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Technical Analysis in Relation To a Security or Index of Currency - Research Paper Example


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Technical Analysis in Relation To a Security or Index of Currency

8). Currency analysis The technical analysis will help the investor to tell what price range the currency spent most of the day. Meanwhile, it will explain where did the currency break out the congestion and start upward trend. Chen (2011, p. 201) indicates that technical analysis uses price charts to give a clear understanding of the downs and ups of the currency in the exchange market. Meanwhile, technical analysis gives a prediction about the future price movements, by analyzing past price trends; hence, it is based on mere assumptions. It does not mean in case the currency experienced depreciation in past years; it will not gain value in present or future years. Therefore, the technical analysis fails to answer why currency is appreciated or depreciated, and it gives room to conclude there are various factors that are attributed to the currency changes. According to Chen (2011, p. 202), technical analysis has six price areas that can be used to forecast the prospect of the currency in the exchange market. These fields include open, close, high, low, volume and open interests, and they are used to predict the direction of the market (Chen, 2011, p. 200). ...
ume in the charts suggests that there is high interest, liquidity in the market and the low volume indicate the dangers in the market, and traders should stay away from the market (Luca, 2004, p.18). In a low volume market, the investors only get an entry price, but they face considerable challenges when they try to exit the market.

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According to Luca (2004, p.17), despite the significant of the volume in the market, it is only used in equities and futures and not for the foreign exchanges of the currencies. In the chart below, there are the currencies' trends of JPY versus USD where each bar represents one week of prices. It is obvious that the currencies are constantly moving in a single direction even if there are insignificant movements in the other direction. For instance, the currency pair is trending up more than it is trending down, and these indicate appreciable chance that the Forex cross is trending in a major movement. The chart indicates that the dollar is depreciating against the yen during the period in the prediction. In the technical analysis, the years represent the data of currencies trend in the same direction because the factors that affect the prices of currencies can be an effect for the years. The movement of the price of currency is considered increasing, when price is above the moving average, and decreasing, when the price is below the moving average (Luca, 2004, p.19). Source: According to Northington (2009, P. 115), investors who specialize in the spot trading can use the above chart because it shows the flexibility regarding the currencies. Therefore, traders should focus on interpreting the chart to identify when it is the best time to invest, and not to focus on producing
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Name Instructor Task Date Technical Analysis In Relation To a Security or Index of Currency Introduction Technical analysis focuses on the financial instrument data in the market with the intention of forecasting upcoming price adjustments. The technical analysis takes in account only price action of the market trends that makes it simpler and easy for traders in the Forex exchange; therefore, it is a significant to analyze shorter-term price movements…
Technical Analysis in Relation To a Security or Index of Currency
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