Technical analysis is an important tool for determining trading strategies for investors trading in financial markets. Technical analysis alone is not a magic wand. In order to easily operate in financial markets, it is necessary to specialize in subjects such as risk management and cash management.
Looking back at the history of technical analysis, the daily transactions of Japanese rice traders in the 1700s; They laid the first foundations of the technical analysis by ordering the volume, the highest price, the lowest price, and the closing of the day. Looking back to the 1900s, American Charles Dow introduced the DOW theory by putting linear graphics in a certain order.
Chart types in technical analysis are: candlestick charts, bar charts, line charts and heiken ashi charts.
Candlestick charts offer more information than a normal line graph. For this reason, it is recommended to use candlesticks. Candlestick charts are the most used chart type worldwide. Candlestick charts give 5 pieces of information to the analyst. These are information about the opening price, closing price, the highest price, the lowest price and the direction of the candle. The candle with the closing price above the opening price is called a bullish bullish candle, and the candle with the opening price above the closing price is called a bearish bearish candle.
Candles show the price movements of the selected time period in which they are examined. If the candle is red or black, it means it closed below the opening price. Conversely, if it is green or white, it means it closes above the opening price.
Another advantage of using candlesticks is that successful operations can be performed with various wax formations. Candle formations are very important formations. A person who has no technical analysis knowledge can make successful transactions even using only candle formations.
What is an Indicator?
Indicators are mathematical models of price or volume data calculated with different formulas. In short, they are technical analysis indicators.
Indicators do not question the causes and results, they only produce certain results when placed on the chart and these results are shown by being attached to the chart. Indicators, produced with the idea that the price movement is always prone to produce the same result under certain conditions, relate the current movement of the prices to the current situation.
Oscillators are indicators that move within the determined horizontal zone or move around zero. Oscillation means oscillation as the word meaning. Overbought and oversold zones are determined in the graphics and oscillating indicators in these regions are frequently used in horizontal markets.
RSI
CCI
Stoch RSI
Ultimate Oscillator
Aaron
Trend Following Indicators
Moving Averages (Moving Averages)
MACD
Parabolic SAR
Volatility Indicators
Bollinger bands
Average True Range
Volume and Money Input-Output Indicators
Accumulation / Distribution
Chaikin Money Flow
Demand Index
On Balance Volume (OBV)
Money Flow Index
One of the most common mistakes about the indicator is the belief that the indicators show the future. Indicators are nothing more than showing the formed price or volume movement differently. Indicators are also used as buying or sell signals. This means that in similar situations that occurred statistically before, buying or selling was often profitable.
What is RSI?
RSI is a momentum oscillator that allows tracking of overbought and sell situations depending on price movements. The default period value is 14. Commonly 7 and 9 values ??are also used.
By examining the formulas of the indicators, we can better understand what that indicator does and how it can be used. For example, in the RSI formula, the RS value is obtained by dividing the average of the last 14 days of green candles by the average of the last 14 days of red candles. The RS value found is ossified between 0 and 100 and placed in the formula. In this way, the RSI indicator, which takes values ??from 0 to 100, is obtained.
RS = (Average gain / Average loss)
RSI = 100 - [100 / (1 + RS)]
As a result of the observations made, over 70 region have been described as overbought region and below 30 region as oversold region.
What is Moving Average?
Moving averages are the averages of prices over a certain time period. They generally show the trend of the market. The upward movement of the moving averages indicates that the market is in an uptrend and the downward movement is in a downtrend.
The most known and used moving averages in the market are as follows.
SMA - Simple Moving Average
EMA - Exponential Moving Average
WMA - Weighted Moving Average
HMA - Hull Moving Average
SMA - Simple Moving Average Formula:
The abbreviated name of the simple moving average in tradingview is called MA. Its default value is 9. That is, the arithmetic mean of the closing values ??of a total of 9 candles, including the candle, indicates the SMA value.
Regions, where the price moves away from the moving average, may indicate excessive buying and selling. However, the price will always tend to approach the moving average again.
Different strategies can be produced by the intersection of moving averages of different values. Often there are strategies produced at the intersection of two different MA values ??or two different EMA values. The most well-known of them are:
Golden Cross: It is formed by the moving average of MA (50) upward moving the moving average of MA (200). It is interpreted as a new bullish trend may have come or as a continuation of the bullish movement.
Death Cross: Consists of the moving average of the MA (50) downward-moving average of the MA (200). It is interpreted that the downtrend may have started.
The moving averages also serve as natural support and resistance. The price being above the moving average can be interpreted as an upward break of resistance and as a signal of a new uptrend. The price falling below the moving average can be interpreted as the breakdown of the support and the beginning of the downtrend. In some strategies, moving averages are used as stop points.
What is Bollinger Band?
Bollinger bands are the name of the indicator produced by the American writer, analyst, living legend "John Bollinger" in the early 1980s.
Main Uses of Bollinger Tapes
Determination of a new trend start,
The direction of the trend,
Peak and bottom levels,
Price targets,
Jam in price and
Volatility of price movements.
The predefined moving average value is 20 and the standard deviation is 2. When we look at the Bollinger tape formula, we see that the tape midline is a 20-day moving average, we can reach the upper band by adding 2 standard deviations to the moving average, and we can reach the lower band by subtracting 2 standard deviations from this average.
Bollinger bands allow us to easily spot the points where price movements are above or below the average, i.e. price excesses.
Many different strategies can be produced with Bollinger bands. Although the two most prominent strategies are diametrically opposite, the number of successful traders in both is quite high.
The first method is the strategies developed considering that the price movement that goes out of the band is excessive, it will enter the band again and approach the average. These are also called the average to return strategy.
Another method is the strategies developed considering that the price movement that goes out of the bollinger band is a breakout and the price will continue in the same direction. The position ends with the price re-entering the band.
