Date: 04/13/2023

TRADING COURSE:
INTERMEDIATE LEVEL
READING THIS
COURSE, YOU WILL
LEARN ABOUT:

Basic concepts of technical analysis

Types of trends
Fibonacci sequence
Introduction to graphical analysis
Trade patterns
WHAT IS TECHNICAL of technical analysis since the market with its
specific trends can be predicted, unlike the chaotic
market. There are usually two possible scenarios:
ANALYSIS? either the current trend continues and the market
moves in the same direction or the trend reverses
As widely known, history repeats itself. Applying this at some moment and the market starts moving
saying to the financial markets, we can conclude in the opposite direction.
that the history of price movements can also repeat.
Indeed, quotes tend to move in cycles, and their History repeats itself
past performance can help analysts to predict future
Technical analysis and studies of market dynamics
dynamics. So, this is what the technical analysis is all
are very closely related to the study of human
about. Traders study price charts in order to forecast
psychology. Thus, graphical price models classified
where the price will move next. The technical
in the last century reflect the most important
analysis is based on the theory of Charles Dow, an
features of the psychological state of the market.
American journalist and co-founder of ​Dow Jones &
If the price changed in a certain way in certain
Company. Here are the three main principles of this
situations in the past, then there are good reasons
theory:
to believe that the price will react in a similar way
in the same situations in the future.
The market discounts everything

This is the most important tenet. The current market

price takes everything into account. In other words,
all the numerous fundamental and spontaneous
factors are already included in the price and each
value of the price on the chart is the most fair and
takes into account all of the above factors.

Prices move in trends

This assumption is the basis of all methods

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TYPES OF TRENDS If a trend is bearish, or downward, then the new
peaks and divergences are lower than the previous
ones. The trend line cuts the price chart on the
Trend is your friend. Many traders have heard upside and is drawn at the peaks.
this phrase but few beginners can give a correct
definition of a trend, let alone identify it on a chart.

A trend is the overall direction of a market or an

asset’s price.

There are three types of trends.

Uptrend (bullish), downtrend (bearish), and
sideway (flat).

If a trend is bullish, or upward, every next uprise and

divergence are higher than the previous one. The
line that confines the trend to the upside is the trend
line. This trend line is plotted at the lowest prices.

These lines are called support and resistance lines.

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Thus, a support line can be found under the price the price movement. Traders use these price levels
line, while the resistance level is above it. In the to determine who is most likely to take control of the
course of trading, the lines can change roles. market: bulls or bears.
Channels are of particular interest when, for a
clearly defined trend, there are good support and
resistance lines at the same time.
Resistance
When the trend is flat (sideways), there is no definite
A resistance line is a level that restricts a further
price direction, and the quotes move in a horizontal
price increase.
range.
This type of trend also has support and resistance
lines, but there is no explicit movement of prices up
or down.
Speaking about trend directions, what really matters
is trend‘s strength or stability. One of the criteria to
measure the trend strength is its behavior at or near
resistance and support levels.
For example, if the trend is downward and the
prices break below a support level, the trend is very
likely to continue. However, if the trend touches
the resistance or support levels several times and
then reverses, it signifies a weaker trend. In such a
way, we get more confirmations that the trend will At this point, sellers come into action. If they
reverse. manage to gain an advantage over buyers, the price
stops rising.
Support and resistance levels If the price returns to the already formed resistance
level, then sellers are most likely to come into action
Support and resistance levels are key price levels again trying to turn the price down.
at which sellers or buyers enter the market with Thus, a resistance level can be used to enter the
enough money to either continue or reverse market with a short position or to set take profit
level for closing an open long position.
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Support
A support line is a level that restricts a further price
decrease.
The price moving down reaches the support level.
At this point, buyers enter the market in such a
quantity that allows them to get an advantage over
sellers and prevent the price from falling lower.
Support levels can be used to enter the market with
a long position or to close short positions.

How to determine support

and resistance levels
To determine support and resistance levels, you
need to find the points at which the price movement
stops constantly. At these moments, either buyers
or sellers enter the market.
As you can see in the chart below, if we draw a
horizontal line through the point at which the price
stops, we will determine the resistance level at
which sellers enter the market.
In the chart below, a horizontal line is drawn across
this level, helping to determine the level of support
at which buyers enter the market.

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TRADING SUPPORT
AND RESISTANCE
LEVELS
Rebound
A resistance line is a level that restricts a further
price increase.

Break
Support and resistance levels can’t hold forever. In
a perfect forex trading world, we could just open
positions whenever the price tested given levels
and earn loads of money. But our world is not
perfect, and the price often breaks through the
levels of support andresistance. Therefore, you
cannot always trade only bounces. You should
know what to do when the price breaks support
and resistance levels. There are two ways to trade
breaks: aggressive and conservative.

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Aggressive way Conservative way
The simplest way to trade breaks is to either buy You need to be patient to use a conservative
or sell whenever the price passes confidently approach. Instead of opening a position immediately
through either a support or resistance zone. The after a break, you should wait for a pullback to
key word here is confidently, that is the price breaks the broken support or resistance level and open a
a particular level at ease. Below, we see how the position immediately after a bounce from this level.
price breaks through the level without stopping and Below, you can find an example.
continues to decline. In such a case, an aggressive
trader would immediately open a position..

A few words of caution. Retests of the broken

support and resistance levels do not happen all
the time. Sometimes, the price just moves in one
direction. Therefore, always place your Stop Loss
orders above or below the level and get rid of an
unprofitable position. In the example above, the
Stop Loss order is set above the level.

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CHANNELS AND HOW
TO PLOT THEM
Price channels, also called trading channels, are a
way to graphically depict trends and ranges on a
chart. They can show levels where the price is likely
to reverse.
What is a price channel?
A price channel is a limited trading range in which
the price moves for a certain period of time. In other
words, this is a corridor on the price chart. The
borders of the price channel are outlined by two When the price moves in an uptrend, as illustrated
lines: resistance and support. below, we can say that it moves in an ascending
You can create a channel by drawing two trend lines channel.
or using a tool to build a channel with your charting
program.

Determining price channel

When the price moves in an uptrend, as illustrated
we can say that it moves in an ascending channel.

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If the price moves in the zone of horizontal support
and resistance, as you see below, then it moves in
Channel trading principles
the so-called horizontal channel.
To start trading, you need to draw a few additional
lines. To draw the first one, set aside 50% of the
total width of the range. It is built strictly in the
middle between the lines of support and resistance.
Draw the second and third lines inside the channel
parallel to the upper and lower boundaries, at a
distance of 10% of the width. The chart is below.

If there is an uptrend or downtrend, it means that a

horizontal channel may form in the future.
To plot a channel, you need to draw two trend
lines, one connecting two lows, and the other one
connecting two highs. It is normal when two or more
candles go beyond the boundaries of the trend
lines, but most of the candles should be within the
boundaries of the channel.

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Channel trading is conducted from the borders Another strong support/resistance level is the 50%
(lines of support and resistance). If the channel is line. But if you open a deal at the level, do it very
ascending, then we buy at the lower boundary and carefully and only in the direction of the channel.
sell at the upper one. Profit should be fixed near the It is up to you to decide where to set a Stop Loss.
opposite border of the channel when the price goes One of the possible options is to place an SL order
beyond the line of 50% to the 10% zone. above a swing high or below a swing low.
A swing high is a peak reached before the price
Why is that? moved lower, while a swing low is a trough reached
before the price rebounded. On the chart below,
We remember that the market is unstable in a red cross marks the stop loss point. This is the
nature, and the price behavior in the market is nearest swing low.
unpredictable, so we can only guess. In order to
minimize risks, we give part of the potential profit
to the market, closing the deal before the price
touches one of the boundaries

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FIBONACCI numerical sequence.

SEQUENCE Selecting proportions this way, we will get the

following Fibonacci numbers: 4.235, 2.618, 1.618,
0.618, 0.382, 0.236.
Leonardo Pisano was a famous Italian The sequence of Fibonacci numbers tends to a
mathematician who lived in the XIII century. He certain constant ratio. It is not possible to express
was better known to his friends by the nickname this ratio precisely, since it is irrational. Therefore, it
“Fibonacci” - the son of Bonacci. He was glorified was decided to reduce the fractional part and refer
by the “Book about the abacus”, written in 1202 to a ratio of 0.618 (1.618). This is called the golden
(Abaca is a counting board). The Fibonacci‘s work ratio.
discovered the Hindu-Arabic numeral system to
Europeans which became a tool in such fields
of science as physics, mathematics, astronomy,
Fibonacci levels
biology, and others. The Fibonacci sequence makes
In trading, the term «Fibonacci» means a tool that
it possible to interpret various natural phenomena
measures the price movement and, based on this
and forms, while the «golden ratio» is one of the
analysis, sets horizontal support and resistance
treasures of geometry according to Kepler.
levels on the price chart. These levels of support
and resistance are called Fibonacci levels and, like
The resulting endless progression (now called the
ordinary horizontal support and resistance levels,
Fibonacci numbers) looks like this: 1, 1, 2, 3, 5, 8, 13,
they are used to make trading decisions.
21, 34, 55, 89, 144...
The Fibonacci tool is applied to price movement.
Each subsequent number is equal to the sum of the
When the price moves in a certain direction, the
previous two.
beginning and the end of this movement can
Moreover, starting from the number 5, any of them
be accurately determined. Using the Fibonacci
is approximately 1.618 times larger than the previous
tool, the distance between these points can be
one. Thirdly, any of the numbers is approximately
measured. This tool automatically sets the so-called
0.618 of the following. Traders began to use
retracement levels which could hypothetically help
Fibonacci levels on Forex as soon as they noticed
to predict the end of the corrective movement.
that the fluctuation in asset prices often repeats this
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The Fibonacci levels in trading are calculated based
on the Fibonacci numbers, or rather the percentage
difference between them.
An example of projecting Fibonacci levels on a
trading chart

In the case of an upward price movement, this tool

is applied from the lowest point to the highest one
- it is moving left to right again. Let’s demonstrate it
on the chart:

How to apply Fibonacci levels.

Fibonacci levels can be used to predict future
price movements. The starting point where the first
Fibonacci level is applied is the reversal point, i.e.
the point where the price stopped rising and began
falling. The second point is the low of the current
candlestick. The chart below shows the way how
the calculations are done:

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Fibonacci levels can be automatically placed in MT4.
As can be seen from the chart above, the Fibonacci
tool divides the price movement into certain
periods, separated from each other by levels.These
levels are called retracement levels, which means
that the price can resume its initial movement after
reaching certain levels (38.2%, 50%, 61.8%).

Fibonacci retracement levels indicate the

percentage of the total price movement. Thus, the
level set in the middle between the beginning and
the end of the movement shows a retracement of
50%. If the price pulls back half the way, it means
that it has retraced to the level of 50%.
Accordingly, the retracement levels illustrate how
strong the pullback in price action can be and where
the movement can be recovered.
The chart below shows the levels of 38.2%, 50%,
and 61.8%. These are the most common levels
to which the price usually comes back and then
resumes the movement.

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INTRODUCTION TO Head and Shoulders;
Inverse Head and Shoulders;
GRAPHICAL ANALYSIS Triple Top;
Triple Bottom
As already mentioned, one of the major postulates
of the technical analysis is that history repeats
itself. There are many methods to search for these
repetitions. One of them is graphical analysis.
It involves the visual study of price charts, the
identification of patterns repetitions, and the
prediction of further price movement on that basis.
Looking closely at price charts, we can see that
upon reaching a certain value, the price pauses its
movement. Sometimes it turns around and changes
direction.
These are the levels of support and resistance
which are the fundamental indicators of the
graphical analysis in the forex market.

Trend reversal patterns

Every trader longs to open trades at the very
beginning of a trend and close them at the end of
this trend. Reversal patterns of technical analysis
can help in this regard.
Here are the most popular reversal patterns:

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How the Head and Shoulders The Head and Shoulders pattern consists of three
successive price peaks. The first and third peaks are
pattern is formed and how to shoulders, while the second peak forms the head.
apply it. The latter is higher than others. The line connecting
lows of these peaks is called the neckline. Attention
The Head and Shoulders pattern consists of three should be paid to the slope of the neckline: if the
successive price peaks. The first and third peaks are neck is tilted down, the signal will be more reliable.
shoulders, while the second peak forms the head. We can also define the target of the downward
The latter is higher than others. The line connecting movement. We need to measure the height of the
lows of these peaks is called the neckline. Attention head and subtract this distance from the neckline,
should be paid to the slope of the neckline: if the after which we will get the target of a possible price
neck is tilted down, the signal will be more reliable. movement when the price breaks through
the neckline.

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As soon as the price breaks through the neckline, it As you can see, it is an exact copy of the Head and
moves a distance equal to at least the height of the Shoulders pattern, but turned upside down. Here we
head, and sometimes much more. In such cases, can open a buy order just above the neckline. The
you may be tempted to wait for a further decline, but target for our position can be defined in the same
you need to be careful and close your deal timely. way as for the Head and Shoulders pattern. We
How the Inverse Head and Shoulders pattern is need to measure the distance from the low of the
formed. The Inverse Head and Shoulders pattern is head to the neckline - this will be an approximate
a mirror image of the previous model which consists distance that the price is going to pass when it
of three consecutive bases. It begins with the first breaks through the neckline.
bottom (shoulder), followed by the lower bottom
(head) and completed by the third bottom (shoulder)
which is located slightly above the head. This
pattern is formed when there is a clear downward
trend in the market.

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How the Triple Top pattern is The ideal pattern includes the peaks and bottoms at
the same levels.
formed. The pattern is considered completed only after
the price breaks through the level of the bottoms
The Triple Top is usually formed after a long-term (support line).
uptrend and indicates a possible reversal of the The price may return to the support line that turns
trend. into resistance and pull back from it,, after which a
The pattern consists of three successive peaks downtrend develops.
and is often regarded as a variation of the Head The longer the pattern is being formed (a month or
and Shoulders pattern. The Triple Top pattern can more), the higher its reliability.
be applied in the event that the trend is upward,
when the price hits a new high and, after two more
attempts to grow, fails to break the resistance level
and falls, probably with an acceleration and a price
gap. In this case, two horizontal parallel lines of
resistance and support are drawn through the peaks
and bottoms, respectively.

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HOW TO APPLY THE
TRIPLE TOP ON A
TRADING CHART.
The Triple Top sell signals:
breakout of the level of any bottom;
breakout of the support line;
rebound from the support line (new resistance
line) from below when the price moves
back after the breakout.
How the Triple Bottom pattern
is formed.
Targets according to the
Triple Top pattern movement: The Triple Bottom pattern is formed after a long-
term downtrend and indicates a possible reversal of
the trend.
distance from the resistance line to the line The Triple Top pattern applies if the trend is
of support, measured downwards from the downward, when the price falls to a new low. After
breakout point of the level of the bottoms; two more attempts to decline, it cannot break the
if the bottoms are not at the same level - the support level and starts to grow, probably with an
distance from the resistance line to the support acceleration and gaps.
line, measured downwards from the breakout In this case, two horizontal parallel lines of support
point of the support line. and resistance are drawn through the bottoms and
tops, respectively.
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 Targets according to the
Triple Bottom pattern
movement:
distance from the support line to the resistance
line, measured upwards from the breakout
point of the top level;
The ideal pattern includes the tops and bottoms if the tops are not at the same level - the
at the same levels. In fact, there may be slight distance from the support line to the resistance
deviations, resulting in non-horizontal and non- line, measured upwards from the breakout
parallel lines of support and resistance. The pattern point of the resistance line.
is considered completed only after the price breaks
above the level of the peaks (the resistance line).
The price may come back to the resistance line that Trend continuation patterns
turns into support and rebound from it,, after which
an uptrend develops. There are trend continuation patterns that can also
The longer the pattern is being formed (a month or be applied in technical analysis. These patterns
more), the higher its reliability. indicate a temporary correction of the underlying
The Triple Bottom buy signals: trend in the opposite direction. Early recognizing
such patterns on a chart can help traders avoid
breakout of the level of any peak; taking poor decisions. Here are the most popular
continuation patterns
breakout of the resistance line;
Triangles;
rebound from the resistance line (new support
line) from above when the price moves back Flag;
after the breakout. Pennant.

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Types of Triangles and their
specific characteristics
The Triangle pattern is formed when the market is
uncertain about where the price will move further.
There are the following types of Triangle:

Ascending Triangle;
Descending Triangle;
Symmetrical Triangle.

How the Ascending Triangle is

formed
The Ascending Triangle is a pattern that is formed
when the resistance line is almost horizontal and
the trend line connects ascending consecutive lows.
This pattern can be interpreted in the following
way: bulls push the price upwards (lows are shifted
upwards), but bears resist bulls‘ attacks. Clearly,
buyers are stronger and they can break the
resistance level and push the price above it.

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How to apply the Ascending How the Descending Triangle
Triangle to a chart. is formed
The key aspect of trading with the Ascending The Descending Triangle is a pattern opposite
Triangle is to open a deal when the price breaks the to the Ascending Triangle. It is formed near the
resistance level and starts rising. horizontal support line and the upper trend line that
Also, traders can place a Stop Loss below the connects consecutive descending lows.
ascending line of the pattern. Formation of this pattern means that sellers are
taking control over the market, pushing the price
lower.
The scenario is the same as in the previous pattern.
Two counter deals are opened: the sell deal is
placed below the support line while the buy order is
opened above the descending line. The sell order
should be placed below the support level while the
buy order should be opened above the descending
line.

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How to apply the Descending How the Symmetrical Triangle
Triangle to a chart. is formed
The bottom line of the Descending Triangle is The Symmetrical Triangle appears at a time when
horizontal, and the top one is a downtrend line. If the price reaches lower highs and higher lows.
the price breaks the bottom line, this line turns from Usually this means that neither buyers nor sellers
support into resistance. Where to place the entry can take control of the market, which is why the
spot (depicted in green), the stop loss (red), and the price fluctuates inside the Triangle.
profit level (violet) is shown on the chart below: Typically, the price is between trend lines that act as
support and resistance levels, that prevent the price
from reaching new highs or lows.

How to apply the Symmetrical

Triangle to a chart
The key aspect of trading with this pattern is to look
for a breakout of any of the Triangle lines and then
open deals in the direction of the breakout. Traders
should wait for the candlestick to close above or
below the trend line before searching for the entry
point.

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The chart below shows how to set the take profit. In These levels help traders to plan their tactic.
the given example the price broke the upper side of Particularly, there are Break and Rebound methods
the Triangle. that are based on the assumption that the price
behavior should be closely watched at the
resistance and support levels in order to predict
further movements.

4. Prices often move in a channel which is a limited

trading range with the borders outlined by the
resistance and support levels.

5. Forex traders widely employ a theory of a famous

Italian mathematician nicknamed Fibonacci who
discovered a sequence of numbers aka the Golden
Ratio. In Forex, this ratio is used to predict further
price movements.

To sum up, here is what you have learned after 6. Another way to forecast price movements is to
reading this course: spot certain formations also knowns as patterns on
charts. Some patterns such as Head and Shoulders,
1. The technical analysis is essentially the analysis of Triple Top, and Triple Bottom signal a trend reversal
the previous price movements aimed at predicting while others such as Triangles, Flag, or Pennant.
the possible future developments on the market. indicate a reversal of a trend. This method is called
graphical analysis.
2. There are three types of trend: upward (bullish),
downward (bearish), and sideways (flat).

3. The support level is a line on chart supposed to

limit a further fall while the resistance level is a line
that presumably caps a further rise.
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You should consider whether you understand how CFDs work and whether you can afford the risk of
losing your invested funds.
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