Powerful Technical Tools
Some traders think that fundamental analysis is better then technical. But to my mind they are wrong. Let's look at this chart and try understand the power of technical tools. We have a blue trend line which was drawn July 20. The support level 4700 is a round number level which you can draw anytime. A resistance level is based on local swing highs. How does it work?
1. Price breaks the trend line. DMI and MACD confirms that it's not a false breakout. A bearish candle is closed below the trend line. Probably the market will move lower. But there is also the support level which must be broken.
2. We see a bullish candle and it's a signal about possible bouncing. The support level, a reversal candlestick pattern and confirmation from RSI and MACD tell us about price reversal. Price bounces to the trend line which is a resistance line now.
3. Candles are closed above this line but bulls don't show the power for pushing price higher. A bearish candle and RSI confirm price reversal and down movement.
4. After several hours we see a new attempt for breaking the resistance line. A bearish candle and RSI reversal give a signal that probably this trend line won't be broken.
5. More attempts to pass the trend line and nothing. RSI also confirms price reversal.
6. Bulls try one more time to break the trend line and nothing. At the same time market does not fall lower.
7. The 5th attempt to pass the trend line and... we have a strong bullish candle which is closed above the trend line. It look like this time bulls have reached the target. But ADX is bellow 20 and falling. May be it's false breakout?
You can see how many times the market could not break the trend line. All these attempts could be good entry signals for short trades. But we have up trend conditions of higher time frame and because of this we did not see good down movement. With such technical tools you have ideas where price can be reversed. It gives you opportunity to think about entry levels and profit targets. Your fundamental analysis also can do the same? Does it give you exact entry levels, levels for placing stop and profit orders? I don't think so.
1. Price breaks the trend line. DMI and MACD confirms that it's not a false breakout. A bearish candle is closed below the trend line. Probably the market will move lower. But there is also the support level which must be broken.
2. We see a bullish candle and it's a signal about possible bouncing. The support level, a reversal candlestick pattern and confirmation from RSI and MACD tell us about price reversal. Price bounces to the trend line which is a resistance line now.
3. Candles are closed above this line but bulls don't show the power for pushing price higher. A bearish candle and RSI confirm price reversal and down movement.
4. After several hours we see a new attempt for breaking the resistance line. A bearish candle and RSI reversal give a signal that probably this trend line won't be broken.
5. More attempts to pass the trend line and nothing. RSI also confirms price reversal.
6. Bulls try one more time to break the trend line and nothing. At the same time market does not fall lower.
7. The 5th attempt to pass the trend line and... we have a strong bullish candle which is closed above the trend line. It look like this time bulls have reached the target. But ADX is bellow 20 and falling. May be it's false breakout?
You can see how many times the market could not break the trend line. All these attempts could be good entry signals for short trades. But we have up trend conditions of higher time frame and because of this we did not see good down movement. With such technical tools you have ideas where price can be reversed. It gives you opportunity to think about entry levels and profit targets. Your fundamental analysis also can do the same? Does it give you exact entry levels, levels for placing stop and profit orders? I don't think so.
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