Step one in technical research is to be taught how to read the charts. Here are one or two basic lessons to steer your early attempts. When first researching a currency pair, keep an eye open for the present trend. Start with the long term charts ( monthly, weekly, and daily ), going back for one or two years. Because these charts contain a bigger amount of info, they provide a more clear picture of just what the currency pair is doing than the near term charts ( hour, half-hour, 15-minutes, or 5-minutes ). Identifying the trend is simple : just glance at the chart and judge whether the graph is going more up than down, or perhaps more down than up. Trends can be steep or shallow, years long or weeks short. Practice identifying them, and finding the points where they change direction. The longest-term trend is the strongest, which is an alternative reason for having a look at those charts first. Even if you are scalping or day-trading and don’t plan to hold a position longer than an hour, you will do better by trading in the same direction as the existing trend. So bother to identify it on maybe the daily charts before beginning. There’s an old trader’s saying : The trend is your friend. It isn’t a lie. When you have identified the trend in the long run charts, compare that with what you see in the short term charts. You will find that there could be any quantity of intermediate-term and short term trends in the trail set by the present trend. The graph will waver up and back down but often it’ll follow the trail set by the longest-term trend.
Next, find the SR levels, which are the floor and ceiling points on the graph.
These are major points on the chart where the price often will not wreck thru, or merely peeks thru then gives up the fight. The price will go just so high or so low, but no further, it reaches that point then changes direction.
The more times that occurs, the stronger the SR are. Draw a straight line, either in your mind’s eye or on the chart, passing through virtually all the support points. Then draw another passing thru almost all the resistance points. This gives you a picture of the trail the currency pair’s trend is following, called a price channel, and it is an easy but potent tool to help work out how that trail will continue.
When SR are strong, the graph of the currency pair appears to bounce along sideways between those two lines like a pinball.
These lines do not need to be level. However it’s slanted, you can still trade inside that range. When a currency pair breaks out of a price channel, regularly it falls into the channel, and occasionally it gains momentum and keeps moving. This last is known as a momentum market, and it is the other way to trade the range : set an entry order for the price to break out, either above or below the channel, then relax and let it ride. Congratulationsyou now understand the most vital parts of basic technical analysis!
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