Graphical analysis of financial markets - a method of forecasting prices based on the values of past time intervals. On instruments of high volatility with high volumes, the rules of technical analysis work, because the axiom of the market says "Everything is already put into value." Everything is politics, wars, negotiations, accidents, poor harvests, OPEC, Fed and meteorites.
Graphical analysis tasks
Dynamics of the value of the instruments of the exchange market is displayed on the charts. The player decides to become an investor or speculator on the basis of the results of processing information about the market instrument. Investors enter the exchange asset for a long time with a vague prospect of a price increase. Speculators trade on short time intervals and operate according to the rule "Better a small profit than a big loss."
In graphic analysis, there is an element of artistic perception. As in the psychological test, all subjects are presented with the same spot on the turn of the paper, but each participant of the experiment sees in this spot his own picture.
When viewing the chart, you should determine more precisely what the change in the direction of the price in the moment - about a change in trend or correction - indicates. An erroneous conclusion during the investigation will lead to monetary losses up to zeroing the account.
Graphs represent the past of a paper, commodity or currency. The trader uses analytical skills, and then builds the future on the basis of archival information:
- It calculates the possible price for a remote period by the graphical method of analysis. Some analysts stick only to the graphic. Other forecasters combine information on macroeconomics, politics and finance with the results of trades.
- By juggling the rules of entering the pose and leaving the transaction, the analyst uses the graphical parameters to select the execution point for the operation.
The course of price changes for a fixed period of time is displayed in a two-dimensional coordinate system. On the X-axis, the time parameters are applied: minutes or hours, days or weeks, months or years. On the Y-axis, the value of the projected instrument in the selected currency is noted.
Ways to Build
The appearance of the graph depends on the type selected. The following types of graphical display of information about trading parameters are common:
- Japanese candles.
Types of images are listed alphabetically without any priorities. A beginner trader should master the practice with each of the types listed above to stop preference on one of the three.
To make it easier for the trader to make a decision about the period of the retention of a financial instrument, one should master the construction of graphs on short (from one minute to day) and long (from a week to a year) intervals.
Long-term investments in paper are planned on the basis of graphical analysis of the graphs of daily, weekly and monthly periods.
Any of these types requires information about the four values of the price in each time interval:
- When opened;
- At closing;
Bars are represented by a column where the maximum is laid on the top, and the minimum - on the lower end of the column. The price of the opening is shown on the left side, the closing value is drawn on the right side of the column with a short horizontal stroke. Thus, on the bar graph, the user sees four tariffs at once for each time interval.
The graph in the form of a line displays only one price - opening or closing, minimum or maximum. Studying the past, the trader will get an idea of the next move.
Graphical analysis of candles
This method operates with information about the state of the value of the market asset in a certain time period - opening, closing, minimum and maximum prices.
The candle has a body and a shadow. The body is a rectangle of green or red color.
Japanese candles graphical analysis of financial markets were born during the writing of black ink on white rice paper. Therefore, the terms "white candle", "black candle". So far, analysts and forecasters are writing about white and black. But traders work on computer equipment with customizable parameters of graphical tasks. Analysts use color on the charts of exchange programs, for example, green and red.
The green color of the candle indicates the excess of the closing price over the open price on the time interval. Green figures are called "bull candles".
Red means that the closing price is less than the opening price. Red figures are called "bear candles".
Thin sticks - the upper and lower shadows - signify the maximum and minimum price, respectively.
The advantage of Japanese graphic analysis over other types is the formation of combinations - signal sources to change the trend. Combinations are usually formed from two or three candles.
The candle poem
Long candles without shadows are called "maribozu". The absence of the bottom and top shadows in coincidence with the current trend indicates the continuation of the trend. A long green bovine candle without shadows with an upward trend confirms further growth. A long red bearish candle without a lower and upper shadow signals the continuation of the fall.
The longer the closing mariboz, the higher the probability of continuation of the trend.
If the long candle in the direction does not coincide with the main price course, it is a signal to a close turn.
Candles without a body are called dodge, or cross. The market is in limbo. The body of a candle is the price fluctuations over a time interval. Absence of the body with small shadows - absence of oscillations, equilibrium between bulls and bears. Bulls outweigh if the upper shadow is longer than the lower one. Bears are poured, if the lower shadow exceeds the upper in length.
Graphical analysis of markets by Japanese candles is based on dozens of types of candle combinations.
Hills and valleys
The price can grow, fall and stay in the outset. The monetary parameter of the traded asset varies depending on the prevalence of sellers or buyers.
On the graph of changing direction, prices look like peaks and depths. Each peak and each depth is a manifestation of the preponderance of sellers or buyers.
The words "graphic analysis" denote the search for the limits of price change by constructing auxiliary elements to the cost picture.
A straight line drawn along two peaks is called a resistance line - the price tears up, but sellers are stronger than buyers. In this situation, correction is inevitable.
The line between the two depths is called the support line - it does not give the cost to fail. Buyers here are stronger than sellers, so the monetary parameters of the asset will rush upward.
Parameters of the trend estimation
Graphical analysis of market trade data implies a trend search, or trends - a series of peaks and dips. Direct trend on the chart gives the trader the concept of the duration of the price movement at the existing rate.
The trend is determined by the following parameters:
- tilt angle;
- The number of touch points of vertices (depths) from a straight course.
The inertia of the direction of motion is directly proportional to the extent. The probability of changing the trend is inversely proportional to the number of touch points.
There are short-, medium-, long-term trends.
A short-term trend corresponds to a duration of up to three weeks, that is, less than a month.
The medium-term trend lasts about three months.
A long-term trend is a period from three months to five years. Recently, the long-term period of investment is calculated under the Constitution article on elections.
The forecast of new peaks and depths behind the schedule sheet and, accordingly, signals about changes in the trends of price movement is possible, proceeding from the law of self-preservation: the developing trend tends to preserve the direction of movement.
Angle of angle
The parameter "angle of inclination" is constant at a particular stage of the trend development. Breakdown at the price of the trend line reports a change in rate.
The trader should observe the volume of trading operations. The situation when on small volumes of trades the price changes in the direction of the trend should be alarming.
Normally, an uptrend along with an increase in the value of an asset fixes an increase in volumes, and a falling price is accompanied by a decrease in volumes.
Norm for a downtrend: an increase in volume with a decrease in the monetary expression of an asset, and a rising price is adjacent to a decrease in volumes.
Models of graphical analysis
The exchange game contains many subtleties. One of them is a short-term price movement in the opposite direction in order to give an opportunity to purchase new or sell existing securities. This movement is called an adjustment.
To determine the state of the trend - a fracture or correction - price models are invented.
Since the trend is capable of either continuing or changing the polarity, two types of models have been adopted:
The continuation model is used to confirm the continuation of the direction. Model fracture - to diagnose the change in direction.
Let's consider the "head-shoulders" model. A relatively flat section appears on the chart, sharply turning into a growing round line. At the outset of this line, the price is marked by a sharp slowdown in growth, and then the fall begins, followed by the creation of another sloping line. The graph on this site resembles a goal on the shoulders, hence the name.
Inverted "head - shoulders", double top, triple top, double bottom - these types of fracture model are derived from the primary "head - shoulders" model.
The former way
Figures of the trend continuation model in the initial direction:
The triangle is formed by lines of resistance and support, as well as a vertical line on the left.
The descending triangle has a hypotenuse resistance line, and the support line and the vertical line serve as legs. This element signals the continuation of the decline in the money rate.
The ascending triangle is formed by the hypotenuse from the support line, and the resistance line becomes a leg. This detail gives a signal about the continued growth in value.
A symmetrical triangle warns of consolidation. Neither buyers nor sellers are able to overcome the resistance of the opposite side. The maxima are getting smaller, the lows are increasing, but the breakdown of the restrictive lines does not happen. Trade is in the triangle.
Two more figures of graphical analysis, formed by limiting lines:
- Descending wedge.
- Ascending wedge.
"Flag" occurs at the time of the suspension of large price evolution. It consists of a resistance line and a parallel support line, so that an oblique rectangle is obtained. The line of sharp growth is called the "flag handle". After the short consolidation, the direction of trading is restored.
Above the figure of the "inverted flag" the reader can experiment independently.
General search rules
The graphical method of analysis requires the following rules:
- There was a tendency - there will be a model. Missing - the search is vain.
- A flat geometric figure is characterized by a height equal to the addition of the price at a maximum, or a drop when the minimum is reached.
- The size of the model is the signal to the size of the changes in the market. The greater the width and height, the more significant the expected changes.
- Compare the volumes at the beginning of the model formation and in the final stage. The volume of operations increases to the end of the model formation.
- As soon as the chart breaks the foundation of the model - the formation is complete.