866
    Quote Originally Posted by ;
    no high jacking at each buddy.

    I'm really very curious to know your views on matters, and what calculations are mathematically significant for you.

    Trading is as old as the hills and what's being done today was done previously, nothing is new under the sun --jessie livermore

    so please dont feel like you will lose the advantage by revealing it, I would love to have an intelligent conversation on the matter, exchange of thoughts if you will
    Your talk about ATR and ranges is key in my own trading.

    At the beginning of each day for me (I start around 9am) I'll do the next:

    Mark the daily pivot points on the chart
    Mark that the London open
    Mark that the Frankie open (less vital as LO)
    I shall note where price is in relation to the open

    The only indiors I've currently are 3 SMAs:
    4 SMA
    32 SMA
    96 SMA

    These are all on a 15 min chart, do you see why I use those numbers?

    I then look at the current low and high which have occured because Frankie open. I then indicate on the chart that the goal low and high (subtract ATR from current high to your goal low, and add ATR to non for the high)

    I now have all of my key amounts.

    I watch the 15 min candles for near price around these amounts to then see my entries. For example, price pulled straight back, has dropped below S1 and shut below S1, I'd short the start of the next 15 min.

    In a nutshell thats how I'm attempting to trade

    Forget all those fancy indiors...

  10. #10
    89866 Allow me to take you on a journey

    The very first epiphany in trading has been the discovery of Buy above the line and Sell under the line. It is the equivalent of the invention of the wheel. Though this discovery was remain a closely guarded secret and will never be completely revealed.

    ______________________________

    This concept was then developed and incorporated into the bar chart.

    The purpose of a pub is to create a reference point in time. Since the masters knew that price will always move from any reference point. And in doing so then a trader can take advantage of such movement to profit.



    As time advance... the pub were added a few blings and were pimped out. It became the alluring bar called candlestick.



    Years had passed and data were passed from one to another, always getting diluted as it was passed on. Then a new stirring gave birth to numerous reference points, called the candlestick patterns.



    With ever growing sophistication, a newer shift was upon the horizon. Much like character and life, matters evolve to make a exceptional structure. Beneath the simplistic presentation lies the complexities... the Donchian Channel (aka: High/Low station )



    Quick forward gt;gt;gt;gt; to 2011 and.... Not a lot of folks knows the core of studying charts and trading charts. The dream chasers don't have a single clue of the ability of a reference point... which stares at them every time they start a chart.

    Sometimes it strikes me, how far off the 95 percent of traders from the 5% money-makers. But that's how it'll always be on this company since we're handling money...
    While the 95% here are FF are warming up (actually, only stretching to get a warm up) the 1 percent are working on Multi-dimensional Donchian Channels




    To Be Continued...

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