UNDERSTANDING

TECHNICAL
ANALYSIS

www.jilforex.com [email protected]
 02

TABLE OF CONTENT

01 Understanding the Market Instructure ..........................03

02 Types of Charts ...................................................................08

03 Support & Resistance .........................................................12

06 Break and Rest Method .....................................................14

04 Chart Patterns .....................................................................17

05 Candlestick Patterns ..........................................................28

 03

01 ) Understanding the Market Instructure

The market's behavior, state, and

current flow are referred to as its
structure. It draws attention to
levels of support and resistance as
well as swing highs and lows.
Traders read and monitor market
structure as a trend-following
technique based on how an asset
moves. From Bullish moves to
Bearish movements and also the
Ranging moves.

Price Action is often referred to

as market structure because it
focuses on how the entire
market moves. When you are
aware of the pattern and the
expected movements, you can
then add additional criteria to
your trade qualifications such as
moving averages, pivot points,
volume, etc.
 04

Types of Market Structure

Market structure provides a fundamental framework for

comprehending how markets function. It is made clearer with three
different market structure types while Price Action is the sole basis
on which the price moves without taking into account the trends
and how they might continue. A trend is a tendency for prices to
move consistently in one way over time. Trends can move in any
direction—up, down, or even sideways.

The market trend in 3 different directions at any given time and

understanding when a shift occurs based on the timeframe YOU
watch is pivotal to successful trading. The 3 types of market
structure are:
1. Bullish Trend
2. Bearish trend
3. Sideways trend
 05

Types of Market Structure - Bullish Trend

This is when the price keeps on making a series of higher highs and higher
lows, it indicates a clear movement to the upside.

Bullish Trend

Bullish Trend

The bull trend is depicted by higher highs and higher lows. The trend
will continue in that direction until a lower low is printed by the asset
price. The trend begins to show signs of weakness when it fails to
print and higher high.
 06

Types of Market Structure - Bearish Trend

As displayed on the diagram below, price keeps making a series of lower

highs and lower lows indicating a move to the downside.

Bearish Trend

Bearish Trend

The bear trend is the price action of lower lows and lower highs. The
bear trend will continue to fall as long as lower highs continue to
print, once a higher high comes into the price, the trend will end. The
sign that the trend may be reversing is price beginning to print higher
lows or equal lows.
 07

Types of Market Structure - Sideways Trend

The market is said to be moving sideways or ranging when price fails to

make higher highs and higher lows or lower highs and lower lows, price is
said to be ranging in between the support and resistance level.

Sideways Trend

Sideways Trend
 08

02) Types of Charts

To analyze how assess prices move, there will be a need for a sort of way
to look at the past and current price behavior. The first tool that a trader
using technical analysis needs to get familiar with is the chart. A chart is
just a graphic depiction of the price of a currency pair over a certain time
period.

It depicts the trading activity that occurs over the course of one trade
period, whether that be 1 minute, 4 hours, a day, a week or a month.
Any financial asset with historical price data can be represented
graphically for analysis.

Since price fluctuations are a succession of largely random events, it is our

responsibility as traders to manage risk and evaluate likelihood, and
charting can be useful in doing so.

Price movements are a succession of mostly random events, therefore our

goal as traders is to control risk and gauge probability, and charting can
help with that.

Here are the most important price charts:

1. Candlestick chart
2. Bar chart
3. Line chart
 09

Types of Charts - Candlestick chart

The candlestick chart is a variant of the bar chart. Candlestick charts

display price data similarly to bar charts but in a more attractive manner.
This chart is popular among traders because it's not only more visually
appealing but also simpler to interpret.

Candlestick chart

Advantages of candlestick chartings

Candlesticks are simple to understand and are wonderful spot for

beginners to begin learning about chart analysis.
Candlesticks are really simple to use and information can quickly be
adapted in the bar notation.
Candlesticks and candlestick patterns have catchy names like Doji,
hammer, evening star, etc which aids in remembering what the pattern
represents.
Candlesticks are effective at detecting market turning moments, such as
trend reversals from an uptrend to a downtrend or from a downtrend to
an uptrend.
 10

Types of Charts - Line Chart

A simple line chart draws a straight line from one closing price to the next.
We can visualize the overall price development of a currency pair over time by
connecting its values with a line.Although the line chart is easy to understand, it
might not give the trader much information about price behavior over the
course of the period.

This kind of chart is typically employed to obtain a "big picture" understanding

of price changes. The best way to depict trends, which is just the line's slope, is
using a line chart.

According to certain traders, the closing level is more significant than the open,
high, or low. Price changes throughout a trading session are disregarded by
focusing solely on the closure.

Line chart
 11

Types of Charts - Bar Chart

The open, high, low, and close prices of an asset during a specific time period
are represented graphically in a bar chart. The high and low prices for the
specifiedperiod are shown by the vertical line on a price bar.The size of bars
can change from one bar to the next, over a range of bars, or both.

The vertical bar's bottom represents the lowest transacted price for that
time period, while its top represents the highest price paid.The vertical bar
itself displays the total trading range for the currency pair. The bars grow
bigger as the price swings become more erratic. The bars get smaller as the
price swings become quieter. This is an example of a bar chart:

Bar chart
 12

Support & Resistance

Support and resistance levels are like the floor and the roof of a building. A ball
thrown to the roof is expected to drop and a ball bounced on the floor is also
expected to shoot up so consider the roof to the resistance and the floor as the
support. Support and resistance levels tell you if the price of anasset is likely to
stop moving in its prior direction and to start moving in the opposite direction in
the future. Knowing where an asset price may stop and turn around helps
traders to enter and exit their positions at the most profitable times.

Support

Support is a price level at which an asset price tends to stop moving down,
then turns around and starts climbing. Support levels indicate where
there will be a surplus of buyers.
 13

Support & Resistance

Resistance

Resistance is a price level at which an asset tends to stop moving up, then
turns around and starts falling.
Resistance level indicates where there will be a surplus of sellers.
 14

06) Break and Retest Method

What is break and retest?

A break and retest strategy occurs when an asset makes a bullish or bearish
breakout and then retests the previous resistance or support and then
continues moving in the original trend.

Price Action Trading Method

The Breakout and retest method is one of the most setups that when identified,
can be very profitable and to understand this method, one should know the
basics of support and resistance.

Bullish Structure

Example 1: USDJPY 1 hour

 15

06) Break and Retest Method

Bearish Structure
Example 1: EURUSD 1D

Tips on Break and Retest Method

The market should be in a trend.
On an uptrend, the higher high (resistance) should be broken and retested as
support.
On a downtrend, the lower low (support) should be broken as well and
retested as resistance.
When price makes a retest, always wait for the first candlestick after the
retest.
Practice patience and discipline.
 16

06) Break and Retest Method

Why is it important to trade the break and retest method?

The strategy helps you avoid false breakouts. Most forex traders who fall for
the false breakout often make their trades on the first breakout candlestick.
But when you use the breakout and retest strategy, you avoid false breakouts
and enter a newly established trend.

The strategy helps you get into a trade at the best positions. The breakout and
retest strategy offers you a good position to get into a trade. After the first
breakout, many traders chase the breakout by “getting into the trade quickly”
before the price goes too far. But what they’re actually doing is getting into the
trade at the worst time because they’re either buying at a higher price or selling
at a lower price. A typical example is in the chart below.

Some disadvantages of break and retest?

The retracement is not always complete. Additionally, there are instances when
the retracement does not reach the point where the price made its breakout.
Traders may become perplexed by this position as some wait in vain for a
complete retracement while others are uncertain of what to do next. If this
happens to you, put your order on the first candlestick that appears following
the initial retracement you observe. You would have made a wise trade if that
retracement turned out to be the only one. You would still have entered the
trade at a decent price even if the retest ultimately fails

The retest may never come. The retest doesn’t always come, causing traders
setting up the breakout and retest strategy to lose out on potentially major
moves.

The retest sometimes gets faked out. This occurs when the price does not
retest and bounce off the freshly formed level but instead goes back to the
level it first broke out from. Due to the fact that the first candlestick following
the retest typically serves as confirmation that the newly created level will
hold, we advise you to only initiate the trade on this candlestick.
 17

Chart Patterns

Chart patterns are natural pricing patterns that have the shape of natural
objects, such as triangle patterns, wedge patterns, and so on. Due to
natural occurrences, these patternskeep repeating over time. These
recurring patterns are used by traders to forecast themarket.

Chart patterns are made up of price waves or swings on the candlestick

chart. Here are the following chart patterns to be covered:

Double Top and Double Bottom

Head and Shoulders and Inverse Head and Shoulders
Rising and Falling Wedges
Bullish and Bearish Rectangles
Bullish and Bearish flags
Triangles (Symmetrical, Ascending, and Descending)

Types of Chart Patterns

Chart patterns are categorized into two primary types based on the trend
direction.

Continuation chart pattern

Reversal chart pattern

 18

Types of Chart Patterns - Continuation chart pattern

Trend continuation patterns develop during a pause in current market

movements and primarily mark the continuation of movement. These
patterns indicate that the price action represents a pause in the current
trend.

They assist traders in distinguishing a pause in price movement from a

complete reversal and demonstrate that the price trend will continue in
the same direction upon breaking out of the pattern.

Here we discusse about

Bull Falling Wedge

Bear Rising Wedge

Bull Flag

Bear Flag

Bull Rectangle

AccendingTriangle

DecendingTriangle

Symmetric Triangle
 19

Types of Chart Patterns - Continuation chart pattern

Bull Falling Wedge

The wedge pattern is a trend reversal chart pattern with a price structure
that looks like a wedge. A Wedge has a larger outer segment and a smaller
outer section. It's also a natural pattern because it shows pricing behavior
in its natural state.

Bull falling Wedge is a minor and short-term trend continuation pattern

indicating the previous direction which will prevail after its formation

Bear Rising Wedge

 20

Types of Chart Patterns - Continuation chart pattern

Bull Flag

An impulsive wave and a retracement wave make up a flag pattern, which is a

chart pattern that indicates the continuation of a trend.

The most popular and sophisticated chart pattern is the flag chart. This chart
pattern's profound psychology makes it extremely useful for predicting the
direction of any asset inthe financial market.
 21

Types of Chart Patterns - Continuation chart pattern

Bear Flag

Bull Rectangle

Bullish rectangles are continuation patterns that occur when a price pauses
during a strong bullish trend and temporarily bounces between two parallel
levels before the trend continues.
 22

Types of Chart Patterns - Continuation chart pattern

Accending Triangle

Bullish rectangles are continuation patterns that form when a price pauses in
the middle of a strong bullish trend and temporarily bounces between two
parallel levels before continuing the trend.
 23

Types of Chart Patterns - Continuation chart pattern

Decending Triangle

Symmetric Triangle

A symmetrical triangle is a chart pattern characterized by two converging trend

lines connecting a series of sequential peaks and troughs. These trend lines
should be converging at a roughly equal slope.
 24

Types of Chart Patterns - Reversal chart pattern

Reversal patterns are those chart formations that signal that the ongoing trend
is about to change course. If a reversal chart pattern forms during an uptrend,
it hints that the trend will reverse and that the price will head down soon.

Here we discusse about

Double Top

Double Bottom

Head and Shoulder Pattern

Inverse Head and Shoulder

Rising Wedge

Falling Wedge
 25

Types of Chart Patterns - Reversal chart pattern

Double Top

The double bottom is a bullish reversal chart pattern indicating the formation
of two consecutive lows in the support zone. A bullish trend reversal occurs
following the neckline breakout.
In this pattern, the neckline is created at the last price swing after two price
bottoms. The prior trend to the double bottom pattern should be bearish, and
it must form at the end of the bearish trend.

Double Bottom
 26

Types of Chart Patterns - Reversal chart pattern

Head and Shoulder Pattern

The head and shoulder pattern is a reversal chart pattern that consists of three
price movements. The largest price swing is referred to as the head, and the
two waves to the left and right of the head are referred to as the shoulders. It is
called the head and shoulder pattern for this reason.
It is a recurring chart pattern that occurs following a bearish trend reversal in
the market.

Inverse Head and Shoulder

 27

Types of Chart Patterns - Reversal chart pattern

Rising Wedge

The Rising Wedge is a bearish pattern that begins wide at the bottom and
contracts as prices move higher and the trading range narrows. If signals a
reversal if found in a bullish market.

Falling Wedge
 28

Candlestick Patterns

A Candlestick is a type of price chart used in technical analysis that displays

the high, low, open, and closing prices of a security for a specific period. In
short, a candlestick is a representation of price.

If the close is above the open, then a bullish candlestick (usually

displayed as green) is formed.
The red or green section of the candlestick is called the “real
body” or body.
The thin lines poking above and below the body display the
high/low range and are called shadows.
The top of the upper shadow is the “high“.
The bottom of the lower shadow is the “low“.
 29

Candlestick Patterns

A candlestick pattern is a movement in prices shown graphically on a

candlestick chart which is used to predict a particular market movement.

Let’s take a look at each type of candlestick and what they mean in terms of
price action.

DOJI is formed when opening and closing prices are

virtually the same. The lengths of shadows can vary. If
previous are bearish, after a Doji, may be ready to
bullish. A doji in a context of an uptrend can signify a
possible reversal and vice versa.

Long-Legged Doji consists of a Doji with very long upper and

lower shadows. Indicates strong forces balanced in
opposition. This also signifies reversal of the trend.

Dragonfly Doji have the same open and close

price or at least their bodies are extremely
short. If it has a longer lower shadow it signals
a more bullish trend. When appearing at
market bottoms it is considered to be a
reversal signal.
 30

Candlestick Patterns

Gravestone Doji have the same open and close

price or at least their bodies are extremely short

If it has a longer upper shadow it signals a bearish

trend. When it appears at
market top it is considered a reversal signal.

HAMMAR/HANGING MAN A red or green candlestick

that consists of a small body near the high with little or
no upper shadow and a long lower tail. Considered a
bullish pattern during a downtrend.

HAMMAR

INVERTED HAMMAR / SHOOTING STAR A black or

white candlestick that has a small body, a long
upper shadow and little or no lower tail. Considered
a bearish pattern in an uptrend.

INVERTED HAMMAR

MARUBOZU A long or normal candlestick (red or

green) with no shadow or tail. The high and the low
represent the opening and the closing prices.
Considered a continuation pattern.
MARUBOZU
 31

Candlestick Patterns

BULLISH ENGULFING Consists of a small red body

that is contained within the following large green
candlestick. When it appears at the bottom it is
interpreted as a major reversal
signal.

BULLISH ENGULFING

BEARISH ENGULFING Consists of a small green

body that is contained within the following large
red candlestick. When it appears at the top it is
considered a major reversal signal.

BEARISH ENGULFING

TWEEZER TOP It consists of two or more candlesticks with

matching tops. The candlesticks may or may not be
consecutive and their sizes or colours can vary. It is
considered a minor reversal signal that becomes more
TWEEZER TOP important when the candlesticks form another pattern

TWEEZER BOTTOM consists of two or more candlesticks with

matching bottoms. The candlesticks may or may
not be consecutive and their sizes or colours can vary. It is
considered a minor reversal signal that becomes more
important when the candlesticks form another pattern.
TWEEZER BOTTOM
 32

Candlestick Patterns

THREE WHITE SOLDIERS Consists of three long green

candlesticks with consecutively higher closes. The closing
prices are near to or at their highs. When it appears at the
bottom it is interpreted as a bottom reversal signal.

THREE WHITE SOLDIERS

THREE BLACK CROWS It Consists of three long red

candlesticks with consecutively lower closes. The closing
prices are near to or at their lows. When it appears at the top
it is considered a top reversal signal
THREE BLACK CROWS

BEARISH HAMARI Consists of an unusually large green

body followed by a small red body (contained within a
large green body). It is considered a bearish pattern
when preceded by an uptrend.

BEARISH HAMARI

BULLISH HARAMI Consists of an unusually large

red body followed by a small green body (contained
within large red body). It is considered a bullish
pattern when preceded by a downtrend.
BULLISH HARAMI
 33

Candlestick Patterns

MORNING & EVENING STAR

MORNING STAR Consists of a large red EVENING STAR Consists of a large

body candlestick followed by a small green body candlestick followed by
body (red or green) that occurs below a small body
the large red body candlestick. A third candlestick (red and green) that
green body candlestick is formed that gaps above the previous. The third
closes well into the red body is a red body candlestick that closes
candlestick. It is considered a major well within the large green body. It
reversal signal when it appears at the is considered a reversal signal when
bottom. it appears at the top level.

PIERCING LINE Consists of a red

candlestick followed by a green
candlestick that opens lower than
the low of the preceding but closes
more than halfway into the red body
candlestick. It is considered a
reversal signal when it appears at the
bottom and vice versa.

PIERCING LINE
 34

Candlestick Patterns

HAMARI CROSS

BEARISH HARAMI CROSS A large BULLISH HARAMI CROSS A large

green body followed by a Doji. red body followed by a Doji.
Considered a reversal signal when it Considered a reversal signal when
appears at the top. it appears at the bottom.