Application of Moving Average
What are technical indicators: Technical indicators, such as Bollinger Band, MACD, RSI, etc., are critical aspects of technical analysis. These indicators use mathematical methods to analyze past price data to help the users determine the market trend and possibly give buy and sell signals. Moving Averages Introduction Moving average is a widely used technical analysis tool at present. It is simple and practical, using it correctly, combined with individual and market trends, volume, news, etc., a trader can make a better judgment call. A moving average represents the average price at a specific time within a particular period. They revolve over time and reflect the latest average. There are several moving averages, including Simple Moving Averages, Exponential Moving Averages, Weighted Moving Averages, Linear Regression Moving Averages, etc.; the main difference is the mathematical methods used in the calculation. In terms of time, the moving average can be divided into short-term, medium-term, and long-term periods. There is no requirement in selecting which period to use, it’s ultimately a user’s choice, but some conventions can be followed. For trading, users like to deploy 10-day, 20-day, and 50-day periods, either individually or combined, whereas for determining the long-term trend, the 200-day moving average is generally perceived as a boundary for bull and bear markets in a long-term direction. If the price moves below the 200-day moving average, it indicates a bear market, and on the contrary, when the price is above the 200-day moving average, it represents a bull market. Application of Moving Average Act as support and resistance–when the moving average is trending up, it acts as a support to bounce the price up if it falls to its level. On the flip side, where the moving average is trending down with the price starting to go up, it serves as a resistance line to stop the price rise above its level. Serve to detect potential trend reversal–Deploying multiple moving averages can help to determine if the trend is about to reverse. For example, buying signals are usually warranted when a short-term moving average crosses above the long-term moving average. Conversely, sell orders could be triggered when the short-term moving average goes below a long-term moving average. Limitation The action of the moving average is often too slow, lagging behind the general trend; this is a significant weakness of the moving average. And because it is trailing, the moving average is therefore not necessarily indicative of a trend change, thus, making it difficult for traders to accurately pinpoint either the trough or the peak. As a result, to detect a trend reversal, traders usually do not solely rely on the moving average; they study other technical indicators as well. Finally, at times, the buying and selling signals of the moving average will frequently emerge, thus raising confusion and may even be misleading.
The Channel Down chart pattern
Channel Down The Channel Down pattern, also known as Descending Channel pattern, is when prices bounce off between two parallel lines for some time, and the direction of these two lines points to the lower right. In a downtrend, the highs and lows of the price continue to move downward. The upper line is drawn by connecting prominent but lower highs, known as the trendline, and it functions as a resistance level. The lower line is then drawn out in parallel to the upper line with lower lows and acts as a support level. The lower highs formed is because the seller is bearish on the market outlook, so they are willing to sell even if the price is lower than the previous high. Given the overall trend is downward, the buyer is willing to spend more time waiting for the price to be lower than the previous one before entering the market, so lower lows are formed. In odd cases, the channel can either be narrow or has a steep downward slope, almost becoming a vertical channel. Both situations are usually difficult to maintain for a long time. The former reflects that the bulls and bears are in contention but evenly matched. The latter could be affected by either bad news or a technical plunge, but very short-lived. Trading Strategy Generally speaking, as long as the price is declining and moves within the channel, it will rebound when it falls to the support level (lower line), and when it reaches the upper line, it will encounter resistance and falls back. A short-term trading strategy can come into play here, for example, an experienced trader could take advantage of the confined price action by opening a short position or selling when the price touches the upper line and closing short or buying when the price is at the lower line. A risk with this strategy is that there is never a guarantee the price will reach the support line, so the trader needs to proceed with caution. Also, we argue this strategy should not be used for mid-term or long-term purposes for it would be a downward purchase. In a weak market, the price can fall deeper and deeper without support, and the downward purchase is a situation where the more it falls the more a person buys. To us, this is taboo as far as investment strategy goes. …
bullish and bearish Pennant chart pattern
General description Pennants are a common pattern in technical analysis and usually indicate a continuation of the current trend. During an uptrend or a downtrend, the pennant pattern starts out with a steep up (or down) price changes in conjunction with huge volume; then after a brief consolidation, the price continues the original up (or down) trend. In most cases, the pennant pattern occurs in the middle of an up (or down) trend, so it tends to be a very reliable continuation pattern and unlikely to reverse course, but there is no guarantee here and sometimes, the trend does change. The shape of the pattern is a triangular-like flag with two equal hypotenuses, sloping in the opposite direction of the trend. The formation of the pennant pattern is rather short, usually completed within one month. Depending on whether the pennant appears in an up (or down) trend, it’s called a bullish pennant or a bearish pennant, respectively. Difference between Pennant and Triangle and Flag patterns · The Pennant pattern is similar to the Flag pattern in most aspects of the Flag pattern, except that the two trendlines converge with the Pennant converge, and is parallel in the Flag pattern. · The Triangle does not require to start with a sharp price movement (Flagpole), whereas the other two do. · The formation time in the Pennant and the Flag pattern is short than that of the Triangle pattern. · Both the Pennant and the Flag progress as a continuation of the previous trend in most situations, whereas the Triangle pattern can be either continuation or reversal. Bullish Pennant As the above chart shows, the bullish pennant occurs after a strong uptrend, and after a period of consolidation, the price breaks above the upper resistance line. The breakout is generally viewed as the beginning of a recovery in upside momentum. Notice the pullback is less than half of the flagpole, if the retracement is too large, i.e., over 50% with heavy volume, the pennant pattern may fail. A trader can consider entering a long position after the confirmation of the pattern with a candlestick trade above the upper resistance line. For protection, the stop-loss can be set within the range of the pennant to prevent triggering too prematurely. The theoretical target profit is the length of the flagpole, which is the vertical distance between the two points. It is recommended to confirm the pattern with other technical indicators as well, such as Moving Averages, Bollinger Bands, etc. In summary, the Bullish pennant pattern is a pause in a strong uptrend, recognizing the pattern promptly will help a trader to capture the next momentum. Our proprietary algorithm will automatically detect the Bullish Pennant chart pattern for you to trade smarter. Bearish Pennant As the chart above, the Bearish Pennant is the opposite of the Bullish Pennant pattern. The two trendlines, upper resistance and lower support, converge with each other in a horizontal direction. The price fluctuates in this area, and the range is getting smaller and smaller, thus forming a decline Pennant shape. At the beginning of the formation, there is a steep decline in the market, forming a “flagpole”; then after a period of consolidation, the previous downward trend continues. The change in trading volume is quite apparent. First, when the flagpole is formed, it is often accompanied by a huge trading volume, secondly, the volume gradually decreases with the consolidation period, and lastly, when the market returns to the original trend, the huge trading volume returned as well. When the price breakouts the lower support level (lower trendline) of the Bearish Pennant pattern, a trader can consider entering a short position with the target price set as the length of the flagpole. The Bearish Pennant mostly occurs in the first phase of the bear market, indicating that the market has just started to fall, and there may be a larger decline lies ahead. In summary, the Bearish Pennant is a very reliable continuation pattern and it has distinctive characteristics to be recognized for. Nonetheless, do not waste your precious time searching for it, just like you wouldn’t make a hammer yourself if you want to build a house, our proprietary algorithm can automatically detect this pattern for you. Our work is to provide effective tools for you, so you can trade smarter and live better. For more details about this indicator, please visit patternsmart.com
Bullish Flag and Bearish Flag chart pattern indicators
General Description The flag-shaped pattern, as the name implies, resembles a flag that hangs on the top of a flagpole. The formation of the pattern usually occurs when the market is volatile and prices move rapidly, either on an uptrend or a downtrend. It’s a continuation pattern that indicates the current trend would resume after a period of consolidation. During the process, the price, after a series of narrow ranged fluctuations, forms a rectangle that’s slightly tilted in the opposite direction from the original trend. From the geometric point of view, the pattern is called a parallelogram. The flag-shaped price movement can be divided into two types: Bullish Flag and Bearish Flag. Bullish Flag After the market has undergone a steep surge, a downward sloping area is formed with a narrow price change. Two trend lines can be drawn by connecting the highs and lows of this area. These two lines are parallel, and in the opposite direction of the uptrend, as shown in the picture above. It’s the phase for buyers to take a break to regroup and recharge. The upper and lower parallel lines act as resistance and support respectively. After the pattern is broken to the upside, the price will continue the previous bull trend and move higher. From a trader’s perspective, entry points can either be after the price breaks through the upper trendline or at bottom of the flag, the latter gives the trader advantages to set up the position ahead of another upward trend. The length of the flagpole can be measured as a potential profit. Key points: · It usually occurs after a large-scale uptrend with a rapid price rise. · The volume is noticeably decreasing throughout the flag-forming process. · The flag pattern is a short-term pattern, the formation period generally does not exceed 20 trading days, oftentimes, each rally and pullback lasts three to four days. Traders should be cautious If a breakout does not happen after three weeks. It’s rare to see a flag pattern on a monthly chart. If the consolidation period is too long, it may form a top. · A volume spike at the breakout point serves as strong evidence to confirm the pattern. · Two trendlines are parallel to each other, unlike pennant, where two lines are converging. Advantages · Flag patterns can be used to explain major breakouts, and if the breakout is confirmed, a significant price rise is expected afterward.…
Auto Fibonacci retracement level indicator
Auto Fibonacci retracement level indicator The Auto Fibonacci Retracement Level Indicator is a valuable technical analysis tool traders use to identify support and resistance levels in a given financial market. The Fibonacci sequence, a mathematical pattern found in various natural phenomena, including stock market movements, serves as the foundation for the Auto Fibonacci Retracement Level Indicator. Fibonacci retracement levels are determined by measuring the distance between a significant high and low point in a market’s price movement and dividing that distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%. The Auto Fibonacci Retracement Level Indicator automates this process by plotting the retracement levels on the chart automatically, making it easier for traders to identify potential areas of support and resistance quickly. Traders can also use it to confirm the direction of a trend. For example, if the retracement levels align with the overall trend, this can indicate that the trend is strong and likely to continue. Further, the Fibonacci levels can serve as a guide for setting stop-loss and profit-taking levels. For example, a stop-loss can be placed just below a key Fibonacci level to limit potential losses. Last but not least, traders can use the indicator to identify potential price targets. For instance, if the price breaks above a key Fibonacci level, this could indicate that the price may continue to rise toward the next Fibonacci level. It is important to note that while the Fibonacci retracement level indicator can be a useful tool, it should not be relied upon exclusively when making trading decisions. Other technical and fundamental analysis tools, as well as market knowledge and experience, should also be used to help make informed trading decisions. Additionally, it is essential to remember that previous performance does not guarantee future outcomes and that the markets are inherently unpredictable. In conclusion, the Auto Fibonacci Retracement Level Indicator can be used in various trading strategies, including swing trading, position trading, and day trading. Traders can leverage it to identify entry and exit points, manage risk, and determine the appropriate levels to place stop-loss orders. By utilizing this tool in combination with other technical analysis tools and market knowledge, traders may make more informed trading decisions and improve their chances of success. For more details about this indicator, please visit patternsmart.com