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Chart analysis

9Professionaltrader วันอาทิตย์ที่ 11 กรกฎาคม พ.ศ. 2553

Chart analysis

A price chart is a sequence of prices plotted over a specific time frame. In statistical terms, charts are referred to as time series plots.

Types of price charts

    There are three types of charts:

  • Line (Fig.1)
  • Bars (Fig.2)
  • Candlesticks (Fig.3)

2 and 3 give more detailed information such as the open, close, low and high over a specific time frame.

      Fig.1
      Fig.2
      Fig.3

Support and resistance

The support and resistance line/level is a certain level reaching which the price cannot fall or move higher, respectively. In any market with a stable trading range prices will meet resistance and support levels. In other words, when the price reaches a certain level, the bulls or bears begin aggressive buying or selling, because they do not agree to any level, and at some point supply and demand in the market are equal, thus forming resistance or support lines. However, if there is an upward or downward breakout of a trading range, the previous support level becomes the level of resistance (Fig. 4), and the level of resistance, on the contrary, becomes the level of support (Fig. 5).

      Fig.4
      Fig.5

In addition to trend lines, the low and high can serve as support and resistance levels (Fig. 6 and Fig.7). However, the previous high or low does not mean that it is the level from which the price will leap back. They tell us that when price moves close to them, it may meet the level of support or resistance near the low or high because the market remembers that there was parity between the bulls and bears at this level, and when the price is close to the level of support all start buying, and when approaching the level of resistance, on the contrary, start selling. A breakout of the previous minimum or maximum can be considered as a signal to further fall or increase in prices.

      Fig.6
      Fig.7

The criterion for a breakout of support and resistance levels can be a chain of 2-3 closures below or above these levels, respectively, as common breakout still did not mean anything (Fig.8). The above criterion is confirmation of a temporary duration. There are several approaches to definition of criteria: breakout depth, price values coming out of support or resistance levels.

      Fig.8

Bars (Fig.9), candlesticks (Fig.10), the lows (Fig.11) and highs (Fig.12) can also serve as support or resistance lines.

      Fig.9
      Fig.10
      Fig.11
      Fig.12

Trend

Trend is an upward or downward tendency which is characterized by a strict consequence of higher maximums and minimums, in case of upward tendency, and lower minimums and maximums, in case of downward tendency. An uptrend is considered not to be broken till the previous high or low is not broken through. In other words, the next high or low is lower than the previous one. It is the necessary criterion for an upward tendency. A downtrend is considered not to be broken till the previous low or high is not broken through.

      Fig.13
      Fig.14

Trading range

Unlike a trend, a trading range represents a horizontal tendency in which a sequence of the highs and lows are almost in the same level. It also includes price fluctuations over long-lasted period of time. A trading range is considered to be broken if its upper or low boundary has been broken through. (Fig.15)

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