4. Trend, Support-Ressistance, Overbought-Oversold

4. Trend, Support-Ressistance, Overbought-Oversold

In bertradng, advantage can only be obtained when the price moves. Yes. Only when the price moves. Either he's moving up or moving down. Now the tendency of prices moving in a direction that is the trend. Trend is a useful and important part in determining your position in the trade. Due to the position in trading there are only two that buy and sell, then the trend also has only two types of uptrend and downtrend. Indonesian is yes trend up and down trend.

Let's consider the image below:

Just imagine if we did not know how to look for trends in price movements like this. When prices are in down trend you open a buy position and vice versa when the price goes up, you open a sell position. Hegh ... At least you will not be able to sleep soundly in such circumstances because of the position that stuck hehehe.

          

So determine the trend is happening is very important and you should not ignore. Ignore, then your trading will only be a gamble. Underestimate, then the market will kick you until you feel sick for days and sometimes months. Depending its social effect because you lost some money.

Most technical analysis is used to predict the trend and extent to which the trend will last.Several indicators such as Moving Average or Parabolic SAR is also used to know was where did the market is running.

However, there are circumstances where the market does not move up or down the so-called side ways. In such circumstances, opening a position to buy or sell at just spent patience that eventually erode your emotions in trading. The situation usually occurs when a side ways European or American market was closed or was waiting for big news. In such a situation is not much trade occurs causing side ways situation occurs. Well, to avoid the situation.

Support and Ressistance

Other terms you need to know is commonly called the Support and Ressistance. Now let us consider together when a trend is underway. Say an uptrend. Is there a trend that never ends? Certainly not. Each increment will reach its peak and then stop rising and continues to decline. Vice versa, when the price goes down, there will be a time where the decline stopped and the prices go up.

The points where the increases and decreases in the prices stop called point of support and ressistance. The lower limit of the price movement is sometimes referred to as the upper bound Support commonly referred to as ressistance.

Both points are very vital in your trading future. Without knowing these points then we can only follow the trend without knowing that the actual age of the trend is no longer going to be replaced by the opposite trend or side ways situation.

There are many ways to determine a point of support and ressitance. Some traders use indicators to find out. Others use the Fibonacci sequence while the other uses the past history of price movements. I myself do not want to be too dizzy to calculate support ressistance using complex calculations. For me it is complicated enough forex analysis and complex psychology therein. So, why do not we simplify it? Sometimes simple is better.

The easiest way to determine support and ressistance is to determine the lowest and highest price movements in previous days at a certain period, such as one month.Consider the following chart:

The graph above is a graph for GBPUSD on January 14, 2011 with a period of 1 hour.Note that the price goes up, but not beyond the area that has been marked with a blue stripe. When the price moves up to near 1.5885 then as if the price of losing its ability to move up again past that point and vice versa when he moves down, the price can not penetrate the 1.5575 which is the limit terrendahnya. It was called a point of 1.5885 and 1.5575 with ressistance called support.

The second point is actually a reflection of psychological point recognized by market participants simultaneously. As we all know that basically the price movements are determined by law demman and supply (demand and supply). When demand is rising while supply remains the currency will be strengthened, and vice versa when it deals a lot and demand remains the currency will be weakened due to the amount of supply in the market.

Now in a state of price uptrend for example, it will psychologically cause tergulirnya large snowballs and mutually reinforcing. When prices started to creep up then the trader will usually follow the trend that is going on and take a buy position of obstruction. This has led to rising demand that boosted prices continue to rise.

But on the other side of the majority of traders are also anticipating the end of the trend by taking a certain ressistance point. At that point they no longer take action to buy otherwise they will took profit by selling the currency they have purchased before. Well if everybody does so automatically reduced demand and the rise of the currency began to lose strength. As a result, the price back down.

So the key here is how to determine the point of support and ressistance same point collectively support ressistance market. If we know these points, the trading will be much easier.

And now comes a new question in our minds: Could ressitance point of support and can be penetrated by the price movement? The answer is maybe. It can be tough but it is possible in any.

In circumstances where the buyer and seller win less, of course, prices may continue to rise even though the back has reached the point ressistancenya. In such circumstances, the actual sound of the point of support and ressistance on the market is not uniform and is divided into several groups. One group estimates that the price will not go up until a certain level while the other group believes prices may rise melewari level determined first group. If the second group win, of course, support or ressistance will break.

What will happen when the point of the res soup and impenetrable? The answer is that it will form the point of support and ressistance new. Ressistance pierced point will be the point of support while ressistance point will be re-formed. Consider the following picture:

This is the GBPUSD chart using 1-hour time frame. Visible in the area yangi given circle marks, the price cut through point ressistancenya. As a result, the price moves further away from the ressistance point to form a new ressistance point on the horizontal line of the most atas.Titik ressistance that had been broken now changed into a new point of support and now the price is moving in a new rangenya.

Now the next question that remains is how to know that the price will break point ressistance support her or not. Hahaha, if you get here you have to learn some instruments, especially the type of technical analysis oscillator for menegetahui point overbought or saturated selling. It should also be borne in mind that the fundamental situation occurs. Not easy indeed. Most of the points critical to know whether or not translucency soup and res of experience after years of trading. Yes I really. So it must be recognized that experience is important.

Ok kids up here teaching us soup and res. Easy enough right? (Did I hear anyone exclaim: "Yes, teacher bu ...")

Overbought and Oversold

Ok we enter the next point of technical analysis is a term named as overbought and oversold (overbought-oversold or commonly abbreviated as OB and OS just let me not tired of writing). OB and OS is a situation where prices can no longer continue the trend because it was too expensive or too cheap price so that trends can no longer continue. In contrast to the soup and res is a psychological level that is essentially a mutual agreement is not officially among fellow traders, OB and OS itself is a normal state and a real place in the market (not simply a psychological case).

Supposing a rising trend is happening, then in this state the currency becomes more expensive than usual. If we find a chart of GBPUSD was an uphill climb for example, it means that the GBP is being increasingly expensive value than the USD. Market participants continuously hunt GBP due to expected prices will continue rising, and they still have sufficient capital to carry out acts of purchasing.

However, there will be a point where buyers no longer possible to buy the GBP because the price was too expensive. Not only cases buyer's opinion that the price is too expensive, but more than that is their capital could no longer sufficient to buy the GBP in a certain amount. Now this is called the state of overbought or OB point.

Conversely when the downtrend is going, there will be a point where prices will stop down because the price was too cheap so the seller no longer possible to sell the currency or they would lose. This is called oversold OS.

In the circumstances the price reaches a point OB or OS it is expected that the price will reverse direction and the trend will soon stop. So when moving up and OB point has been reached, then the price will go up trend will be stopped and replaced with a decline in the currency moves. Vice versa when the price goes down and then entered the area of ​​the OS, then the price will move back up and the down trend stopped.

Often OB and OS also occur at points Sup and Res because indeed they are of the same nature which point a counter trend. But not always. Of course, buy and sell decisions would be support at all if prices are not on these extreme points.

Now the question is how to determine the point of OB and OS? The easiest way is to use a type indicators such as RSI or Stochastic Oscillator. These indicators are designed to determine the points OB and OS.

Let's use an example of indicators: ie Stcohastic Oscillator. In Stocastic, OB area occurs when Stochastic is at levels above 80 and OS occurs when Stochastic is at levels below 20. note the following images:

Areas shaded area colored birumerupakan overbought and oversold. You can see it on a rectangular blue one I described. When prices go down, and then touch the saturated area selling then the price back to move up because the price was too cheap to be sold by the seller. The same situation is also happening in the overbought area.

Regarding the use of this more detailed Stochastic we will discuss in the next session of technical analysis. Please be patient.

Now with regard we can estimate When does a trend ended and replaced with the next trend. Thus we can adjust the timing of the opening of positions to be better again.

 

See you at the next lesson.