Chart the Trends and Range Bound Markets

The most important aspect of technical analysis is the goal, which always remains the same. Locate the trend or range bound instrument and pick the entry and exit points. All the indicators and charting techniques have the same goal.

When you decide to use technical analysis you must analyze your own style, are you a long term trader or a day trader. Choose your style and pick your charts and indicators to suit your style.

The longer term charts are generally more reliable when picking trends or range bound instruments. Use the long term charts to decide whether the instrument is trending or range bound. The longer the period you use and over the longer period of time will give you the best overview picture of the long-term trend of the instrument.

The shortest time period that you should use is a daily chart. Once you have established the long term trend use the shorter charts to pinpoint your entry and exit points.

A short-term market view alone can often be deceptive, even if you trade short term, your results will likely be better if you trade in the same general direction of the longer term trend. If the instrument is displaying a range bound life, then trade the range and keep your exit points handy for the renewal of a trend. Locate Support and Resistance Levels Whilst looking for the existence of a trend, you will find points of support or resistance.

Use the trend lines, only two points are necessary for either a support or resistance line, the third point will strengthen the line and confirms the trend line. Try to by on support lines in an upward trend or sell on resistance lines in a downward trend. Fibonacci Retracements Check for retracements during a trend. The Fibonacci retracements of 38.2%, 50% and 61.2% have proven to be very significant. Enter the trend at the end of the retracement or trade the retracement always with stops in place.

Moving Averages Use moving averages

they help confirm the trend and can help provide objective buy and sell signals. Moving averages will not tell you in advance if there is a trend change imminent, but it should be used as a back-up to your chart analysis for trend identification.

A combination chart of two moving averages is a very popular way of finding trading signals. Signals are given when the shorter average line crosses the longer, or when the actual price crosses over both moving averages

Oscillators Oscillators

such as RSI and Stochastics can be used as a warning of a change in the trend, together with the moving averages they can help indicate a trend and foretell a possible change prior to the change taking affect.

MACD

The Moving Average Convergence Divergence (MACD) indicator combines a moving average crossover system with the overbought/oversold elements of an oscillator.

In conjunction with the actual price chart the MACD can offer buy and sell signals when they are in conjunction with the actual price movements of the chart. A buy signal occurs when the faster line crosses above the slower and both lines are below zero.

A sell signal takes place when the faster line crosses below the slower from above the zero line. Longer-period signals take precedence over shorter-period signals. The MACD histogram plots the difference between the two lines and gives even earlier warnings of trend changes. It’s called a histogram because vertical bars are used to show the difference between the two lines on the chart.

Practice Like all skills, the best way of improvement is to trade, but do so wisely use the skills you learned, keep a journal of what works for you and what doesn’t. Fine tune your rules and study.

Your skills will improve with time – don’t be emotional and stick to your rules – and have fun.