Be A Professional Trader Guide Line
Types Of Futures Market Analysis:
There are three types of analysis:
- Technical Analysis
- Fundamental Analysis
- Sentiment Analysis
There has always been a constant debate as to which analysis is better, but to tell you the truth, you need to know all three.
It's kind of like standing on a three-legged stool - if one of the legs is weak, the stool will break under your weight and you'll fall flat on your face. The same holds true in trading. If your analysis on any of the three types of trading is weak and you ignore it, there's a good chance that it will cause you to lose out on your trade!
Let's take a look at the three most popular types of financial charts:
- Line Chart
- Bar Chart
- Candlestick Chart
Now, we'll explain each of the financial charts, and let you know what you should know about each of them.
Line Charts
A simple line chart draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time.
Here is an example of a line chart for EUR/USD:
Bar Charts
A bar chart is a little more complex. It shows the opening and closing prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid.
The vertical bar itself indicates the currency pair's trading range as a whole.
The horizontal hash on the left side of the bar is the opening price, and the right-side horizontal hash is the closing price.
Here is an example of a bar chart for EUR/USD:
Take note, throughout our lessons, you will see the word "bar" in reference to a single piece of data on a chart.
A bar is simply one segment of time, whether it is one day, one week, or one hour. When you see the word "bar" going forward, be sure to understand what time frame it is referencing.
Bar charts are also called "OHLC" charts, because they indicate the Open, the High, the Low, and the Close for that particular currency. Here's an example of a price bar:
Open: The little horizontal line on the left is the opening price
High: The top of the vertical line defines the highest price of the time period
Low: The bottom of the vertical line defines the lowest price of the time period
Close: The little horizontal line on the right is the closing price
Candlesticks Charts
Candlestick charts show the same price information as a bar chart, but in a prettier, graphic format.
Candlestick bars still indicate the high-to-low range with a vertical line.
However, in candlestick charting, the larger block (or body) in the middle indicates the range between the opening and closing prices. Traditionally, if the block in the middle is filled or colored in, then the currency pair closed lower than it opened.
In the following example, the "filled color" is black. For our "filled" blocks, the top of the block is the opening price, and the bottom of the block is the closing price. If the closing price is higher than the opening price, then the block in the middle will be "white" or hollow or unfilled.
What are Futures Pivot Points?
Are you all excited? It's your last year in junior high before you head off to high school!
Professional financial traders and market makers use pivot points to identify potential support and resistance levels. Simply put, a pivot point and its support/resistance levels are areas at which the direction of price movement can possibly change.
The reason why pivot points are so enticing?
It's because they are OBJECTIVE.
Unlike some of the other indicators that we've taught you about already, there's no discretion involved.
In many ways, financial pivot points are very similar to Fibonacci levels. Because so many people are looking at those levels, they almost become self-fulfilling.
The major difference between the two is that with Fibonacci, there is still some subjectivity involved in picking Swing Highs and Swing Lows. With pivot points, financial traders typically use the same method for calculating them.
Many traders keep an eye on these levels and you should too.
Pivot points are especially useful to short-term traders who are looking to take advantage of small price movements. Just like normal support and resistance levels, financial traders can choose to trade the bounce or the break of these levels.
Range-bound traders use pivot points to identify reversal points. They see pivot points as areas where they can place their buy or sell orders.
Breakout financial traders use pivot points to recognize key levels that need to be broken for a move to be classified as a real deal breakout.
Here is an example of pivot points plotted on a 1-hour GBP/USD chart:
As you can see here, horizontal support and resistance levels are placed on your chart. And look - they're marked out nicely for you! How convenient is that?!
Pivot Point Lingo
Here's quick rundown on what those acronyms mean:
- PP stands for Pivot Point.
- S stands for Support.
- R stands for Resistance.
What are Futures Support and Resistance?
Support and resistance is one of the most widely used concepts in financial trading. Strangely enough, everyone seems to have their own idea on how you should measure financial support and resistance.
Let's take a look at the basics first.
Look at the diagram above. As you can see, this zigzag pattern is making its way up (bull market). When the financial market moves up and then pulls back, the highest point reached before it pulled back is now resistance.
As the market continues up again, the lowest point reached before it started back is now support. In this way, resistance and support are continually formed as the financial market oscillates over time. The reverse is true for the downtrend.
Plotting Financial Support and Resistance
One thing to remember is that support and resistance levels are not exact numbers.
Often times you will see a support or resistance level that appears broken, but soon after find out that the market was just testing it. With candlestick charts, these "tests" of support and resistance are usually represented by the candlestick shadows.
Notice how the shadows of the candles tested the 1.4700 support level. At those times it seemed like the market was "breaking" support. In hindsight we can see that the market was merely testing that level.
So how do we truly know if support and resistance was broken?
There is no definite answer to this question. Some argue that a support or resistance level is broken if the market can actually close past that level. However, you will find that this is not always the case.
Let's take our same example from above and see what happened when the price actually closed past the 1.4700 support level.
What Are Moving Averages?
A moving average is simply a way to smooth out price action over time. By "moving average", we mean that you are taking the average closing price of a currency pair for the last 'X' number of periods. On a chart, it would look like this:
Like every indicator, a moving average indicator is used to help us forecast future prices. By looking at the slope of the moving average, you can better determine the potential direction of market prices.
As we said, moving averages smooth out price action.
There are different types of moving averages and each of them has their own level of "smoothness".
Generally, the smoother the moving average, the slower it is to react to the price movement.
The choppier the moving average, the quicker it is to react to the price movement. To make a moving average smoother, you should get the average closing prices over a longer time period.
Now, you're probably thinking, "C'mon, let's get to the good stuff. How can I use this to trade?"
In this section, we first need to explain to you the two major types of moving averages:
- Simple
- Exponential
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