Cognitive Process of Technical Analysis
An approach to the step by step understanding of decision making
Excuse my noob English ☺
Summary
Introduction to the Theme
Description and Realisation of the Concept :
Materials
-
Advanced Technical Analysis
Support / Resistance
Trendlines
Channels
Patterns
Fibonacci
-
Timeframes
Assemblement Process
Resuming of Assemblement Process and Identification of Important Technical Analysis Areas
-
System
Part One ;
- Market Analysis and Characteristic Behaviours
Part Two :
- Timeframes defining the Interior Combination for an effective result for signals
Introduction to the Theme
Considering to give this method simplicity, i will be very concrete, direct and not using too much fabula
while explaining, just the most important what you really have to know.
The question was, what do need every trader for knowledge’s, to have the right technical analysis
combination, to apply the process and understand from every timeframe the important information,
for a successful trading signal.
Many traders who have trading systems with indicators, can be successful with their systems,
but mostly, even if the signal is given, the market turns in the opposite direction and fakes you out.
Here i will tell you,
I know some really well educated people in trading, but I have observed that their lack and weakness
is their ability to remember the combination of their knowledge, and forgetting the basic tasks for initial
trading.
In my last thread where i explained the system I use, i told that with this system you will not need any
of technical analysis, this was a fault, because I considered that everyone searching for an adapted
system for the markets, will have the faculty of basics, so that they have a consciousness motor of
trading, and will not mess up their charts with lines, just taking a look on chart, focusing on the
important areas, recognising them further by basic education.
Its not about the complexity of your indicators, or their preferences in variables how you trade them,
Changing preferences will adjust the indicator to your trading style, yes, giving you signals, « YES »
but never giving you the direction and probability of the market behaviour.
I will name this part
« The holly enlightenment »
Description and Realisation of the Concept :
Materials
-
Advanced Technical Analysis
This Materials will be your Technical Analysing tools you will work.
Support / Resistance
Trendlines
Channels
Patterns (learn all patterns)
Fibonacci
( I will not explain how they work, we will go directly and work with them, you can find online enough
websites to learn anyone of them )
http://www.investopedia.com
type your question ( example ) Support / Resistance in the search bar.
With the Schema, you will understand quickly how you can work with the materials we have
mentioned, and get an idea of the variation in combinations what can appear while trading.
We have 5 Materias. If we take 1 Materia for example Support resistance, and add everytime the other
4 Materias, we result for the first variable combination to 5 possibilities.
Considering that we have 5 Materias, and 5 variable combination possibilities, we get a result of 25
samples you have to observe, “if they all appear on chart to trade”. You don’t need to learn them, just
be aware of their existance.
While trading, a variable combination of the materias can appear all together, but mostly just ...
Example :
-
Timeframes
After associating the information we have collected by the Materia variable combinations,
You will need to apply this method to every timeframe what give you the opportunity to do so.
Beginning from the Daily chart, to see the Major Materia, than the 4h to identify the variable
combination, and trading the 1h chart for your entry signal resumed.
We will see, and practice this with examples in the Part 2 section.
-
System
All I can tell you about your system is to keep it simple, some of you have read the Elite thread on
Forex factory, and are familiar with the approach.
It’s up to you what wishes to use or feel confident with.
http://www.forexfactory.com/showthread.php?t=77850
We will also see Part 3, examples of a proceeding strategy for this system and reference it to the
Technical Analysis in Timeframes we have already described.
(After understanding the proceeding, you can adapt it to your personal system, ☺ )
Part One:
- Market Analysis and Characteristic Behaviours
Every time when I set up charts, I begin to draw at first Support Resistance.
Support Resistance gives me a better idea of ranging areas, where I can have entries, or set targets.
If you take a look at the last MA crossing signal, you will find the cross exactly at a Support Level, the
next Support Level would be my target, an so on.
And than Trendlines…
Using to experiment with all variables of trendlines, until I find a valid pattern.
Here you can see beginning of an uptrend, and major support level on it, while at the moment a
downtrending Channel is occurring, and maybe soon finishing, continuing the major uptrend.
The Upper Trend line of the falling channel, and the Major Trendline of the new occurring uptrend, can
be considered as a triangle pattern, that’s the first reason to understand it as a probability to buy the
uptrend.
2cnd, and also important, is the highest trendline, drawn on the highs of price action, if we zoom the
chart a little bit out, you can see that maybe a rising wedge is forming
The signal would be the nearest resistance breakout, with the MA crossing Signal.
Now we will get a little help from Fibs
As you can see, price bounced honestly at the 61.8 level, what can be understood that price will finish
the retracement of the current down channel, and gives a continuation signal of the major uptrend.
After what we have learned now… we have all 5 Materias included in the chart helping us.
We write all down on a clean chart, by side this one we are trading on, to see every time and write
every time what is happening in the market.
For this example would be declared:
Major Uptrend occurs, 2 major patterns are confirming with possible Symmetrical Triangle, and rising
wedge pattern.
Actual trading area having a down channel, almost hitting the ground of Fibonacci 61.8 % level
retracement.
Higher lows of valleys are up trending swing periods.
Awaiting Systems Signal and Resistance breakout for buy execution.
Part Two ;
You can choose between 3 timeframes to trade, and this timeframes you will need additionally to trade
them, personally I trade the 1h mostly the 15 min, but this is just a preference, choose your own mood.
This will be a 1h trading example
Technalize the Daily chart to get Major variable combinations, but do not trade it
Do the same with the 4h to see intermediate range areas, entry possibilities, and target, but do not
trade it
Set up the same way your 1h chart, and trade it with the all round cross over information of previous
timeframes.
Example:
If Daily tell us
After the last greater move of the Kings Crown or head and shoulders pattern, price having reached
his target, and already broken the major down trendline, defining an up channel, we can notice some
hard points.
Channel is up trending.
Fibonacci Retracement tool (green on chart) set from the current low to the new high,
this high were chosen cause of the repeated resistance bounce for the moment.
Price is consolidating between the Fibonacci 0 % and 23.6% line
System signal were already given and is up trending.
Drawing further Support Resistance levels to have a nearer focus on region.
Estimation is that price maybe will retrace to the 38.2% or break the 0 % fib level, to reach 161.8% Fib
Extension Level for target.
(as we said, thus are just estimations, news can change all)
Than we get from 4h
Rising wedge, with price hitting the bottom of supporting up trendline, but still within a down channel
for retracement on it.
A symmetrical triangle, with the upper trendlie of the down channel, plus the supporting major up
trendline.
And Fib retracement tool with bouncing on 61.8% level.
Giving us 2 patterns of a just new beginning rising wedge, a near breaking asymmetrical triangle,
A near breaking to reverse price down trend channel, and Fibonacci 61.8% retracement tool,
To a strong buy channel.
Support resistance are as usual set for breakout entries and target set ups.
Combining the Daily and 4h :
We know from the daily that it just has recover from the last Crown reversal to down trend target, and
the market will take a new direction to go up.
Confirmed by the broken trend lines, the new up channel, and the given signal of the MA system,
But still noticing that it can retrace on 38% fib retracement tool or lower, while its still ranging in the 0%
to 23% area.
From here I will know that there is a greater probability that the price will go higher, than fall, and if it
falls, not very much, and if it really break more down, we don’t care, why, because we understand to
trade Support Resistance breakouts, with area variable combinations.
Now to the real trick, the 1h.
1H setting up, understanding and trading
Yes, there we are…
If this Resistance breaks, with a Ma system signal, reaches the first profit target of next resistance,
breaks the channel, you can expect a new upper trendline target hit of the rising wedge.
Now it’s about to you to be disciplined to trade your system rules, waiting for a breakout, waiting for a
Ma system crossing signal, setting up stop loss to the upcoming new support, and trade.
One last thing I will say here, if news is forecasted, everything can change immediately and you need
to change you analysis, adapting it to new market conditions.
If you are not a news trader, never trade at news times.
This is almost what you really need, this is how I trade for a living…
I hope my English haven’t messed it up so much, and its clear to understand the important things.
Have Fun.