The first step in any trader` s work consists in
determination of the prevailing market trend, then in selection of the price
appropriate for opening a position with the trend direction. Currently the
general principle of such work has been formed, consisting in determination of
the currently prevailing trend at larger time intervals and trade decision
making at smaller time intervals.
First of all, let us divide the current market situation
analysis into long-term analysis, middle-term analysis and short-term analysis.
For long-term bargains, we will determine the trend on the basis of month and
week scale and the entry point on the basis of day and four-day scale. For
middle-term tactics, the conclusion about the prevailing trend in the market
will be made on the basis of week and day scale, the entry point will be
defined in four-hour and hour price graphs. For short-term trade, let us find
the trend in day and hour graphs and conclude bargains in minute scale. Note
that these parameters are given just for reference, and as you gain more and
more experience you will be able to use other parameters instead of these ones.
The following example shows a variant of the situation
analysis in EUR/USD pair for middle-term tactics.
MN
First the last maximum and minimum are determined, and
support and resistance lines are drawn through them. Now let us come to the
week scale.
W1
Let us add a horizontal support line and draw inclined
support and resistance lines, so far unseen in the month graph, but clearly
observed in the week graph. What new will the day interval show to us?
D1
In the day graph two resistance levels can be clearly seen,
which the price has bounced from several times. Let us mark the levels with a
horizontal line. Then let us draw an inclined resistance level, as it has
become a barrier for the price for the last several weeks. All the lines are
marked with green.
On the basis of week and day scales the conclusion shall be
made that there is no any prevailing trend in the market so far. Now the price
has formed a corridor after the descending trend. Therefore we have a right to
expect that the price will fluctuate within the corridor for some time. It is
adopted to believe that support and resistance levels built at larger time
intervals are most reliable. So the line drawn at mark 1.2720 is the key
support for the current situation. And the horizontal line drawn at mark 1.3080
is the most important resistance level. Now let us come to the day graph.
H1
In this price graph let us add intraday levels and
support/resistance levels (they are marked with red). The hour scale will
enable us to analyze the current situation more accurately.
Now let us see what will happen next.
Note, how clearly the price has worked with the levels
marked. (A price gap happened after week-end, with a new trading session which
began on Monday). First the price bounced from the upper support level, then
returned to the previous local level, now acting as a resistance, and bounced
from it as well. This fact proves the reasonability of employing technical
graphic analysis for trading decision making in financial markets. And any
beginning trader` s challenge is to study methods of work in markets and apply
the learnt material in practice on demonstrational account.
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