Commonly Used Terms in Technical Analysis
As technical analysis is one of the two main branches of market forecasting (the other being fundamental analysis) it is vital for the success of a forex trader to become acquainted with the terms and phrases used by technicians.
Some of the more commonly used technical analysis terms in the forex market include volatility. Generally speaking it refers to the movment of the market, although it is often used to denote rapid and mass selling. Adverse economic data can turn the forex market volatile, although usually it is only for a certain period, followed by a market correction or rebound.
Related to market volatility is the Notis % V. It comes with two components, UVLT and DVLT, and they are used to monitor market volatility.
The Swing Index is concerned with the forex commodities. In technical analysis terms it refers to the study of market direction based on the major price movements (open, high, low and close) of the trading session as well as the previous ones.
Another technical analysis term that you will come across often are time cycles. It can refer to the somewhat cyclical behavior of certain elements in the forex market. For example, oil prices rise during the winter season in the Untied States as demand increases, which affect the value of certain currencies. Futures open interest also display high and low cycles.
Volume can signify a number of things, depending on the context. It may refer to the total number of transactions in a derivative, or to the overall activity and liquidity in the forex itself. Volume Accumulation, on the other hand, takes into account only a part of the volume based on the values of the closing level and the average price.
The following are some of the most popular technical analysis indicators.
The Herrick Payoff Index is one of the most widely used indicators for commodity trading in the forex. They are often used to determine the durability of a forex price trend.
The Alpha-Beta Trend Channel applies standard deviation on a forex asset price to create trend lines. It is similar to Stochastics and DMI in that it uses two lines.
Norton High/Low are often utilized by forex technicians to analyze the long term values of assets, particularly the top and bottom price range. The basic indicators are the NLP and NHP lines. When the lines traverse the level -3, it is a signal that the market is due for a change in direction.
Stoller STARC Bands are used to refine moving averages. It is frequently used to assess market volatility, because the channel bands remain tight and will loosen if the forex turns volatile. STARC Bands base their values on the average range. They are useful for verifying the usual range of price movements.
These are just some of the technical analysis terms you will read in online forex websites and blogs. Now that you know the meanings of these terms, you will have a better grasp of what technical analysis is about, and the better it is for you as a forex trader.