In the field of Finance, many people are turned away too soon – or give up too soon – when they hear the term “Japanese Candlestick technical analysis.”  Perhaps one reason is that it sounds “foreign,” or that “technical analysis” implies a substantial amount of hard work and expenditure of time even to begin to understand what it is all about.  This is unfortunate, because this is nothing when compared to landing a vehicle on Mars or sending documents around the world in a flash.

The fact of the matter is that Japanese Candlestick technical analysis is a breeze to learn, and takes very little time at all.

What’s it all about?  Let’s start with an understanding of the usual method of price display of a certain stock.  The price action of the trading day is shown as a vertical line, or bar, which is associated with a price scale (in dollars) at the edge of the page.  The top of the bar is the highest price of the day; the bottom of the bar is the lowest price of the day; the little wing on the left is the opening price of the day; and the little wing on the right is the closing price of the day.  Simplicity itself.

The difficulty is that the display is inert; lifeless.   It doesn’t readily disclose what went on during the day, or much of anything about the psychology of the buyers and sellers which drove prices during the day.  The Candlesticks cure that defect.  Rather than simply showing price action as a narrow vertical line or bar, the line is “fattened out” into a cylinder.  If the result of trading during the day is that prices closed higher than the opening price, then the cylinder is left hollow, or “white;” if prices closed lower than the opening price, then the cylinder is filled in, and is shown as “black.”  Ah!  Now we see, at a glance, that the mood of the day, overall, was Down.  The Candlestick really comes into its own when streaming data are shown on the screen, so that the viewer can see the changes in mood as the day progresses.  It’s like a movie in progress.

The second major advantage of Candlestick presentation lies in the interpretation of the patterns which the candles produce over various units of time.  Some of the patterns are one-day affairs; others have meaning when they develop over a course of several days or other time frames.  The operator quickly learns to recognize them on sight.  For example, if – after a long rise in prices – a daily pattern appears, well above prices to date, which involves a substantial range between the upper and lower prices of the day but only a narrow range between the opening and closing prices – and if that happens at the low end of the total range, that is called a “Shooting Star,” because that’s exactly what it looks like, and it has bearish implications.

Another favorite of mine is the “Evening Star,” which is a combination of the candle bars over (say) a three-day period.  It occurs at the top of a long rise in prices.  If the first candle is a long white candle, the middle candle is a little higher, but smaller, and the third bar is a long black candle which is lower than the middle candle, that’s an “Evening Star” and is very bearish.

This is not rocket science or putting a lander on Mars!  There are only about a dozen Candlestick patterns which need to be memorized at the outset.  It’s really fun to learn them, and to put them into practice.  The beauty of the patterns is that they are so instantly recognized by the eye, and disclose at a glance the underlying psychology of the participants in the market on that particular day.

They are an enormously valuable trading and investing tool.  Once you learn them, you will never go back to the “old way.”

The characteristics of technical writing are different from the usual essay and creative writing gigs. A lot of people might consider this field a little too mechanical and stiff, but it’s not often the case. It’s up to you to work your way around the fundamentals. 

Characteristic # 1 of Technical Writing: Accuracy

Make a mistake on one detail and you could get everything wrong. 

For example, writing that the second-generation Acer Aspire One D150 model has an Intel processor of N270 instead of the new N280 already has dire consequences. Readers will think that there’s nothing really special about the second generation mini laptop and would then decide not to buy it instead. 

As a technical writer, you are expected to provide accurate information on whatever subject you’re writing about. 

Characteristic # 2 of Technical Writing: Crystal Clear Language

A lot of technical writers make the mistake of writing in pure jargons. Unless your audience is also a major techie fan, you can’t expect your readers to understand what you’re going on about. 

Your purpose is to help your readers understand what a product is all about – in layman’s terms. If you must use jargons, try your best to explain what these are. 

Characteristic # 3 of Technical Writing: Descriptive Details

In technical writing, you have to be as descriptive as possible. Keep in mind that your readers will have a hard time picturing the product without sufficient details. 

These three characteristics of technical writing may be basic, but they are also the most important. They are the foundations of an effective technical article.

The three major assumptions underlying technical analysis are:

1 - All market forces are taken into account in price movement. Many things can affect the price of a currency. Some of these factors would be economic conditions, political happenings, natural disasters, seasonal supply and demand and even the weather. Technical analysis, however, does not attempt to take these into account because the market has already done that. Rather, a technical analyst is concerned with the actual movements of the market, not with the reasons for the movement.

2 - There are observable trends in currency prices movements. There are known market patterns that follow predictable paths.

3 - There are historical trends in price movements. Over a century of FOREX data collection has shown that human nature interacts with events in predictable ways. Thus, when circumstances are similar in the market, the same patterns will show up.

Technical Analysis: Is It Necessary?

Day traders in the FOREX usually use technical analysis most heavily, though they may supplement it with fundamental analysis. Technical analysis has the huge advantage of being applicable to a wide range of currencies and markets simultaneously. To properly do fundamental analysis requires a good knowledge of events and conditions in a certain country so the number of markets any particular trader can analyze by the fundamental approach is necessarily limited.

Technical analysis can seem so complicated to the beginner that they may be tempted to wonder if it is really needed. The truth is that all investing requires a strategy and technical analysis is a proven way to set strategy by predicting FOREX movements. Of course, no strategy or method is always successful, which is one reason many technical traders also do some fundamental analysis as a supplement.

Using Price Charts In Technical Analysis

Charts lie at the heart of technical analysis and you will find a good selection available from any online FOREX broker. Not only are the charts updated constantly, real time, but they can be viewed in a variety of ways. You can see movement over various periods of time, broken down into different time scales, and with various analytical overlays applied. With the software provided you can see the broad picture over a long period or zoom into the most minute detail. The basic software is free from most online Forex brokers but there may be a fee for the more professional, in-depth, information.

Sometimes the charts are a built-in part of the broker's software package. Alternately, they may be available on the broker's website.

Practice, or demo, accounts are available from most brokers on their website. These allow you to use the charts and tools of that particular software to learn the techniques of following charts, noticing and learning about trends and studying market movements. Nothing can substitute for this valuable period of becoming intimately familiar with charts and market behavior.

A finite number of futures traders participate in the markets on any given day, week, or month. Many of these futures traders do the same kinds of things over and over in their attempt to make money. These individuals develop behaviour patterns, and a group of individuals, interacting with one another on a consistent basis, form collective behaviour patterns. These behaviour patterns are observable and quantifiable, and they repeat themselves with statistical reliability. Technical analysis is a method that organizes this collective behaviour into identifiable patterns. The patterns can give indications of when there is a greater chance of the market moving in one direction or another. In a sense, technical analysis allows you to get into the mind of the market, and anticipate what`s likely to happen next, based on the kind of patterns the market generated in the past.

As a method for projecting future price movement, technical analysis has turned out to be far superior to a purely fundamental approach. It keeps the futures trader focused on what the market is doing now in relation to what it has done in the past. This is instead of focusing on what the market should be doing based solely on what is logical and reasonable as determined by a mathematical model, as would be done in fundamental analysis.

But, if technical analysis works so well, why don`t more people consistently make money? Once an investor learns to identify patterns and read the market, there are limitless opportunities to make money. But, as I`m sure you already know, there can also be a large difference between what you understand about the markets and your ability to transform that knowledge into consistent profits.

Think about the number of times you`ve looked at a price chart and said to yourself, Hmmm, it looks like the market is going up (or down), and what you thought was going to happen actually did happen. But, you didn`t actually make a trade, and in the end you moaned over all the money you could have made.

There`s a big difference between predicting that something will happen in the market, and the reality of actually getting into and out of future trades. The difference is a mental gap that can make futures trading one of the toughest fields to master.

But can futures trading be mastered? Is it possible to actually trade with the same ease and simplicity you feel when you`re only watching the market and having theoretical successes? Regardless of your ability to use technical analysis, you still need to make money. Well, it is possible. Placing trades in the futures market can become as easy, simple, and stress-free as watching the market and thinking about doing futures trading.

This may seem unlikely, and to some futures traders it may even seem impossible. But it`s not. There are people who have mastered the art of trading in futures, who have closed the gap between the possibilities available and their bottom-line performance. They have taken the opportunities given them by using technical analysis, and they`ve applied the other skills necessary to make consistent profits. With time, and discipline, you can learn to trade in futures like the most successful futures traders.

The goal of technical analysis in the stock, futures or commodities market is to help us determine when a market is trending, and when it is not. If a stock or futures contract we want to trade is trending, then we want to be on board. If it's not, all you are going to do is lose money as you get whipsawed around day after day. This is not what we want as traders.

If you trade using a weekly chart, all it takes is a couple of trends a year to make a lot of money trading. If you trade something like that S&P; Emini futures contract, using a 3 minute chart, then you'll need one or two of these strong trends a day to do well, but it's all relative.

Unfortunately, many people fight the trend and buy at every small up tick in a down-trending market, thinking they have picked the bottom, only to see the Stock or index fall further immediately. By the time the sellers are finished, these traders have spent their monetary and psychological capital in a futile attempt to pick the bottom of the market.

Another common mistake traders often make is buying more as the price falls, or averaging a loss. You can imagine how dangerous this strategy can be in a strongly down-trending stock - it's something good traders never do. The trend is your friend, don't ever buck it.

Good technical analysis skills, especially in fast moving futures and commodities markets, give us a mechanical indicator for price points to use for entries and exits and take a lot of the guess work out of our trading. It is very hard to argue that the trend is anything but down at any time if you are simply looking at a series of consistent lower tops and bottoms on your chart.

Does good technical analysis mean you'll always make money?

No, of course not. Losses on some trades are inevitable, as we cannot know for sure what the market will do. It only takes one person somewhere in the world to invalidate your perfect trade set-up and send the price of any market in the opposite direction to what you were certain was going to happen.

All our analysis can do is alert us to probabilities - there are no certainties in financial markets. This is the hardest thing for most traders to accept. We all hate to be 'wrong', but that is the nature of the trading business.

All we can do is take every trade and see what happens. The better our analysis and our trading system, the more likely our trades will produce profits. Every one of us must learn or develop a system of analysis that we are comfortable with, based on what we learn from other traders, mentors and coaches, and then we must take every trade that system signals.

If we start to second guess our system, we may as well throw it away and just stick with our day job. Make a decision to develop or learn a technical analysis system you are happy with, and commit to taking 20 trade set-ups in your preferred stock, futures market or commodity no matter what. Then follow your trading rules to the letter. This will give you an objective measure of how profitable your system is and whether it is right for you.

If you can enter a trade and hold a position, your plan is sound. If not, you may be over-trading (have too many open positions for your account balance and your personal temperament) and need to reduce the size of your position or adjust your plan is some other way.

The large profits come from using a proven technical analysis method to identify a strongly trending market and taking multiple positions with that trend. This naturally involves holding firm and not jumping out at the first sign of trouble. Of course, you can only take what the market is prepared to give, so a system of trailing stops is a good way to lock in profits as they accrue.

Bottom Line: Find a trading and analysis system that's been proven to work from somebody who has actually been trading it for a long period of time, have that person coach you through their system until you can implement it flawlessly, then take every trade signal the system produces regardless so you can test it's validity.

All great athletes, business people (and yes traders) have a mentor or role model who they turn to for advice and guidance. Find one for yourself and your results as a stock, futures or commodity trader are bound to improve.

A variety of technical tools are used to help gauge good entry points. No TA tool by itself will give you reliable buy or sell signals. Learning how to read indicators is more of an art than a science.

There is no black box that will give you the perfect, accurate signal. However, the combining of the right group of TA indicators with discipline and adequate trading capital has been the road to fortune for many traders.

An important tool for determining the strength of a trend and whether a market is range bound is the Average Directional Index or ADX.

Measured on a scale between 0 and 100, readings below 20 are used to indicate a weak trend, while readings over 40 indicate a strong trend. ADX is not used to show the direction of a particular trend, rather to measure its strength.

Stay away from trend following trades if the ADX is below 20 and trending downward. Bollinger Bands are a popular study used across all markets.

They can be useful in both generating entry and exit signals and gauging trends. The basic interpretation of Bollinger Bands is that market prices will tend to stay within the upper and lower bands.

If price moves outside the BB this would suggest a continuation of the current trend. Bollinger Bands are best used along with other indicators, such as an oscillator like the MACD (Moving Average Convergence/Divergence) An indicator developed by Gerald Appel. By comparing moving averages, MACD displays trend following characteristics, and by plotting the difference of the moving averages as an oscillator, MACD displays momentum characteristics.

It is best to use only 1 indicator that shows overbought/oversold ie: stochastic and RSI

Moving Averages are lagging indicators and can be used as a trend follower, trend-following indicators work best when markets develop strong trends.

Through careful study and analysis, expertise with the various indicators will develop over time. As this expertise develops, certain nuances, as well as favorite setups, will become clear. It is best to focus on two or three indicators and learn their intricacies inside and out.

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Unfortunately, it’s not everyday that I get a CD for review that I can just pop in and comfortably listen to from beginning to end. There is usually a song or two that I just can’t force myself to get through. Not at all the case with Technical Ecstasy. Every track is enjoyable and was pretty easy for me to listen to from start to finish.

One of the nicer things about a CD like this is with this level of talent even if Rock isn’t your favorite style you still can’t help but appreciate the greatness of the musicians.

Overall Technical Ecstasy is outstanding from beginning to end. One of those CDs that after a few listens the songs are just etched into your memory. A must have for the Rock fan. Really sensational from beginning to end.

While the entire CD is really very good some of my favorites are track 2 - You Won’t Change Me, track 6 - Rock N’ Roll Doctor, and track 8 - Dirty Women

My Bonus Pick, and the one that got Sore [...as in "Stuck On REpeat"] is track 1 - Back Street Kids. What a nice track!

Technical Ecstasy Release Notes:

Black Sabbath originally released Technical Ecstasy on October 25, 1990 on the Warner Bros. Records label.

CD Track List Follows:

1. Back Street Kids 2. You Won't Change Me 3. It's Alright 4. Gypsy 5. All Moving Parts (Stand Still) 6. Rock N' Roll Doctor 7. She's Gone 8. Dirty Women

Black Sabbath: Ozzy Osbourne (vocals); Tony Iommi (guitar); Geezer Butler (bass); Bill Ward (drums, background vocals). Additional personnel: Gerald Woodruffe (keyboards). Recorded at Criteria Studios, Miami, Florida.

Here we are going to show you the logic and how you can use technical analysis to get you a trading edge to earn consistent profits. 

The most common query in regard to technical analysis is: 

How can it possibly help you trade when the fundamental supply and demand equation is not known? 

The answer is it takes into account all the supply and demand fundamentals. 

How?

Technical analysis works on the basis that the fundamentals are instantly discounted in the price ( and if you think about it this is perfectly logical in today’s world of instant communications ) and all fundamentals immediately show up in price action. 

But technical analysis does something more: 

The price of anything ( including currencies ) is not just a reflection of the supply and demand fundamentals, it is a reflection of how people view them. 

Human psychology ultimately determines the price of anything. 

So, the equation for the determination of price is: 

Supply and demand + human psychology = Price

Recurring price patterns 

Human nature is constant and this is reflected in recurring price patterns in the market that can be traded for profit. 

By studying charts and a whole host of technical indicators traders can determine the odds of where prices will go next. 

In essence technical analysis in directly studies the fundamentals and human psychology. 

Most short term price spikes are caused by emotion - Not the supply and demand fundamentals and these are easy to spot using technical analysis. 

Technical analysis is an art not a science. 

You need to practice your art, however if used correctly, it can help you put the odds in your favor and help you spot trading opportunities. 

Currency markets are ideal for technical analysis as they exhibit long term trends either up or down in price. 

By locking into these trends you can trade them for profit and as the major trends can last for months these profits can be huge. 

In part 2 of this article we will go through how to use technical analysis correctly to profit from these long term trends. 

Some of stock market indicators are more common and useful than others. Also you need a few of them to trade not all off them. 

In this article I try to describe three oscillators: 

Momentum and Rate of Change (ROC) 

Moving Average Convergence/Divergence (MACD) 

Relative Strength Index (RSI) 

What are oscillators? 

Oscillators are indicators that are usually computed from prices and that tends to cycle or "oscillate" within a fixed or limited range. 

Momentum and Rate of Change (ROC) 

Momentum is an oscillator designed to measure the rate of price change, not the actual price level. This oscillator consists of the net difference between the current closing price and the oldest closing price from predetermined period. 

The formula is: 

Momentum (M) = CCP - OCP 

Where: CCP is Current Closing Price and OCP is Old Closing Price 

Momentum is simply the difference, and the ROC is a ratio expressed in percentage. Momentum and Rate of Change (ROC) are simple indicators showing the difference between today's price and the close N days ago. Momentum in general term means strongly movement of prices in a given direction. 

Moving Average Convergence/Divergence (MACD) 

MACD is computed by subtracting a longer moving average from a shorter moving average. MACD is used with a signal or trigger line, which is a moving average of MACD. If MACD and trigger line cross, then this indicate that a change in the trend is likely. MACD developed by Gerald Appel. 

The MACD smoothes data, as does a moving average; but it also removes some of the trend, highlighting cycles and sometimes moving in coincidence with the market . 

Relative Strength Index (RSI)

RSI measures the relative changes between up-moves or down-moves and scales its output to a fixed range, 0 to 100. RSI is an oscillator and Welles Wilder devised it. 

The formula for calculating RSI is: 

RSI = 100 - [100/ (1+RS)] 

Where: RS is average of N days up closes, divided by average of N days down closes and N is predetermined number of days that usually chosen 14. 

RSI can use as an overbought/oversold indicator. A buy signal is when the RSI moves below a threshold, into oversold territory, and then crosses back above that threshold, usually 30 is taken for oversold threshold. A sell is signaled when the RSI moves above another threshold, into overbought territory, and then crosses below that threshold, usually 70 is taken for overbought threshold. 

Conclusion 

Oscillators are used as an overbought/oversold indicator. A buy is signaled when the oscillator moves below some threshold, and then crosses back above that threshold. A sell is signaled when the oscillator moves above another threshold, and then crosses below that threshold. 

Oscillators have the potential to provide good entry and exit points. So they have the potential to provide a high percentage of wining trade. Also they have some weaknesses; some of them can easily become stuck at one of their extremes, or don't capture some trends.