AnalyzingChartalaKG DirectionandBoundariesofthePriceMovement KGMethod KGdevelopshisconcepttoanalyzeachartusingMathandStatisticaltheory. Analyzingachartisthemainjobofatraderthatmightmadenewbiefeellightheaded.

d. A lot of method and system created and recreated by trader to analyzing chart, either fundamentally basedandtechnicallybased,whichweretheresultwillbeuseasareasontosellorbuyinthemarket, holdaposition,averagingortakingprofit. HowweanalyzingthechartbasedonKGMethod? We will analyze the chart using Simple Moving Average where the data of each candle applied to Weightedtype(HLCC/4). WhySimpleMovingAverage? The main reason is because of its simplicity, the simplicity of SMA formula will ease our will in understandingthepricemovement. SMAcalculatedaveragevaluesinacommonmethod. Forexamplewhenwehadagroupofnumber,letsaytheyare6,8,9,4and3thenthevalueoftheSMA is(6+8+9+4+3)/5=6. Simpleisnt Whatweactuallyneedtodoinanalyzingachart? First,predictingthedirectionofthepricemovement. Secondly,predictingtheboundariesofthepricemovement. Whichdirectionthepricewillmove?Whereisthetrenddirection? Thisisacommonquestionweasktoourselveswhenanalyzingthechart. Whatistrend? Alotofdebateaboutthedefinitionofatrend,soweneedtomakeasameperceptionaboutatrend, basedonKGdefinition,trendisbiasmovementofthepricebasedontimesequence.

Tounderstandingthesituationtriestolookatpicturebelow. Whatinformationyoucangetfromthepicture?

GBPUSDTFH1

Nowwearezoomingoutourpicture. Doyouseesameinformationnow,ormaybeitchanges?

GBPUSDTFH1

Interestingisntit? Byzoomingoutthechartwegetdifferentinformation. Whatisitmean? It means that our perception about a chart depend on how we see the chart, wider we see, more informationwecangetfromthechart. Now,takealookattGBPUSDTimeFrame(TF)H1chartsabove... Whatinformationwecangetfromthechart? WhatwashappenwithGBPUSDrightnow?Whereisitgoesto? Whatwashappeningwithitsmovement? Aftermakingsomevisualanalyzing,wecanconcludethatGBPUSDmadethreebasicpatterns: UPpattern DOWNpattern andFLATpattern Whenwemadeconclusionthatthechartisinup,down,andflatcondition,actuallywearecomparing thecurrentpricewithpreviousprice,itmeanswearealsocomparingthetime.

MoreexamplesonGBPUSD!

HowweknowthetrendincheckCrightnow? IfweobservefromcheckBpointofview,thenwecanconcludethatitisatDOWNcondition,otherwiseifweobservefromcheckAthenwewill concludethatthesituationincheckCisstillinUPmovement.

PointofView Thepictureabovetellsusthatbyusingtwodifferentviewspot,wegetdifferentinformation. ByobservecheckCfromcheckBactuallyweareanalyzingthepriceinCcomparedtothepriceinB. Because our chart only has two parameter; Price and Time, then actually we are observing the price changebasedontimechange. UsingTimeasourAnalysisTool Itmeansthatwehave tomakeitstandard.We havetomakeaguidelinein usingtimeasananalysis tool.Sowewillhavethesamepointofview. Thestandardalsohastobelogicallyacceptedandcommonlyusebytheworld,company,andhuman activity. Thestandardisasfollow: Yearly, Monthly, Weekly, Daily,and 4Hour. BacktoourGBPUSDchart WehavetalkaboutSimpleMovingAveragebefore. NowwewilltryusingSMAindicatortoobservethemovementoftheaveragepriceinGBPUSDinaday back. 1Day,meansthatwehavetouse1daypointofviewtoobservethepricechange,becauseourtime frameisH1thantoseethevalueof1DaySMA,weneedtocalculatedaveragepriceof24candlesinTF H1. IfyouuseMetatrader4,openMovingAverageindicatorandsetperiod24. MAMethodeSimpledanApplyPriceWeightedClosed(HLCC/4), SoourGBPUSDchartwilllooklikepicturebelow:

 GBPUSDTF1MovingAveragedanperiod24. MAMethodeSimpledanApplyPriceWeightedClosed(HLCC/4).

 Whatwecanseeherefromourchart. LookatthemovementoftheSMAfrompoint1topoint2itisappearthatSMA24movingup. Sowecouldsaythatthedailytrendfrompoint1topoint2isUP. Frompoint2topoint3appearthatSMA24movehorizontally,sowecouldsaythatfrompoint 2topoint3isFLAT. Frompoint3topoint4SMA24isinUPtrendagain. Frompoint4topoint5SMA24isinDOWNtrend. Frompoint5kepoint6SMA24trendisUPagain,andsoon. NowfromSMA24onourGBPUSDTFH1chart,wehaveinformationofthemovementofGBPUSDprice inDailypointofview. Isitenough? Nope,weneedalotmorepointofviewtomakeaclearandgoodunderstandingofourGBPUSDchart. Sonow,weneedtoaddmorepointsofviewonourchart.Wealreadymadeatimestandardandnow wewillbegintouseit. Letsaddweeklyandmonthlypointofviewonourchart. BecauseweareusingSMA,thanweneedtoaddSMAperiod120asouraidtoseeweeklyviewandSMA period480toseemonthlyview. Why120? Becauseinadaywehad24hours,inaweekwehad5workingdays,soinaweekwehad120working hours.BecauseweuseTFH1thanSMAperiodis120. Why480? Amonth=4weeks SoourMonthlySMAperiodcalculationisasfollow120x4=480. TheweeklypricemovementwillberepresentedbySMA120[SlateBlue],monthlypricemovementwill berepresentedbySMA480[yellow]. ObservethepricemovementbasedonweeklyandmonthlypointofviewinGBPUSDchartbelow:

Whatinformationwegotfromthechart? InweeklybasiswecouldseethatthepriceisinUPtrendconditionfrompointAtopointB.FrompointB to point C the weekly price movement is DOWN, and from point C until the market close UP trend is takeplace. Than if we wider our view to monthly basis we could see that the monthly average price movement [yellowSMAline/SMA480]isinaFLATbias. Letstrytostartanalyzingthechartusingallthosetimebasispointofview. WhatwashappenwithGBPUSD? IndailybasiswecouldseethatGBPUSDfromFeb27untilFeb29moveonlyinlimitedrange. LookatSMA24line[redSMAline]frompoint4topoint5,frompoint5topoint6,untilFeb29 From the line shape that formed by SMA 24 we could clearly see that GBPUSD only move in limited range. Now,lookatSMA24frompoint3topoint4,wecouldseethatthepricemoveinsharpangle,andlater GBPUSDlookslikewanttostabilizeitsmovementrhythm.WeusuallycalleditConsolidation. Thatconsolidationisoccurringfrompoint4untiltheendofthechart. Ok,letstakealookinweeklybasis,whathappenwithSMA120;fromthechartweknowthatsinceFeb 22untilFeb29themovementofSMA120lineisinUPtrendbias. AndthemovementinSMA480thatrepresentingthemonthlypricemovementisinFLATbias. NowwearetryingtozoomingoutonceagainandseewhatactuallyhappenwithSMA480?

 GBPUSDTFH1

Wow, in the new chart after we made a zoom out above, we could see that SMA 480 is also in consolidationtoo,aftermadeasharpdowntrendbefore. [LookatSMA480line/yellowline] Nowwehavemade3observationson3pointofview,daily,weeklyandmonthly. Whatwecanconcludefromtheobservation? Beforeanswerit,trytorememberabout3basicpricepatterns,whichis: UP,DOWN,andFLAT. Betweenthoseentirepatterns,flatisthemostimportantpatternonouranalysis. Why? BecausethisistheplaceweretheUPandDOWNmovebegintohappen. Andthemostimportantthingisbecausethemovementboundariesofflatconditionareeasilypredicted byusingmathandstatisticapproach. Asmentionedbefore,twoimportantinformationwearelookingforinanalysisis: Predictionofthepricemovementdirection,and Theboundariesofthedirection. ByanalyzingthedirectionofSMA24,SMA120andSMA480,wealreadyhadapictureaboutthenext pricemovementdirection. Howwepredictthemovementboundariesrightnow. WewillpredictthemovementboundariesusingBollingerBands. Touseit,weneedtosettheBBinthesameperiodofourflatSMA. e.g.: OnourGBPUSDchartwehave3pointofview,butonlySMA480thatinflatcondition. RegardingthissituationthanwewilluseBBperiod480,deviation2[standard]andapplypricetypein toWeighted[HLCC/4] OnourGBPUSDH1,theBBisinthesamecolorwithSMA480[yellow],butthetypelineisdash.

Thisisthepicture Trytothinkandanalyzewhatyoucouldgetsofar?

GBPUSDTFH1

Tomakeitmoreclearlyforyou,wewilltrytolookfromTFH4,thereisnodifferentwestillusingthesamepointofview,onlyindifferentperiod:

Redsolidlinerepresentingdailymovement,SMAperiod6 Slatebluesolidlinestillrepresentingweeklymovement,SMAperiod30 Yellowsolidlineisrepresentingmonthlymovement,SMAperiod120 Bluesolidlinerepresentingyearlymovement,SMAperiod1440 YellowdashlineisBB120. BluedashlineisBB1440.

WhyweareusingBollingerbandstopredictthepricemovement? ThemainreasonisbecauseusingBBwecouldpredicttheboundariesofthemovementusingitstandard deviationcalculation. YoucouldreaddetailaboutBollingerbandsinwww.bollingerbands.com. StandardDeviation Standarddeviation2 Wewillusethisvaluetodeterminetheboundaries Standarddeviation1 Wewillusethisvaluetodetermineflatandtrendcondition Continuetoourchartanalysis: ByseeingBB480onTFH1GBPUSDchartonJan22thepricemoveonlyinsideofBB480 Recent/latestconditionofthechartisthepriceisatupperBBandSMA480isstillinflatcondition . ThequestionisitthemaximumupmoveofGBPUSD?Willitdown? Based on Standard Deviation theory we could say that the price is accomplishing 96.5% from its movementbasedonSMA480. Pleasreadwww.bollingerbands.com. SocouldwepredictthatthepricewillmovedownafterittouchupperBB480line? Wedonotpredictthenextmovementbasedonthepositionoftheprice, TopredictthenextmovementwewillusetheSMA,whichSMA? WepredictthatthepricewillmovedownonlyifSMA24thatrepresentedthedailymovementmove downorpointingdown. Howwepredictthatthepricewontretraceandmoveup? ObserveSMA24,wecouldpredictthatthepricewillmoveuponlyifSMA24crossingUpperlineBB480. Lookatthechart,aslongasSMA24notcrossingupperandlowerBB480,thepriceisalwaysmove insideBB480. REMEMBERSMA24representeddailymovement!!! Ok,ifitisfinallydown,whatisourtarget? Our first target is SMA 480, but we could only say that the price will go there if the price have move belowSMA120andSMA24isalsobelowSMA120.

Whentoopenaposition? FromtheexampleinGBPUSDwecouldconcludethatwewillopenLONGwhenthepriceisaboveupper line BB 480 and SMA 24 is crossing upper line BB 480. And we will open SHORT when the price is bouncingbackinsideBB480andSMA24pointingdown. Tohelpusfindmorefastindicationthanwealsocouldusethe8hourpricemovementSMA. AfteranalyzingthechartwecouldusethecrossbetweenSMA8andSMA24todeterminingthetimeto makesomeposition. Youcanseetheexamplebelow: SMA8hour=SMAperiod8=WhiteSMAline

Could we also use SMA 4 to monitoring the movement and use it cross as a signal to enter the market? Surely, it means that we are using the average 4 hour movement and average daily movement to determinetherightplacetoenterthetrade. KGhimselfusuallyusesthecrossbetweenSMA4andSMA8toenterthetrade. YoucouldevenusethecrossofSMA1andSMA2 Aslongasyounowtheriskinusingit,thelogicbehindit,andwilltoacceptyourrisk. Whyyearly,monthly,weekly,daily,8hourand4hour? Forexisabusiness,asabusinessitisrunbyhuman,influencedbyinstitutionandlimitedbytime.Forex iscontainsalotofinstitutions,individual,affectedbycompanyandgovernmentmonetarypolicy. Tohelpusdeterminingitwehadtofollowthesystemthatusebythem. Whatsystem? Annualreport,4monthsreview,5workingdays,8workinghours,4hoursbeforelunchhehehe Tobecontinued.. TFM15period SMA16==>4hour SMA32==>8hour SMA96==>daily SMA480==>weekly SMA1920==>monthly