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What is technical analysis?
Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.
The key concept in the trading analysis is trend identification. It’s done by analyzing charts and finding patterns in the past price changes.
Ticks and candles
Since technical analysis focuses on analyzing charts and price changes over time, it’s worth mentioning ticks and candles as those are key concepts in charting.
Tick is the price of the underlying asset at a specific moment in time. Prices change every 1-2 seconds on Deriv platforms (on MT5 and Deriv X prices can change more frequently for Forex pairs).
Candle is a representation of a time period such as 1 minute, 2 minutes, 5 minutes, etc.
Both ticks and candles can be displayed on charts.
Ticks charts are mostly useful for short-term strategies whereas candle charts fit better for longer-term analysis.
Tick chart shows every single price change whereas candle chart summarized price changes for a specific time interval and displays them as candles. The horizontal axis is the timeline and the vertical axis displays the prices of the underlying asset.
Tick chart
Candle chart
Each bar on the candle chart is called a candle and it represents a time interval, for example, 1 minute, 15 minutes, 1 hour, etc.
Each bar has 4 important properties: the opening price, the closing price, the high price, and the low price. open price and close price are the first and the last price of the candle time interval.
High and low prices are the highest and the lowest prices of the underlying asset during the candle time interval.
Trading platforms can color candles differently. Deriv.com platforms show Red candles when the open price is greater than the close price, and Green candles indicate that the open price is less than the close price.
Blocks to work with ticks and candles
Indicators
What are indicators and how to use them?
- Technical indicators are heuristic or mathematical calculations based on the price, volume, or open interest of a security or contract used by traders who follow technical analysis.
- Technical analysts or chartists look for technical indicators in historical asset price data to judge entry and exit points for trades.
Source: Investopedia
In DBot technical indicators are blocks that require a list of prices as an input parameter and return signals that can be interpreted by a trader to make a decision to enter or exit the market.
Simple Moving Average (SMA)
SMA is a frequently used indicator in technical analysis. It calculates the average market price over a specified period and is usually used to identify market trend direction: up or down. For example, if the SMA is moving upward, it means the market trend is up. Simple Moving Average (SMA) Definition
Exponential Moving Average (EMA)
EMA is a type of moving average that places more significance on the most recent data points. It’s also known as the exponentially weighted moving average. EMA is different from SMA in that it reacts more significantly to recent price changes. Exponential Moving Average (EMA) Definition
Bollinger bands (BB)
BB is a technical analysis indicator that’s commonly used by traders. The idea behind BB is that the market price stays within the upper and lower bands for 95% of the time. The bands are the standard deviations of the simple moving average. If the price reaches either the upper or lower band, there’s a possibility of a trend reversal. Bollinger Band® Definition (Technical Analysis)
Relative strength index (RSI)
RSI is a technical analysis tool that helps you identify the market trend. It will give you a value from 0 to 100. An RSI value of 70 and above means that the asset is overbought and the current trend may reverse, while a value of 30 and below means that the asset is oversold. Overbought or Oversold? Use the Relative Strength Index
Moving average convergence divergence (MACD)
Moving average convergence divergence (MACD) is calculated by subtracting the long-term Exponential Moving Average or EMA (26 periods) from the short-term EMA (12 periods). If the short-term EMA is greater or lower than the long-term EMA then there’s a possibility of a trend reversal. Moving Average Convergence Divergence (MACD) Definition
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