Cluster analysis is a chart analysis, which is the transformation of trading orders in a readable form. The basis of the cluster analysis is the concept of correlation between trading instruments with each other – the correlation, when a change in the rate of one currency is reflected on the others. Without proper analysis it is very difficult to become a successful trader. All the technical means and various types of forecasts greatly increase the chance that the deal will be closed in profit. If a beginner trader expects to install various automated advisors in the future, it is impossible to set them up correctly without knowledge of the cluster analysis of the Forex market. To understand more complex terms this section should be studied from the basics
How useful is the cluster analysis of the Forex market
Cluster analysis allows you to observe the activity of traders within a price bar. A cluster represents the value of an asset in a particular timeframe. The result of sales and purchases is expressed as a number, which is displayed inside the cluster. As a rule, one bar consists of several clusters, which allows a detailed assessment of trading volumes at each price level. Each of the clusters or groups of deltas (reflecting the difference between the volumes of purchases and sales) allows to understand who is leading the market – the sellers or the buyers. To do so, simply calculate the total delta by summing up the sales and purchases. If the delta has a negative value – buyers dominate, if it is positive – sellers.
As a result of the cluster analysis it is possible to catch delta values for different trade time intervals. This will allow you to make a deal in the most positive time period, when the growth reaches its peak. To begin the analysis, it is necessary to break all groups into clusters of interest and study their change, both in real time and in the mode of past trades. The market quite often repeats its movement, both up and down. In simple words – if it decreases somewhere, it means it gains somewhere. The task of a professional trader is to learn how to catch such deltas.
There are three delta values:
- normal – the market is in a trend;
- moderate – in the flat;
- critical (highlighted in red on the chart) – a reversal is expected.
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