HISTORY OF TECHNICAL ANALYSIS

 

In the field of Forex Trading there are two main ways to study and predict the market: technical analysis and fundamental. It is said that if you know how to combine these two in the right way, it will allow the trader to have a lot of valuable information that will make it possible to acquire a large percentage of success in most of his or her operations. Throughout the modern history of the economy, financial traders have made a number of theories that have made the conceptualization of the principles of technical analysis operating today, and they are certainly effective tools. Hence we will now see a brief summary of this development, and those notable characters who pioneered in financial analysis.

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The first to make any analytical market theory was Charles Dow in the first half of the twentieth century. This renowned editor of the Wall Street Journal published a series of principles that were initially designed for the market but are applied to all areas of trading today. The main motto of the Dow theory is that the market follows a series of clearly identifiable trends, by being able to analyze and repeat certain events and strategies. Dow’s postulates have full applicability almost a century after cast. Robert Rhea subsequently wrote a book called “Dow Theory” in which he summarized and expanded the concepts given by economist mentioned in this paragraph. Among its main achievements we can mention the discovery of the minimum range that should have a gap to be established as a secondary movement (principle stated by Dow).

Parallel to the work of Dow is necessary to highlight Richard Schabacker, renowned economist regarded as the father of modern technical analysis. With a production stage which covered only the early twentieth century (he died at the age of 36) he was really important discoveries and contributions, including the classification is made of the different market analysis tools. He formulated basic principles to predicting the future behavior of different economic environments and key assumptions when you want to anticipate the end of an uptrend or downtrend. It is said to be the precursor of bar charts for trading, adding to the traditional representations other elements that could symbolize the minimum and maximum prices and the opening and closing prices in certain periods. It also stipulated, in many other advances, the use of trend lines and the concept of support and resistance points

Another major developer of technical analysis was Richard Wyckoff, who demonstrated the importance of market volume and open interest to examine the psychological state of the traders. However, it was with RN Elliot Wave Theory and all these tools gave his last giant step. Established by the patterns it became possible to predict market activities with almost total fidelity, obviously having a good component of information, training and experience.

As you can see, the modern technical analysis is the result of about 100 years of extensive research and is a tool that every trader should handle when setting parameters to operate, either in foreign currency trading or any financial instrument that is required.

 

 

 

JAPANESE YEN

 

The Japanese economy is the world’s third largest currency, and the currency is part of the select group of major currencies in Forex Trading. Forming pairs with other currencies like the US dollar often have peculiar attractiveness to traders, so if they want to increase profits it's necessary to understand the information about the factors that affect it and the financial characteristics of this powerful Asian nation .

One of the main aspects of the Japanese yen (JPY notation ISO 4217) is that records high liquidity levels 24 hours a day. This is because, among other justifications, most of the eastern economy moves around Japan. Due to low interest rates historically presented and even today, this currency is strongly affected by the Asian stock market quotes, as well as changes in volume to register the carry trade. To recap, this practice is to make investments in currencies low interest rate, obtaining the result of the difference that occurs with others for which this is higher. Traditionally, the yen is the currency for excellence in the field of the carry trade. Also, being one of the largest exporters in the world you should always be aware of the levels that you register the trade balance, as also normally recorded high levels of imports of raw materials such as oil. And the monitoring of all national currency, it is necessary to analyze in detail the decisions taken by the central bank (BoJ) on inflation adjustments and other monetary policies.

As to the economic characteristics of Japan should remember that it is one of the most powerful countries in the world financially speaking, behind only the US and China. Its main strategic sectors are manufacturing and technology development, factors that thanks to the excellence with which developed have brought the country to the position it has today. Despite this, the Japanese economy recorded strong weaknesses in the agricultural area, so the government is forced to spend a lot of money on subsidies for farmers and industrialists in the food area.

Despite the size of its economy, it is said that Japan had experienced a stagnation since the 90s until a few years or even months ago. Since 2013 this has registered strong signs of change, raising once again its macroeconomic indicators and market research. For reasons like this is that for example the USD / JPY (US dollar / Japanese yen) normally recorded upward trends.

 

TRADING STRATEGIES WITH A TWIST

 

One of the most useful trading systems used today is the strategy of trading divergences, and although it has a lot of detractors, if properly applied it can significantly increase trading profits. A divergence occurs when behaviors that follow price action and technical indicators are heading in different directions, and is usually a sign that market trends are going to have a change.

To better understand the concept of divergence is necessary to remember that in most Forex charts, prices or other technical indicators are considered the lower and upper points achieved in a given period of time. In that vein, depending on the configuration of the same we can find bullish and bearish divergences. The first occurs when the price action recorded at least lower than before while technical indicator in question has the opposite, i.e. a higher minimum. The bearish divergence occurs when the behavior occurs in reverse.

Depending on the type of conflict we can calculate the change to take price action. For example if an upward divergence occurs will mean that the next price trend take the same behavior and vice versa.

Trading strategies with divergences can run on any time frame in which you want to apply, but as with most systems, one can get better gains when used with timeframes of medium and long term. It is also necessary to the proper use of stop loss orders as when a mismatch occurs enters the price action and technical indicators the market will enter a phase of lateralization and volatility until settling the expected trend. For this reason you should not use a tight stop, as the risk of the positions are automatically closed earlier than expected run, and neither should be too broad, as the Take Profit should also have these features, so that in many cases the objectives are not achieved.

However, you may at some point  may encounter issues with ranging, and in that case it is recommended trading is avoided to avoid incurring losses. Despite the above, divergences can also be used as a basis for a more complex system, to help ascertain when a price is about to play out its point of support or resistance, thus defining whether to execute a purchase or sale. Success with this method depends exclusively on the trader who has the ability to use it to his advantage and make accurate predictions about the market movement. As we can see, if a correct analysis of the indicators that we apply, then fewer elements are controlled by chance, a fact that that can give an invaluable advantage.