You can also predict possible changes in the direction of a market by studying volatility.
Volatility is the degree of movement in an underlying asset around a moving average over a given period of time. It involves measuring the gap between the highs and lows of the market and is a relatively simple way of forewarning of sharp changes in market prices although it does not, unfortunately, indicate in which direction.
Volatility is calculated by adding up the differences in quoted prices over a given period and then multiplying the sum by 100 to find a percentage. For example, a currency that moves from 1.4500 directly to close at 1.4600 has a volatility of 0.01 or 1%. A currency moving from 1.4500 to 1.4540 then down to 1.4480 and ending at 1.4530 has a volatility of 0.004+0.006+0.005=0.015 or 1.5%. It is usual to calculate this on a daily basis, and keep a record of the figure.
If a market suddenly becomes more volatile than usual this may indicate an unusually high level of buying and selling – if you like a ‘battle’ between buyers and sellers. Once one ‘side’ comes out on top, the markets then move quite sharply in the direction of the winner.
Channel 4 Teletext gives the highs and lows of several financial markets each day.