List of Technical Analysis

Aroon Indicator

A technical indicator, developed by Tushar Chande in 1995, used for identifying trends in an underlying security and the likelihood that the trends will reverse. It is made up of two lines: one line is called "Aroon up", which measures the strength of the uptrend, and the other line is called "Aroon down", which measures the downtrend. The indicator reports the time it is taking for the price to reach, from a starting point, the highest and lowest points over a given time period, each reported as a percentage of total time. Both the Aroon up and the Aroon down fluctuate between zero and 100, with values close to 100 indicating a strong trend, and zero indicating a weak trend. The lower the Aroon up, the weaker the uptrend and the stronger the downtrend, and vice versa. The main assumption underlying this indicator is that a stock's price will close at record highs in an uptrend, and record lows in a downtrend.

For example, when a stock's closing price is equal to the highest price over the given period, the Aroon up will have a value of 100, which indicates that the time it has taken for the stock to reach its highest price has elapsed 100%, indicating a strong uptrend. In addition to extreme values, transaction decisions can be based on instances when the two lines cross. For example, when the Aroon up crosses up through the Aroon down, the stock is said to be in a new uptrend and should experience some upward momentum. This indicator is very similar to the directional movement index (DMI) that was developed by Welles Wilder, which is also a very popular indicator used to measure the strength of a given trend.

Backspread

A type of options spread in which a trader holds more long positions than short positions. The premium collected from the sale of the short option is used to help finance the purchase of the long options. This type of spread enables the trader to have significant exposure to expected moves in the underlying asset while limiting the amount of loss in the event prices do not move in the direction the trader had hoped for. This spread can be created using either all call options or all put options.

An example of a backspread using call options would be selling one $45 call option for $5 and purchasing two $50 call options for $2.10 each. The trader in this case would benefit from a large move past $50 because he/she is holding more long options than short.

Breakdown

A price movement through an identified level of support, which is usually followed by heavy volume and sharp declines. Technical traders will short sell the underlying asset when the price of the security breaks below a support level because it is a clear indication that the bears are in control and that additional selling pressure is likely to follow.

Technical tools such as moving averages, trendlines and chart patterns are the most common methods for technical traders to identify strong areas of support. The chart above shows that a trader will enter into a short position when the price breaks below an area of support (the thick dark line), which has been identified by using a head and shoulders chart pattern.A breakdown is the bearish counterpart of a breakout.

Breakout

A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility. Traders will buy the underlying asset when the price breaks above a level of resistance and sell when it breaks below support.
This chart shows a stock that has historically encountered a lot of resistance near $37, but notice how it heads sharply higher following the breakout.

In practice, a breakout is most commonly used to refer to a situation where the price breaks above a level of resistance and heads higher, rather than breaking below a level of support and heading lower. Once a resistance level is broken, it is regarded as the next level of support when the asset experiences a pullback Most traders use chart patterns and other technical tools such as trendlines to identify possible candidates that are likely to break through a support/resistance level. A breakout is the bullish counterpart to a breakdown.


Breakout Trader
A type of trader who uses technical analysis to find potential trading opportunities, identifying situations where the price of an asset is likely to experience a substantial movement over a short period of time. Breakout traders generally look for key levels of support and resistance and will place transactions when the asset's price passes through these levels. Long positions are taken when the price of an asset breaks through a level of resistance, and short positions are taken when the price breaks below a level of support.

Many breakout traders find trading opportunities by identifying chart patterns such as channels, ascending triangles, descending triangles, head and shoulders, etc. These types of traders will generally set up target prices to be equal to the distance between support and resistance levels.

Bearish Harami
A trend indicated by a large candlestick followed by a much smaller candlestick whose body is located within the vertical range of the larger candle's body. Such a pattern is an indication that the previous upward trend is coming to an end.

A bearish harami may be formed from a combination of a large white or black candlestick, and a smaller white or black candlestick. The smaller the second candlestick, the more likely the reversal. It is thought to be a strong sign that a trend is ending when a large white candle stick is followed by a small black candlestick.

Bullish Harami
A candlestick chart pattern in which a large candlestick is followed by a smaller candlestick whose body is located within the vertical range of the larger body. In terms of candlestick colors, the bullish harami is a downtrend of negative-colored (black) candlesticks engulfing a small positive (white) candlestick, giving a sign of a reversal of the downward trend.

Because the bullish harami indicates that the falling trend (bearish trend) may be reversing, it signals that it's a good time to enter into a long position. The smaller the second (white) candlestick, the more likely the reversal.


Buy Weakness
A proactive trading strategy in which a trader takes profits by closing out of a short position or buying into a long position. This strategy is used when the price of the asset being traded is still falling but is expected to reverse and move against the trader. This is the opposite of "selling into strength".

For example, let's say that a trader believes that ABC stock will fall below $5 to $4.50 before rising above $5. Therefore, the trader would buy into the weakening stock price at a price below $5 and wait until the falling trend reverses and the price rises before selling and taking a profit. A short seller may also buy weakness by closing out his or her position. This would be done by buying into a falling stock with the anticipation that the stock price will soon reverse and start to rise. Many traders will wait for confirmation of a change in price movement before reacting. However, by the time a reversal is confirmed, it may be too late and the trader may end up losing. Thus, by trading against the prevailing trend in the anticipation that it will soon reverse, the trader allows him- or herself greater room for error. As the saying goes, "missed money is better than lost money".


Selling Into Strength
A proactive trading strategy carried out by selling out of a long or into a short position when the price of the asset being traded is still rising but is expected to reverse in price. Opposite of "buying into weakness".

For example, say a trader believes ABC stock will rise above $5.00 but expects it to reverse at $5.75. If the trader buys ABC stock at $5.00 and sells when the price hits a predetermined exit price of $5.50, that trader would be selling into strength. Conversely, a short seller may sell into a rising price with the anticipation that the stock price will soon decline. Many traders will wait for confirmation of a change in price movement before reacting. However, by the time a reversal is confirmed, it may be too late and the trader may end up losing. Thus, by trading against the prevailing trend in the anticipation that it will soon reverse, the trader allows him- or herself a greater margin of safety. As the saying goes, "missed money is better than lost money".


Technically Strong Market
A situation in which the stock market is rising on high volume or falling on low volume.

In technical analysis, volume is extremely important in determining the strength of a trend or market movement.

Technically Weak Market
A situation in which the stock market is rising on low volume or falling on high volume.

In technical analysis, volume is extremely important in determining the strength of a trend or market movement.


Trend Analysis
An aspect of technical analysis that tries to predict the future movement of a stock based on past data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-, intermediate- and long-term.

Trend analysis tries to predict a trend like a bull market run and ride that trend until data suggests a trend reversal (e.g. bull to bear market). Trend analysis is helpful because moving with trends, and not against them, will lead to profit for an investor.


Trend Trading
A trading strategy that attempts to capture gains through the analysis of an asset's momentum in a particular direction. The trend trader enters into a long position when a stock is trending upward (successively higher highs). Conversely, a short position is taken when the stock is in a down trend (successively lower highs).

This strategy assumes that the present direction of the stock will continue into the future. It can be used by short-, intermediate- or long-term traders. Regardless of their chosen time frame, traders will remain in their position until they believe the trend has reversed - but reversal may occur at different times for each time frame.


Swing
1. A fluctuation in the value of an asset, liability or account. This term is most commonly used when referring to a situation in which the price of an asset experiences a significant change over a short period.
2. A short-term trading strategy in which a trader attempts to capture gains by holding a security for only a few days. Also known as "swing trading".

1. The volatility that exists in the financial markets can be seen easily when the price of a certain security undergoes rapid changes in value. These sharp shifts are often referred to as a swing. For example, it is not uncommon to see a major index swing from negative territory to positive territory just prior to the market close.
2. Swing trading is often used by individual investors since their small positions won't have a dramatic impact on the price of the security. On the other hand, financial institutions do not have the luxury of entering or exiting a position over a matter of days since the size of their orders can greatly influence the price of the asset.

That All for today guys, I will update soon about technical analysis.

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The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The trade happening in the forex markets across the globe currently exceeds $1.9 trillion/day (on average). Retail traders (individuals) are currently a very small part of this market and may only participate indirectly through brokers or banks and may be targets of forex scams.

HISTORY

The forex market is a cash inter-bank or inter-dealer market, which was established in 1971 when floating exchange rates began to appear. The foreign exchange market is huge in comparison to other markets. For example, the average daily trading volume of US Treasury Bonds is $300 billion and the US stock market has an average daily volume of less than $10 billion. Ten years ago the Wall Street Journal estimated the daily trading volume in the forex market to be in excess of $1 trillion. Today that figure has grown to exceed $1.8 trillion a day.

Prior to 1971 an agreement called the Bretton Woods Agreement prevented speculation in the currency markets. The Bretton Woods Agreement was set up in 1945 with the aim of stabilizing international currencies and preventing money fleeing across nations. This agreement fixed all national currencies against the dollar and set the dollar at a rate of $35 per ounce of gold. Prior to this agreement the gold exchange standard had been used since 1876. The gold standard used gold to back each currency and thus prevented kings and rulers from arbitrarily debasing money and triggering inflation. Institutions like the Federal Reserve System of the United States, or the Bank of England in the United Kingdom, have this kind of power.

The gold exchange standard had its own problems however. As an economy grew it would import goods from overseas until it ran its gold reserves down. As a result the country’s money supply would shrink resulting in interest rates rising and a slowing of economic activity to the extent that a recession would occur.

Eventually the recession would cause prices of goods to fall so low that they appeared attractive to other nations. This in turn led to an inflow of gold back into the economy and the resulting increase in money supply saw interest rates fall and the economy strengthen. These boom-bust patterns prevailed throughout the world during the gold exchange standard years until the outbreak of World War I which interrupted the free flow of trade and thus the movement of gold.

After the war the Bretton Woods Agreement was established, where participating countries agreed to try and maintain the value of their currency with a narrow margin against the dollar. A rate was also used to value the dollar in relation to gold. Countries were prohibited from devaluing their currency to improve their trade position by more than 10%. Following World War II international trade expanded rapidly due to post-war construction and this resulted in massive movements of capital. This destabilized the foreign exchange rates that had been set-up by the Bretton Woods Agreement.

The agreement was finally abandoned in 1971, and the US dollar was no longer convertible to gold. By 1973, currencies of the major industrialized nations became more freely floating, controlled mainly by the forces of supply and demand. Prices were set, with volumes, speed and price volatility all increasing during the 1970’s. This led to new financial instruments, market deregulation and open trade. It also led to a rise in the power of speculators.

In the 1980’s the movement of money across borders accelerated with the advent of computers and the market became a continuum, trading through the Asian, European and American time zones. Large banks created dealing rooms where hundreds of millions of dollars, pounds and yen were exchanged in a matter of minutes. Today electronic brokers trade daily in the forex market, in London for example, single trades for tens of millions of dollars are priced in seconds. The market has changed dramatically with most international financial transactions being carried out not to buy and sell goods but to speculate on the market with the aim of most dealers to make money out of money.

London has grown to become the world’s leading international financial center and is the world’s largest forex market. This arose not only due to its location, operating during the Asian and American markets, but also due to the creation of the Eurodollar market. The Eurodollar market was created during the 1950’s when Russia’s oil revenue, all in US dollars, was deposited outside the US in fear of being frozen by US authorities. This created a large pool of US dollars that were outside the control of the US. These vast cash reserves were very attractive to foreign investors as they had far less regulations and offered higher yields.

Today London continues to grow as more and more American and European banks come to the city to establish their regional headquarters. The sizes dealt with in these markets are huge and the smaller banks, commercial hedgers and private investors hardly ever have direct access to this liquid and competitive market, either because they fail to meet credit criteria or because their transaction sizes are too small. But today market makers are allowed to break down the large inter-bank units and offer small traders the opportunity to buy or sell any number of these smaller units (lots).