PRICE AND TIME IN FOREX

The language of technical analysis really starts with the description of price in
relationship to time. Much of the architecture of technical analysis explores this multidimensional relationship. Let’s start with the fact that the charts themselves are
snapshots of what has occurred in a selected time interval. Whether one uses bar charts
or candlestick charts, the vocabulary of technical analysis has only four basic words.
These words are the opening, the close, and the high and the low of the price .
With only these four units of knowledge, the trader can start to talk the language
of technical analysis. We can build an entire architecture of trading strategy. We can
build trend lines that connect consecutive highs and lows. We can deduce sentiment.
For example, when the price closes above the opening, we have a bullish sentiment.
When the price closes below the opening, we have a bearish sentiment. Another key
relationship that is revealed by looking at the price bars or candles is the range, which is
defined as the difference between the low and the high action.
The range of a currency pair reflects deeper psychological characteristics of the price
action that can’t be ignored. As the distance between a low and a high increases, the total
energy of buyers versus sellers has increased. Accompanying this increase in range
is also the anxiety of the trader. A widening range is a signal of increasing volatility. A
narrowing range denotes the ebbing of interest and consolidation as the market needs
new energy. Depending on the shape of the range, the trader can employ different strategies.
In a sideways range pattern known as a “channel,” trading off each side represents
a common strategy. But the width of the range should be 40 pips or more to achieve a
reasonable chance of capturing 10 to 15 pip moves. If the range is compressing in the
shape of a triangle, the trade should be ready for a breakout. There is no guarantee as to
which side the price will break out of. More often than not, a breakout in the direction of the trend is a good bet. If the range is very narrow (less than 20 pips), no trade is preferable
because the market is really in a period of noise. Figure 11.11 shows a chart with a
range of 30 pips, but notice that the price is near the middle of the range. It would take
very good timing to trade this pair from where the price is. Whatever the range is trading
near, support or resistance is preferable.




By ABE COFNAS