Analysis

A Candlestick chart is visual, giving a nice picture of the profile of market prices and making it easier to categorize market price patterns to a finer degree. The body of the candle represents the difference between the open and the close for a period. When the opening rate is higher than the closing rate the candlestick is solid. When the closing rate exceeds the opening rate, the candlestick is hollow.

Tops, Bottoms and Trend lines are very useful as a means of identifying historically significant price levels. Trend lines are lines drawn that connect either a series of highs or lows in a trend. They are used to track the trend in progress.

Support and resistance levels are one of the most basic and an essential component of technical analysis that signal tops and bottoms. A support level is a price level at which a declining market has stopped falling and will either move sideways or begin to advance. A resistance level is a price level at which a rising market has stopped advancing and will either move sideways or begin to decline. NOTE: support and resistance levels are psychological barriers that cause temporary changes in the underlying trend of the market.

Markets don't move straight up and down. The direction of any market at any time is either Bullish (up), Bearish (down) or Neutral (sideways). Within these trends, markets have countertrend (backing & filling) movements. In a general sense, markets move in waves and a trader must catch the wave at the right time. Trend lines showing support and resistance boundaries may be used as buying or selling areas.

RSI attempts to estimate the market's current strength or weakness during a given period. It is an oscillator which measures the ratio of upward to downward movement for a given instrument over a specified period of time. The time period used affects the RSI dramatically; the shorter the interval used the more sensitive will be the corresponding move in RSI. Conversely, the longer the period specified, the less sensitive, therefore slower, the RSI. The RSI depends solely on changes in price to quantify price momentum. The result appears as a percent value ranging between 0 and 100. Values between 0-30 represent oversold conditions, whereas values between 70-100 represent overbought conditions. Overbought/oversold analysis is the main thrust of the Relative Strength Index. This assessment is based on the assumption that higher closes indicate strong markets while lower closes indicate weakness.

Stochastic is a popular oscillator to judge price momentum. It measures the close of a price in relation to its range and is represented by a ratio multiplied by 100. This measure is called %K, while another measure, the %D, is a Moving Average of %K. A 3-period Moving Average applied to %K yields reasonable values. These values are plotted on a scale from 0 to 100. The concept for Stochastic is based on the tendency that as prices move higher, the intraday closes will be closer to the high of the daily range. The reverse is true in downtrends. Values over 70 indicate overbought condition while values below 30 indicate oversold condition. If the %K crosses the %D line from above (below) at the upper (lower) part of the graph a sell (buy) signal is given.

Since currencies are traded in pairs, it is wiser to invest in (buy) the currency of a country that is growing faster and is in a better economic condition. Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals, some of which is more important than others. Data related to interest rates and international trade is looked at the closest.