1 All rights reserved. This document may not be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system in part or in whole without the express written permission of The Stop Hunter Ltd; except where permitted by law. Commentaries, information and other materials contained in any part of this document are purely educational in nature and are not intended to amount to advice on which reliance should be placed. They should not be relied upon for the purpose of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. We therefore disclaim all liability and responsibility arising from any reliance placed on any information displayed in this document (including without limitation liability and responsibility for any investment decision made), or by anyone who may be informed of any of its contents. Trading and investing involves a very high degree of risk. Past results are not indicative of future returns and financial instruments can go down as well as up resulting in you receiving less than you invested. Do not assume that any recommendations, insights, charts, theories, or philosophies will ensure profitable investment.

2 CONTENTS

Technical Analysis (TA)

What Is Technical Analysis (TA)? .7 Making Money Using TA? .10 TA, BA Or FA? .12 TA Philosophy .13 TA History Time Line .14 Learning TA .15 Task 1: Basic 101 TA .16 So What Exactly Is A Chart? .19 TA Timeframe Rules .20 Chart Types .22 Line Chart .23 Candlestick .24 Price Analysis .25 Candlestick Tips .37 Pros And Cons .38 Trends .39 .48

3 CONTENTS

Continuation And Reverse Patterns .57 Tools On Price .73 Pivots .74 Fibonacci .79 Moving Averages .82 Donchian Bands .89 .91 Ichimoku .94 Confirmation Tools .99 TA: INDICATORS MATRIX .107 Stochastics .110 CCI .111 DMI .114 ATR .117 RSI .119 Divergence .122

4 CONTENTS

Sentiment TA .125 Seasonality / Cycles .126 Open Interest .134 COT .136 Other: OBV, Breadth, VIX .143 Putting Indicators Together .151

5 TECHNICAL ANALYSIS (TA)

Technical Analysis

“The study of market action (price//open interest) primarily through the use of charts for the purpose of forecasting / anticipating future price trends”

6 What Is Technical Analysis (TA)?

• Can involve examining charts of historical prices / records of trading volumes / open interest / various statistical methods etc. to attempt to gauge market sentiment.

• Will use historical price data and volume to forecast the market: as well as also using trend / indicators to provide a more objective measure of the market.

• The end result: forecasts of the price level that the market is heading to next with logical levels of risk for the trade.

7 • It is primarily a tool to make and save YOU money!!

• Becoming more widely used and popular as technology and access to technology improves.

• Most traders I have worked with are a bit of a mix of methods(TA/FA/BA) but some have fallen solely into one specific camp.

• With technological advances the development of “black box”, high frequency, systematic, quantitative trading systems based off of TA have become more prevalent.

8 • To succeed as a trader in today’s trading environment you must understand TA.

Why you should use TA: • It will make and save you money! • It will save you lots of time. • It will help you deal with the psychological aspects of trading better. • It is great for creating discipline. • It is simple to understand and apply.

• It can aid your trading further by: • Creating forecasting / targeting objectives • Timing / entry/ exit of trades • Sizing / risk-reward of trades • Strategy design / enhancement

9 Making Money Using TA?

3 simple principles and goals:

1. Determining when to trade the trend 2. Controlling risk and holding on to your money 3. Money management and circumventing ruin

Combine methodologies for added strength in decision making! • Put TA + BA + FA together to enhance your decision making.

Liquidity is important for the assets you chose to trade using TA: • Greater liquidity = greater predictability

10 Liquidity:

• The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. • Liquidity is characterized by a high level of trading activity. • Assets that can be easily bought or sold are known as liquid. • Look for a market that is heavily traded – far safer betting on this sort of market. Less liquid markets can leave you caught out if you need to get out of a trade in a hurry! • More liquidity = less price gaps. • Creates more fluid / predictable chart (Technical Analysis) analysis i.e. liquidity can often mean that it creates easily identifiable trends. • Usually the more liquid markets = lower costs (spread)

11 TA, BA or FA?

Q. Does one method work better than the other?

A. Very difficult to quantify and easy to argue for all methods.

• BA although a separate science is normally married to TA in its application (and is often a subset of TA) not so with FA. So the real challenge is between FA and BA – what should you use? • Usage comes down to personal preference / trading style and a host of other variables. There is no right answer. You can be one, both or a blend and use different approaches for different markets. • Both have goals for the optimal selection of an investment and to make money. They just go about it in different ways. • FA does suit the longer term investor and markets such as Bonds and Equities (and some overlap with Commodities), whilst TA is well suited to the Futures, FX, Equities and Bonds markets and shorter term trading.

12 TA Philosophy

• Built all on just 3 premises:

➢ Market action discounts everything (supply & demand already built in) ➢ Prices move in trends ➢ History repeats itself

13 TA History Time Line: 1600’s

• Popular in Japan as far back as the 1600’s using a technique called “Candlestick charting” (Rosuku-ese) 1800’s + • Homma a 17th century trading guru realised that trading was based around supply and demand and psychology (human emotion) and revolutionised Candlestick charting with the trading of Rice futures.

• The Europeans / West as their economies boomed used a ‘tracking’ price method (unaware of Far-Eastern methods). The Wests method was known as Point and Figure charting (PnF), pre-dating the Bar Chart method by a decade or so (which is more commonly used today)

• Biggest contributor to Western TA development: (1851-1902) aka “the daddy of TA”!

14 Learning TA:

• We are going to break TA down into 2 learning tasks:

• Task 1: Learning the basics of TA you need to know to let you comfortably move to Task 2 and allow you to develop as a technical trader/ analyst…...

• Task 2: Most crucially on the 2 day course, you will learn in detail more advanced technical analysis methods and charting such as: Kagi, Renko, Line Break, Heikin Ashi and the 4 key set ups you will use to start your trading.

15 TASK 1: BASIC 101 TA

16 BASIC 101 TA: PART 1…

Charts Basic Rules Candlesticks

Chart Types Confirmation Price Analysis Tools on Price Tools

Bars Pivots Stochastics Bar Patterns Fibonacci CCI Trends Moving Averages DMI Support & Donchian ATR Resistance Bands C&R Patterns Bollinger RSI Bands Time frames Ichimoku

17 BASIC 101 TA: PART 1…

Charts Basic Rules Sentiment TA

Chart Types Candlesticks Seasonality/ Cycles

Heikin Ashi Open Interest

COT Learnt 3 Line Break on the 2 Other day Renko course

Kagi

18 SO WHAT EXACTLY IS A CHART?

• A chart is the visual tool (a graphical representation) to allow you to analyse the price of (series of prices of) any stock, commodity, future etc. over a given time period.

Basic Rules

Time frames

• In trading the chart can be represented from as little as a minute of price action to a month+. • Anything less than a day is called ‘intraday’. Some popular timeframes: • 1min, 5min, 15min, 30min, 1hr, 4hr • Other popular non-intraday (end of day) time series: (don’t go lower than the ‘daily’ chart for end of day analysis) • Daily, Weekly, Monthly

19 TECHNICAL ANALYSIS (TA): TIMEFRAME RULES

Timeframe table:

Shorter Your Trading Longer Longer Timeframe Timeframe Timeframe 1 Timeframe 2 1 minute 5 minute 30 minute 240 minute 5 minute 15 minute 60 minute 240 minute 15 minute 30 minute 240 minute Daily 30 minute 60 minute 240 minute Daily 60 minute 240 minute Daily Weekly 240 minute Daily Weekly Monthly Daily Weekly Monthly Yearly

20 • Price scales: • Can be represented either Linearly or Logarithmically (better for the longer term).

• Price Axis: • Time is normally represented on the X axis in whatever increments you select. • Price is normally represented on the Y axis in whatever increments you select.

21 Chart Types

• 5 main chart types • Line • Bar • Candlestick • Point and Figure • Market Profile

• Another category: ‘specialist charts’ • Equivolume, Renko, Kagi, 3 Line Break, Heikin Ashi

We are interested and will concentrate on: Candlesticks, Point and Figure (PnF), Renko, 3 Line Break and Heikin Ashi

22 THE LINE CHART:

You may be familiar with. Find in most publications / newspapers as it is simple to use and understand. But for the trader it hides a lot of the secrets around price action that can be used to our advantage….. FTSE100 Daily Line Chart: • Plotted line marks only the closing price of a particular asset. • Closing prices added together create a line. • Restricts analysis & trading potential. • Can’t build a lot of the TA add-on’s like oscillators due to lack of inputs e.g. high, low, open

23 CANDLESTICK CHARTS

24 Price Analysis

Bars

Bar Patterns Trends Support & Resistance C&R Patterns

Time frames

25 WHAT DOES A LOOK LIKE?

FTSE 100 daily Candlestick Chart (Charts – ESignal):

26 WHAT DOES A CANDLESTICK CHART LOOK LIKE?

FTSE 100 daily Candlestick Chart (Charts – ESignal):

Made up of individual bars of price action. These bars can represent any period of time. (Daily, 4hr‘s, 5 mins etc) They are constructed using 4 vaiables: Open, High, Low, Close (OHLC)

Open High

Low Close

27 • Candlesticks add a lot more colour to the picture! • Japanese using candlestick charts since 17th century to analyse rice prices. • Now very popular as a trading tool. • It has 2 real goals: 1. To display price data in charts in a more visual format to tell a story. 2. To identify combinations of candlesticks in proven combinations to determine price trend confirmation continuation or reversal. • Interpreting these groups of patterns can seriously aid your trading!

28 More detail around construction

H

Upper O Shadow (Wick)

Real Body C Lower Shadow (Wick) L

29 • What could an up and down day look like?

H H C O

O L L C Up Day Down Day

• Body is white • Body is Black (can be Green / not filled) (Red / can be filled) • C > O = Up Day • C < O = Down Day • Bullish • Bearish

• Different body / shadow combinations can have very different meanings. • Very good for recognising price continuation points and reversal points • It is a psychological interpretation of the market

30 • 5 main features determining the character of a particular day:

1. Colour of the body – shows the most significant event of the day 2. Range of the day (High to Low) – shows change in prices 3. Range of the body (Open to Close) – shows strength of the days move 4. Range of the upper shadow – shows range of price & strength of rejection 5. Range of the lower shadow– shows range of price & strength of rejection

• There are a countless number of patterns. • Most are categorised into either: Continuation or Reversals. • Candlesticks can include one candle up to a maximum of seven (normally five) • The more candles in the pattern the more likely the price confirmation. • Look at 2 to 5 candlestick combinations for the best patterns.

31 Patterns

• ’s • Indecision / reversals • Wait for next candlestick for confirmation • Single bars:

Doji’s: 1 & 3 = Indecision, 2 = Bullish, 4 = Bearish

1. Doji 2. Dragonfly Doji 3. Doji 4. Gravestone Doji

32 • Reversals:

Shooting Star Bearish Hammer Bullish

33 • Reversals:

Hanging Man Bearish Bullish

34 • Reversals:

BODY

BODY GAP

Evening Star Morning Star

• These two are some of my favourites along with Hammers and Doji’s.

35 CONTINUATIONS:

GAP GAP

Tasuki Gap Bullish Tasuki Gap Bearish

GAP

GAP

36 CANDLESTICK TIPS:

• Candlestick reliability improves if teamed up with other forms of TA e.g. oscillators – stochastics, CCI, RSI etc.

• Stages to follow when making a candlestick assessment:

➢ Must identify the trend. ➢ Use pre-signal oscillators to give a trend signal (filtering e.g. a ) ➢ Confirm with a ➢ Further confirmation can be done through looking at volume ➢ Oscillators are good for reversal patterns

• Improve your analysis skills: write down in story form what you see, ignoring all the fancy jargon.

37 PRO’S AND CON’S OF CANDLESTICK CHARTING:

Pro’s: Con’s:

Gives instant visual impression Needs open, close prices to work Uses all info – OHLC Harder to use in 24hr markets Shows sentiment Not all data vendors give open prices Better insight from filters Easy to see reversals

38 Trends

• We now know how to build our charts, but what are the charts telling us? • What is a trend?

• Definition: The general direction of a market or of the price of an asset.

All tools used by the chartist have the sole purpose of helping to measure the trend for the purpose of participating in it. • A trend has three directions: Up / Down / Sideways (Trendless) • Markets trend (roughly) only a third of the time – so it is important to know when it’s happening. • Trends have 3 classifications: ➢ Major – 6mo to 1yr ➢ Intermediate – 3wk to 6mo (where most trend following approaches focus) ➢ Near - < 3wk (used for timing purposes)

39 • Trends don’t just move in straight lines they move in zigzags and create waves:

• So by determining the direction of the trend you instantly give yourself 3 trading decisions: • To go long • To go short • To do nothing

40 • Notice the different trends and the trends inside of trends? The Major, the intermediate, the near?

• Each one of these becomes a portion of its next larger trend.

• Trend length is often down to the perception of the trader / type of trader.

41 • Trend confirmation:

➢ Tentative trend (up) if has 2 reaction lows with second higher than first.

➢ Confirmed trend if touched for a third time ➢ Trend significance: more times touched / longer intact

• Drawing trend lines on to charts:

➢ Better to use Bar charts / candlesticks (takes in whole days range) than line charts (closing prices) ➢ Draw trend lines through the lows in an up-trend and through the highs in a down-trend. It is a discretionary drawing process.

42 GOLD DAILY CANDLESTICK CHART (CHARTS – BLOOMBERG):

43 • Trend line applications:

➢ Trend lines are used to measure price objectives and when a trend is changing.

➢ Once a trend line is broken prices will usually move a distance beyond the trend line equal to the vertical distance that prices achieved on the other side of the line prior to the trend reversal.

44 • Trend line steepness: most important trend lines average a 45 degree slope (similar principle used in Gann theory)

• Trend channel lines: prices sometimes trend between 2 parallel lines. If you are aware of this situation you can benefit by:

• Entering new long/ short position • Take short term profits • Put on counter trend positions • Trade the break

45 TRENDLINE EXERCISE: FTSE100 WEEKLY CHART APR 2005 TO APR 2015 Draw trend lines onto this chart. What sort of trends can you find?

46 TRENDLINE EXERCISE:

Remember it is subjective and doesn’t have to be exact. There is no right answer. Here are some of the trends I found: (Yellow ovals signify some good trade ideas)

47 • We need to understand more about the psychology of the price action.

Support & Resistance • Trends stop – they hit a wall either going up or down. They may repeatedly hit this wall until something else happens. This is the concept of support and resistance.

Support:

• A support level is the price at which buyers are expected to enter the market in large enough numbers to take control from the sellers.

• The market remembers!! When price falls to a new low and then rallies, buyers who missed out on the first trough will be inclined to buy if price returns to that level. Afraid of missing out for a second time, they may enter the market again in sufficient numbers to take control from sellers. The result is a rally. This reinforces perceptions that price is unlikely to fall further and creating a support level.

48 Support level:

The more the price hits the support line (or thereabouts) the stronger the support level:

Support:

49 RESISTANCE:

• A resistance level is the price level at which sellers are expected to enter the market in sufficient numbers to take control from buyers.

• When price makes a new High and then retreats, sellers who missed the previous peak will be inclined to sell when price returns to that level. Afraid of missing out a second time, they may enter the market in numbers sufficient to overwhelm buyers.

• The resulting correction will reinforce market perceptions that price is unlikely to move higher and establish a resistance level.

50 • Resistance:

The more the price hits the Resistance line (or thereabouts) the stronger the resistance level: Resistance:

51 S&R ROLE REVERSAL:

• Support levels, once penetrated, frequently become resistance levels and vice versa.

• The logic is fairly simple: buyers who purchase near a support level, only to see price fall, are likely to sell in order to recover their losses, when price rallies to near their break-even point. The support level then becomes a resistance level.

• Likewise, traders who sell when the price approaches a resistance level will be disappointed if price penetrates the level and continues to rise. They will be inclined to buy if price returns to near the support level, fearing that they may miss out a second time. The resistance level thus becomes entrenched as a support level.

52 SUPPORT BECOMES RESISTANCE:

Support: Becomes Resistance:

53 STRENGTH OF SUPPORT/RESISTANCE

Some support and resistance levels are more important than others. The significance of the support level is identifiable by:

• The number of times that the level has been respected; (The greater times = the more important)

• The amount of volume that has been traded near the level; -whether the level is old or new - recent levels have greater significance;

• Whether the level is a new High or new Low - more extreme levels have greater impact; or

• A level formed at a round number (e.g. $20.00 or $100.00) leaves a lasting imprint.

54 Round Numbers – Psychologically important!

• This really is market behaviour at its predictable best!

• We will learn some strategies tomorrow based off this theory.

• All down to psychology. Round numbers create excellent S&R zones.

• In regards price: traders for some reason (easier to manage?) like to place their stops at these psychological round numbers e.g. 100 oil, 7000 FTSE, 120 Japanese Yen. This is where you’ll find the Stop Hunters!! (the traders in the know!). Also these round numbers create a psychological barrier.

• So really important for you to recognise these levels for both trading and trade management!

• A lot of round numbers are used in TA tool construction e.g. 10, 50, 100, 200 etc.

• Why? Because before computers were mainstream most of the calculations were done by hand so had to be simplified. Many of these numbers have stuck.

55 Round Numbers – Psychologically important!

• Today, especially around Moving Averages (MAV’s) what is popular? (More on MAV’s later)

• In the futures markets combinations such as: 4/9, 9/18, 5/20, 10/30.

• Stock traders rely heavily on a 50d (10 week).

• Market cycles also often fit around round numbers e.g. 20 day commodity MAV cycle

• Longer range MAV trends: 50, 100, 200 days are popular.

• Bollinger Bands make use of 20d for example

• To reiterate: I certainly use round numbers in my strategies around this key psychological phenomenon!

56 C&R Patterns

Continuation and Reverse Patterns:

57 CHART PATTERNS:

As you’ve worked out by now, price can continue or reverse. How can you determine just by looking at the price what the price will do next?

• Chart patterns can help answer this question.

• Important changes in trend usually require a period of transition. Problem is that these periods of transition do not always signal a trend reversal. Sometimes these sideways periods indicate a pause or consolidation in the existing trend after which the original trend is resumed. • Study of price patterns covers this. • What are they? Pictures / formations which appear in price charts of stocks and commodities that can be classified into different categories and have a predictive value.

• Two main types of pattern: Reversal and Continuation

58 Reversals Patterns: Continuation Patterns:

Head and shoulders Triangles / Wedges Double/ Triple tops and bottoms (Symmetrical / Ascending/ Flags / Pennants Descending) Saucers and spikes

59 REVERSALS:

EG of a Reversal – “Double Bottom” • Double bottoms are hard to trade, in part because of the similarity to triple bottoms and trading ranges.

Target:

Target: Is measured vertically from the lowest trough to the tip of the peak between the troughs. It is then projected from the break above the peak.

60 EG OF A REVERSAL – “HEAD AND SHOULDERS”

Head Stop Shoulder Stop

Neckline Go Short Go Short Target

You can also have an “inverted” head and shoulders pattern i.e. reverse mirror image

61 COSTCO CHART ALSO DEMONSTRATES A GOOD HEAD AND SHOULDERS PATTERN:

62 REVERSAL RULES:

1. There must be an existence of a prior trend 2. First signal of reversal is often breaking an important trend line 3. The larger the pattern the greater the subsequent move 4. Topping patterns are usually more volatile than bottom patterns 5. Bottom patterns have similar price ranges and take longer to build 6. Volume is usually more important on the upside.

63 CONTINUATION PATTERNS:

• You are looking to move out of its sideways malaise and continue in the way of the previous trend.

• Continuation patterns are often shorter than reversal patterns

• They occur most often in the near term/ intermediate time frame.

64 Continuation Patterns:

• Triangles:

• 4 Types:

➢ Symmetrical: Look for 4 touches; Breakout 2/3rds in ; time limit point where touches. ➢ Ascending: Price Height of pattern at widest add onto breakout point. ➢ Descending: Target measurement as ascending but in reverse. ➢ Expanding/ Broadening: Quite rare & hard to spot; 3 higher peaks 2 declining troughs.

65 D Symmetrical : Bullish Ascending: Bullish D C Flat top 1 B 3 B – A = price 1 3 B 5 C target for C - D B – A = price 4 target for C - 6 A 4 2 D A 2 Volume Breakout Volume Breakout

66 CONTINUATION PATTERNS:

Descending: Bearish

B – A = price target for C - D B 2 4

A 1 3 Flat Bottom

Volume Breakout

67 “Wedges” There are 2 basic shapes, both with converging highs and lows: Falling wedge: A falling wedge forms with lower highs and lower lows. A bullish signal, a falling wedge is a continuation signal in an up-trend and a reversal signal when observed in a down-trend.

A rising wedge is formed by higher highs and higher lows. A bearish signal, the pattern is normally a continuation signal in a down-trend but acts as a reversal signal when encountered in an up-trend.

68 “Flags and Pennants” • Very common patterns and both types are very similar to each other. • They are a brief pause in the market after a brief large move. • Apart from being common they are very reliable.

D Flag: (Bullish) Pennant: (Bullish) D

C B B – A = price B target for C - D C

Flag Flag PoleA A Pole

Volume Breakout Volume Breakout

69 NOTE ON TARGET MEASUREMENT:

Continuations: • The price target in an up-trend is measured from the start point of the trend (the breakout point at the base of the trend or most recent congestion pattern) to the highest high.

• The move is then projected up from the point of breakout (from the triangle, flag or pennant pattern), to arrive at the target.

Reversals: • The target for a reversal pattern is calculated from the highest peak to the lowest trough in the .

• The objective is calculated by projecting the target up/down from the breakout point.

70 Note on the ‘Measured Rule’

• How far can a trend move? Can you predict it? • The length of the previous trend can be used as a guide to add on to a correction in price. • Used when the market is in a very transparent trending situation.

D

B A to B can be added to C to give a price target for D

C

A

71 Lets look at an example: Costco (a US Equity) over 2012 illustrates nicely some decent pattern action:

72 Tools on Price

Pivots Fibonacci Moving Averages Donchian Bands Bollinger Bands Ichimoku

73 Pivots

• A secret weapon of the intraday FX trader! • Use on charts < 4hrs. (> 4hrs replace with Fibonacci) • Placed on top of the price chart. • Pivots feature heavily in the FX & Indices intraday strategies • Pivot points give an excellent guide to short term target levels for day trading. • “Real” traders use these pivot lines as key support and resistance levels. The effect of automation on many markets has only accentuated their power. • Mathematically pivot point (P0) is calculated:

• (High + Low + Close)/3 = Pivot

74 A quick look at the 7 key pivot levels on EURUSD 30 minute chart: R5 to P0 and P0 to S4 you will need to learn……..

75 RULES FOR PIVOT POINT BEHAVIOUR:

• If the opening price is greater than P0 then we are looking for long trades. • If the opening price is less than P0 then we are looking for short trades. ➢ (we’re trying to put probability on our side) • Trend identification of the longer term is important because often if the market is ranging the price will often fluctuate nicely between P0 and R1 or S1. With a stronger trend, pivot levels are broken more easily. • Profit targets are often the next pivot level. • Stop losses are set the other side of pivots or behind the moving averages / trend lines. • Never anticipate a breakout or reversal of a pivot point. Front running can often lead to disaster or a trade going nowhere. Wait for confirmation: This can be based off of the price action/ momentum / the strategy rules etc.

76 • News!!! Can be a killer it can also be a winner! If there is no news activity then often the price will range between R1 and S1 (check news before the start of trading for potential warning areas). If there is news (especially the big impact stuff) then the price can do anything and can often range between R3 to S3 or greater. (We have a strategy for this. See forward!) • On the open, if the price is greater than S1 or R1 there is a high probability that the price will mean revert back to P0. • At S2 the price with a high probability will head back to S1. • At R2 the price with a high probability will head back to R1. • S2 and R2 are perceived as the collars of the days activity. In strong trends / news the price can go higher than these levels but more likely not to and it heads back to P0. Rule: the further away from P0 equates to a weaker trading opportunity. • Often you can get a second bite at the cherry!

77 Intraday Pivots: FTSE 100 30 min chart:

78 Fibonacci

This is a huge concept to learn and used all the time in financial markets. It sounds bizarre but it works! It’s theory has almost become a self-fulfilling prophecy! • Price retraces a given certain amount. • Theory: Behaviour of groups follow patterns that lends itself to analysis e.g. financial markets. • Generate movements you can anticipate in advance by using appropriate analytical mechanisms e.g. Fibonacci numbers. • Fibonacci was a 13th century mathematician credited for his numerical number sequence. E.g. 1,1,2,3,5,8,13,21 • As you progress along the sequence, the ratio of each number to its preceding number approaches closer and closer to the golden ratio: approximately 1.618. • Each number is also approximately 0.618 of its successor. This reciprocal number, known as φ (phi) HOWEVER STRANGE THIS CONCEPT APPEARS IT DOES WORK!! • Use on charts > 4hrs

79 • Four ratios are normally plotted:

➢ 0.618 (or 61.8 per cent), the reciprocal of the golden ratio, is the most important; ➢ 0.50 (or 50 per cent) - the second number divided by the third (1 divided by 2); ➢ 0.382 (or 38.2 per cent) - the reciprocal of the golden ratio squared (i.e. 89 / 233); ➢ 0.236 (or 23.6 per cent) - the reciprocal of the golden ratio cubed (i.e. 55 / 233).

• Application: Very useful for finding Support and Resistance points and often occur in market cycles.

• The weakest of the Fibonacci ratios is 0.50. (not really a Fibonacci number)

• Placed on top of the price chart.

• Measure the known low vs a high (various methods around this)

80 What does Fibonacci look like in practice: Looking at FTSE100– notice how the Fibonacci lines respect the price action. Why do you think this is?

81 Moving Averages

• Moving Averages put on top of the price action.

• Easy to build / quantify /test especially in mechanical trend following systems. Takes out some of the “subjectivity” of charts. • Use as a guide to the trend and not as a trading signal.

• Simply smooth’s time series of data

• Helps us identify the trend (takes out the noise)

• Different types: Simple, Exponential, Linear weighted.

• Can use one MAV on its own e.g. 50d or in combination e.g. 20d and 50d and create a crossover method.

82 Other popular methods: ➢ Triple Crossover e.g. 4d/9d/18d is very popular ➢ Moving Average envelopes i.e. % from an average ➢ 4 week (Donchian) rule ➢ Bollinger Bands ➢ MAV’s tied to cycles e.g. 5d = weekly, 20d = monthly etc.

• MAV’s also in indicators / oscillators such as the MACD.

• In certain trending markets the MAV can’t be beaten.

• If Price / candles are > the MAV = BULLISH • If Price / candles < MAV = BEARISH • When the shorter MAV crosses down through the longer MAV = BEARISH • When the shorter MAV crosses up through the longer = BULLISH

83 • WARNING: Problem with moving averages is they don’t work all the time.

• They do their best when the market is trending.

• They are near useless when in trendless periods when prices trade sideways. That is where another class of indicator – the oscillator performs during those frustrating trading periods e.g. the DMI /ADX can tell you when a market is trending and when its not.

84 An example of MAV’s on a weekly chart (Gold with 20,50,200 MAV’s):

85 The Death Cross: Weekly FTSE100 chart (opposite = the Golden Cross)

86 NOTE ON ‘CYCLES’ AND MAV’S

• You may have noticed that price moves in waves / cycles? • MAV’s can help measure these waves. • Strongly aids your analysis. • Example: apply a monthly cycle MAV e.g. 20 day – this is common in a lot of markets. • Waves / Cycles are also related to their next larger /smaller cycle.

➢ The next bigger cycle is always 2 times as big ➢ The next smaller cycle is always half. ➢ Example. If you were using a 20d MAV then you’d also use a 40d and 10d MAV. ➢ You may have heard of ‘The Turtles’? They used a very successful 4 week (monthly cycle) know as the Donchian strategy.

87 FINAL NOTE ON MAV’S:

• Don’t have to be based off of the close e.g. (H,L)/2 = median price • Don’t have to be used just on price. • Could use on Open Interest, Volume, Oscillators etc. • Pro’s and Con’s of MAV’s:

Pro’s: Con’s:

Helps trade in trend direction Doesn’t work well in non-trends Lets profits run, cut losses short Cant rely heavily on them Forces user to obey rules Can curve fit & over optimise = disaster Provides S&R levels Used for trade entry, exit signals And trade management.

88 Donchian Bands

• Donchian channels are price channel studies .

• Can be used as a trade entry signal.

• Available on most charting packages .

• Can be used in all markets.

• Created by Richard Donchian,

• Default: Based on a 20-period moving average + establishes bands that plot the highest high and lowest low. As a result, the following signals are produced:

➢ A buy, or long, signal when the price action > and closes above the upper band.

➢ A sell, or short, signal is created when the price action < and closes below the lower band.

• Default is zero offset, can use 5 or 10 to create entry signals. (Similar idea to Ichimoku)

89 Example: 30 Minute FTSE100 Chart (5 bar offset) Upside break outs

90 Bollinger Bands

• Similar concept to Donchian Bands.

• Two trading bands are placed around a moving average at 2 standard deviations away.

• This should cover 95% of the price action (but prices rarely exhibit as normal distribution – more likely to be with higher peaks and fatter tails)

• As a general rule prices are considered to be over extended on the upside (overbought) when they touch the upper band and vice versa – oversold when touching the lower.

• So could use BB’s as a target tool by using these upper and lower bands.

• EG if prices bounce off the lower band and cross above the 20d MAV the upper band becomes the price target and vice versa.

91 Bollinger Bands example on Gold:

92 • Band breakouts - the MAV used will normally become the support or resistance levels and used as the trailing stop level for any entry that previously occurred from a breakout above or below the band. • Bands actually better placed to determine the beginning of a trend and not trading between them. • A breakout from bands that contains approx. 90% of previous price action suggests the general trend of the previous price action has changed in the direction of the breakout. • When bands tighten can often signify an explosion in price going forward. • TIP: If you adjust the MAV then it is good to adjust the SD (Standard Deviations) e.g. 50 MAV = 2.5sd, 10MAV use 1.5sd.

93 Ichimoku

• Ichimoku means ‘look’ in Japanese. • Looks complex but when you understand it you’ll realise it isn’t and you’ll love it! • Made up of 5 indicators • Can be used for trade entry, exit, support and resistance, stop losses, trend analysis, momentum analysis all in one chart.

• 5 indicators:

• Tenkan Sen (Conversion Line): (9-period high + 9-period low)/2)) • Kijun Sen (Base Line): (26-period high + 26-period low)/2)) • Senkou Span A (Conversion Line + Base Line)/2)) • Senkou Span B (52-period high + 52-period low)/2)) • Chikou span (Close plotted 26 days in the past) • The Senkou’s create the ‘cloud’ aka Kumo

94 Example: Daily FTSE100 Chart

95 RULES:

• Cloud trend identification: • Price > Cloud = bullish • Price < Cloud = bearish • Price in Cloud = Neutral • Trend stronger in uptrend if Senkou Span A > Senkou Span B (vice versa) • Tenkan Sen / Kijun Sen give faster more frequent trade signals. • If below cloud = bearish • If above cloud = bullish • Crosses above/ below of the Tenkan/ Kijun lines can create signals (in relation to cloud) • If cross in cloud = weak signal • Can use crossover of price vs Kijun sen as a signal in way of trend.

96 RULES:

• Chikou Span: gives bearish/ bullish signal

• If Chikou > Price = bullish • If Chikou < Price = bearish • If Chikou in candles = neutral

• Further Chikou span is from price = stronger the momentum • Very useful for trade confirmation. • Chikou breaks up through cloud = bullish • Chikou breaks down through cloud = bearish

• (Wait for price action to follow) • Kijun Sen, Tenkan Sen, Senkou Span B, Senkou Span A can be used as support and resistance lines.

97 PRICE ACTION SUMMARY:

• Understanding price is essential for:

• Predicting the future movement of price • For trade management – entry / exit /objectives • Target setting • Risk management • Market / trend analysis

• I hope you can see how key understanding price action alone is in relation to understanding the trading process!

98 Confirmation Tools

Stochastics

CCI

DMI

ATR

RSI

99 Confirmation Tools

Understand ‘price confirmation’ using oscillators,

• Now you can determine the direction of the price in regards to trend, that leaves two important considerations:

➢ How fast / slow is the trend moving at? ➢ When is the trend going to change and reverse if at all?

• These two questions can be answered by using momentum indicators and oscillators. • In terms of application these types of tool are placed below the price chart and points correspond to the price points above. • Putting together both your price analysis and oscillator analysis can strengthen massively your decision making process.

100 WHAT IS MOMENTUM?

• Momentum is the measurement of the speed or velocity of price changes i.e. the rate of the rise or fall in prices. • Changes in momentum can thus be described as viewed as acceleration / deceleration in the price trend. • Imagine a car accelerating and decelerating e.g. car accelerates can’t maintain the level of acceleration and the rate of increase in speed begins to decline – the speed itself is not increasing as fast as earlier. • Same principle as the car applies in the markets. Speed is equivalent to the slope of the price trend. • Momentum leads the price action. • Momentum theory is put into practice through oscillators. • How can Momentum Indicators help you? Quite simply TIMING!

101 BASIC RULES:

• Peaks / troughs in an oscillator coincide with peaks and troughs on the price chart.

• Some oscillators have a midpoint value that divides the horizontal range into two halves – normally a zero line.

• Some oscillators have upper and lower boundaries ranging from 0 to 100.

• As a general rule when the oscillator reaches an extreme value (either up or down) this suggests that the current price has gone too far and is due for either a correction or consolidation.

• (aka: OVER BOUGHT & OVER SOLD)

102 BASIC RULES:

Remember: Trends mean revert. So:

When price > long term trend will revert back to the mean = Overbought When price < long term trend will revert back to the mean = Oversold

• Another general rule is that a trader should be buying when the oscillator is at the lower end of the band and selling when at the higher.

• The crossing of the midpoint line is often used to generate buy and sell signals.

103 Example: OVER BOUGHT & OVER SOLD Intraday Pivots + Stochastic : FTSE 100 30 min chart:

104 • Oscillators are extremely useful in a non trending environment.

• Gives the trader a tool to profit from those periods. • Oscillators can also warn when a trend is losing momentum before that situation becomes evident in the price action itself. • The oscillator is only a secondary indicator in that it must be subordinated to basic trend analysis. • Times when oscillators are more useful than others e.g. at beginning of important moves oscillator info can be misleading. • Towards the end though can become very useful.

• Stress the importance of trading in the direction of the overall .

105 • Can categorise the indicators into 5 relevant sections:

• Trend Indicators: Used to indicate the direction of a trend. • Momentum Indicators: Used to measure speed of price change. • Volume Indicators: Used to confirm strength of trends. • Volatility Indicators: Used to confirm price behaviour. • Sentiment: Market ‘feel’

• To summarise, the 3 most important uses of oscillators are:

1. When it indicates Overbought / Oversold conditions. 2. A divergence between the oscillator and price action when the oscillator is in an extreme position to warn of a potential turn in prices. 3. The crossing of the zero line can give important trading signals in the direction of the price trend.

106 TA: INDICATORS MATRIX (COMBINE FROM EACH COLUMN)

Trend: Momentum: Volume: Volatility: Sentiment: Moving Averages (MAV) Momentum Compares CP & Price vs MAV Various : to CP Volume -MAV/ 2*MAV/ CP Relative to -On Balance Volume - Bollinger Bands Commitment of Traders 3*MAV/Multiple/Ribbon Previous CP (OBV) Report (COT) MAV Oscillators -RSI Compares -Volatility VIX – S&P500 volatility CP/Range/Volume index -MACD / Histogram -ROC -Accumulation Based on Daily Indicator Distribution High/Low range (CSI) MAV to CP CP Relative to Range -Chaikin Oscillator -Chaikin Volatility Stocks 52wk high/low

- Price Envelopes -Stochastics MAV Oscillators -Vol Ratio Stocks A/D Line

- Bollinger Bands -Williams %R -McLellan osc. -ATR Open Interest CP to MAV CP to MAV - CCI -DeTrended Price Osc Stop & Reverse CP to High/Low -Parabolic SAR -Williams Accum Dist. Directional Movement

-DMI/ADX CP = Closing Price

107 Stochastics

• Developed by George Lane. • Momentum indicator that shows the location of the current close relative to the recent X days price range (on a % basis). Closing levels that are consistently near the top (80) of the range indicate buying pressure and those near the bottom (20) indicate selling pressure. • Uses high, low and close info. • Displayed as two lines:

➢ %K = 100 ((C-L14 / (H14-L14)) ➢ %D = 3 period MA of %K (Fast stochastics) ➢ (Slow stochastics = 3 period MA of %D)

108 • Most traders use the “slow” version as it gives more reliable signals. • %D Fast and %D slow crossing over can indicate Buy / sell signals. • Again divergence between price action and stochastics can warn of market turns. • Useful in ranging markets. • Can combine Stochastics with RSI. • Useful for cycle analysis.

109 STOCHASTICS EXAMPLE : CRUDE WTI WEEKLY

110 CCI

• Designed to identify cyclical turns in commodities and their momentum. • Assumption: Commodities move in cycles with highs/ lows at periodic intervals. • Recommends using 1/3rd of a complete cycle (high/low) as a timeframe. ➢ E.g. 60 day cycle = 20 day CCI • Very useful for identifying reversals and breakouts. • 70/80% of price movement between the +/-100 boundaries.

111 • SIGNALS: ➢ >100 = strong advance ➢ <100 = strong decline ➢ Move +100 = bullish & move back under +100 = bearish ➢ Move -100 = bearish & move back above -100 = bullish

• Some traders use +/- 200 levels (depends on securities volatility)

• You can use CCI for divergences.

112 CCI EXAMPLE: CRUDE WTI WEEKLY

113 DMI

• DMI = Directional Movement Index

• Created by Welles Wilder. He estimated that trending periods occur only 30% of that time. If that’s true then for 70% a trend following system will not work! How do you solve this problem?

• Need a device that determines if the market is in trending mode or ranging mode.

• A longer term trend identifier / trend change entry / exit point with a trend ‘strength’ indicator added in to the mix.

114 • 2 great uses:

• Trend following crossover signal system

• ADX allows you to decipher when to use moving averages system or oscillator system.

• E.g. ADX > 25 = market trending = use MAV’s, ADX < 25 or low = market not trending = use oscillators

115 DMI EXAMPLE: CRUDE WTI WEEKLY CHART

116 ATR

• ATR =

• A proxy measure for volatility. A change in volatility often signifies a change in the trend.

• Accounts for price volatility of the asset.

• Based on High/Low/Close calculation of the ‘true’ range of the asset over a given period of time e.g.14 days.

• Can be used to measure ‘true’ breakouts

• Can be used to help set Stop Loss levels (see forward) i.e. great for risk management!

117 ATR EXAMPLE: CRUDE WTI weekly chart

118 RSI

• Not to be confused with the tool, the RSI was developed by Welles Wilder (also the DMI) to measure the strength of a trend relative to previous activity. Wilders basic thinking behind it was that in an uptrend, closes tend to be higher and in a downtrend closes tend to be lower. The RSI only uses the closing price in its calculation. The RSI smooths out erratic and sharp changes in price.

Calculation: • RSI = 100(100/1+RS)) where • RS = (av. of X days up closes)/(av. of X days down prices) • 14 days very popular default input - to speed things up try for example 10 or even 7 periods. To slow things down 20, 30 etc. • Basically comparing the average gains on the ups with the downs over a chosen period of time expressed as a number between 0 and 100. • Overbought > 70, Oversold <30. (Stronger trending markets use 20/80).

119 Application:

• Identifies Support and resistance levels. • Gives overbought / oversold levels. • Can present chart formations that may or may not be visible from the chart. • Classic divergence. • “Failure swings” • “Top failure” – when a peak in the RSI > 70 fails to exceed a previous peak in an uptrend. • “Bottom failure” when the RSI in a downtrend fails to set a net low and then proceeds to exceed a previous peak. • Faster trend breaks – trend line analysis carried out on the oscillator for signals.

120 • Example using RSI on GBPGPY daily chart:

121 Divergence:

Situation where two indicators are not confirming each other e.g. in oscillator analysis, prices trend higher while an oscillator starts to drop – usually means a trend reversal.

122 • Bearish divergence occurs when a TA indicator is suggesting that a price should be going down but the price of the asset is continuing to maintain its current uptrend.

• Bullish divergence occurs when the indicator is showing that price should be bottoming and heading higher, but the actual price action is continuing downward.

• You can use price versus oscillators such as RSI, MACD, Stochastics, CCI.

123 EXAMPLE OF DIVERGENCE USING USDJPY:

124 Sentiment TA

Seasonality/ Cycles

Open Interest

COT

Other

125 Sentiment TA

• There are two final components to add to your charts:

• Sentiment • Open Interest

• Some are oscillator derived information, some are just cold hard numbers but all make useful additions to your analysis. • Again like the oscillators we looked at previously, this information is presented under the price chart.

126 SENTIMENT:

• A great tool and a great timesaver that TA can give you to analyse the feel of the market!

• Sentiment measures the overall market bull / bear.

• Sentiment suggests the majority of market opinion is wrong. (At turning points)

• Doesn’t mean do the opposite!

• Development of Contrarian Opinion.

• Crowd is mostly correct in a trend but it is at extremes that the technical trader gets excited. You are looking for extreme OB/OS situations for market reversals (e.g. Bullish sentiment is often at its greatest at market tops).

127 Seasonality/ Cycles

• By now it will be becoming easier to recognise patterns in the charts.

• The process does appear to be a bit arbitrary but you can further cement the theory we’ve learnt so far by understanding how the price moves in cycles and that there actually is some science to it!

• Remember one of the tenets of TA: History does repeat itself. Maybe not exactly in the same identical way but it does.

• Understanding cycles is important for understanding why the market moves up or down.

• So far you’ve learnt WHICH WAY, HOW FAR but now you need to learn WHEN.

128 • We don’t for the purposes of this course need to know the complete science behind it but one part of the theory ‘Nominality’ gives you a starter set of cycle numbers that you can apply to MAV’s and oscillators:

Days: 80,40, 20,10,5 Weeks: 40,20 Months: 54,18 Years; 18,9

• Dominant cycles are cycles that constantly affect prices these are the important ones to identify. Most futures markets have 5 dominant cycles:

Long Term: 5 years Seasonal: 1 year Primary/ Intermediate: 9 – 26 weeks Trading cycle: 4 weeks a. Alpha – 2 weeks b. Beta – 2 weeks

129 WAVES IN THE MARKETS:

• Use a simple MAV to determine TR: • Always trade with the trend. • Always determine the next larger trend in a higher timeframe and trade with it.

28 day Commodity cycle: • This influences most commodity markets i.e. a trading low every 4 weeks • Calendar days translate into actual trading days of 20 • 20d is a very important number in oscillators and MAV’s and harmonicity theory relating to the next shorter cycles of 10,5 (along with their derivatives 4,9,18) • Many traders use a 10d / 40d MAV combo. In practice how do you isolate cycles? • Through visual inspection and computer software.

130 SEASONAL CYCLES:

• Key concept to understand as it is the basis for one of the strategies we will learn.

• Really obvious cycles can be found in the markets at certain times of the year.

• If you know when they are going to happen why not trade them!

• For example: ➢ Grains have a low harvest time when supply is normally greatest ➢ Grains- Feb break where prices drop off from late Dec to Feb then take off. ➢ Soybeans- tops Apr/Jun, bottoms Aug/Oct ➢ Copper = Bullish Jan/Feb tops Mar/Apr ➢ Silver = low Jan with higher prices in March ➢ Gold = bottoms Aug ➢ Petroleum = peaks Oct bottoms winter

131 STOCK MARKET CYCLES:

• Also some important periods to note: • Strongest cycle span = Nov thru Jan, Feb weaker, strong Mar/Apr, Jun neutral, Jul strong, • weakest month = Sept. • Strongest = Dec (ending with the Santa Claus rally) • January barometer: Hirsch: what the S&P500 does in January can often determine the rest of the year • Presidential 4 year Cycle = year 1 +224%, year 2 = +63%, year 3 = +63%, year 4 +217% : so years 1 and 4 most bang for their buck!

WHAT INDICATORS ARE GOOD TO USE IN CYCLE ANALYSIS?

• CCI, MACD, RSI, Stochastics all good to adjust to cycles • MAV’s: 40d cycle = 20d/10d crossover • Rule: If cycle = 20d use 40d/10d MAV (*2 *1/2)

132 SEASONALITY EXAMPLE: RBOB GASOLINE MEASURED USING TA TOOLS (ESIGNAL):

133 Open Interest

• OI is the total number of outstanding contracts held by the market participants (How much interest there is in a trend / asset) • Because for each contract there is a buyer and a seller the OI on a chart is not the two added together but one side of the equation • OI is normally presented below the price chart and is represented by a solid continuous line.

Rules:

Price up OI up = Bullish Price up OI neutral / down = Bearish Price down OI up = Bearish Price down OI neutral/ down = Bullish Price neutral OI either way = Bull/Bear

134 OPEN INTEREST EXAMPLE: WTI CRUDE OIL

135 COT

• Want to know which way (long/short) the professionals / groups of market participants are trading on the futures markets– then this is the report you’ll need!!

• Very under-utilised and a key tool for your trading success! Why would you trade against the herd if you knew what they were doing?!

• It is a report published by the CFTC every Friday at 2:30pm EST

• It measures the net long and short positions taken by speculative traders and commercial traders, it is a great resource to gauge how heavily these market players are positioned in the market.

• What we are interested in are 3 categories (types of trader):

136 COMMERCIALS:

• These are the producers and end users of the commodity or futures market. • These are the people who want to protect themselves from adverse / unexpected price movement and use futures to protect themselves. • So if they are long i.e. they own say corn / corn farmer they will sell (go short) a corn futures contract to offset the risk.

• Therefore their POV is ‘anti’ price direction to protect their product in the future and will do the opposite to what the price is doing. The Commercials are probably the most important category as they are the most predictable.

TR: Commercials are most bullish at market bottoms and bearish at market tops.

137 LARGE TRADERS / SPECULATORS:

This group is made up of Commodity Pools, Hedge Funds, CTA’s and any other entity that trades above the specified contract threshold mandated by the CFTC.

They are only in it to make money and want to guess the correct direction of the market. They are not interested in the underlying instrument per se. Their positions should move in line with the market trend. They are the big guns and can move the market.

SMALL SPECULATORS:

They don’t have positions large enough to be required to report their positions to the CFTC. Often these guys get it wrong (another useful indicator)!

138 • Free web tool available to analyse the COT report. Using the weekly CFTC report is hard work and doesn’t really paint you a clear picture. • www.timingcharts.com Example: Soybean futures

139 Example: Corn (Weekly Chart) using ESignal: Blue= large Spec’s, green = Commercials, red = Small Specs. NB. White arrows follow the trend and the position of the Large Specs – notice the similarity in direction?

140 • Various ways of using the COT report:

• Changes in size of position • Crossovers e.g. Large Specs / Commercials • Extremes e.g. Overbought/ Oversold levels.

• Using the raw numbers is difficult so these 3 categories have been put into an index ranging from 0 – 100 to make decision making easier.

• For Example: • Values > 90 considered Overbought – possible trend reversal. • Values <20 considered Oversold – possible trend reversal.

• Works even better if you add an oscillator into the mix e.g. stochastics.

141 COT Index + Stochastic, Large Speculators Analysis Corn Chart:

142 Other

Volume indicator: OBV (On Balance Volume):

OBV:

The total volume for each day is assigned a +/- value depending on whether prices close higher or lower for that day.

• A higher close causes the volume for that day to be given a +, while a lower close gets a -. • A running cumulative total is then maintained by adding or subtracting each days volume based on the direction of the market close. • Direction of OBV trend that is key (not the values) • If OBV is heading in same direction as price = trend confirmation • When OBV diverges from price = warning of a possible trend reversal.

143 OBV EXAMPLE:

144 BREADTH INDICATORS: ‘The health of the stock market’

• Indices e.g. FTSE100 don’t cover enough of the full market to give the complete picture.

• Simple indicators developed such as:

➢ Monitoring 52 week high/lows ➢ Advancers/ Decliners (A/D ratio)on an Index e.g. S&P 500 ➢ Accumulation/ Distribution

• More complex and similar to the MACD in its approach is the McClellan Oscillator:

• Shows the difference between 19 day and 35 day MAV off of an A/D volume ratio of a defined length. • Very useful for showing OB/OS conditions, trend lines and breakouts.

145 MCLELLAN OSCILLATOR EXAMPLE: ALCOA INC DAILY CHART

146 THE VIX:

• A very useful sentiment tool for equities and can actually be traded itself as an asset. • (WARNING – to trade this on its own you need some experience it is a beast!)

• A volatility based index on the CBOE and is the market expectation of 30 day volatility using implied volatility of the S&P500 index options

• It is a measure of the perceived volatility in the market in either direction – up or down. • It is simply a good investor fear indicator. • The higher the number the more likely the markets are going to move around.

• > 30 = high volatility = investor fear and uncertainty, anticipation of large moves. • < 20 volatility = low volatility = investor complacency / less stressful markets

147 THE VIX INDEX EXAMPLE 2007 TO CURRENT: (note the recession period!)

148 PUTTING INDICATORS TOGETHER:

• You can combine indicators to create even stronger signals.

• It is important to get the correct blend of indicators if you are putting them together.

TR: Avoid the cardinal sin of avoiding multicollinearity amid indicators i.e. the multiple counting of the same information

• EG: You could take one indicator from closing prices, another from volume the last from price range.

149 • Bad combination: RSI / MACD / ROC Why? • Good combination: Bollinger Bands /RSI / OBV Why?

• Some other good combinations:

➢ ADX / Oscillator / MAV ➢ MACD / Stochastic ➢ RSI/ Stochastic ➢ Parabolic / DMI

TIP: Best to keep numbers of indicators used low, study their behaviour until you know them well.

150 PUTTING INDICATORS TOGETHER: FITBIT INC.

151