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  1. Vol.6 Trade with <CHARTS> From the desk of venKEY ……………………. Hyderabad-AP INDIA TECHNICALAnalysis DIVERGENCE & FORMATIONS TradingFriend TrendAdvisor Dynamic Subject Logical Thinking towards Price Action forex2tradeindia Your Success Story Begins from HERE Email : - venKEY

  2. Finding Price Action & Confirmation Technical Analysis - INDICATORS Vol.6 • Symptoms (on CHART) • Support & Resistance (MA) • Moving Averages • Bollinger Bonds • Parabolic SAR • Pivot Points • Fibonacci • Regular Confirmation • RSI • Stochastic • MACD • CCI, ADL • Advanced Confirmations • . Divergence : Price Vs.Osc. • . Formations -Stochastic. • Patterns in – RSI • ADX • Considerations : • Demand-Supply • Patterns formation • News in Force • Type of Markets • Traders Emotion Believe in Charts Divergence Formation & Divergence venKEY

  3. Oscillators & Divergence Price Line vs. Oscillators BULLISH Divergence BEARISH Divergence TYPE - 1 Price line make Lower Tops & Lower Bottoms Oscillators make Higher Top and Higher Bottom after some rally TYPE - 2 Price line make Lower Tops & Lower Bottoms Oscillators make Double Bottom after some rally TYPE - 1 Price line make Higher Tops& Higher Bottoms Oscillators make Lower Top and Higher Top after some rally TYPE - 2 Price line make Higher Tops & Higher Bottoms Oscillators make Double Top after some rally DIVERGENCE - Alexander Wale DIVERGENCE NOTE Oscillators are suppose to be known as an advance indicator. Apart from define OVER BOUGT and OVER SOLD conditions. it also creates Divergence with the price line. Oscillator also helps trader to catch the momentum WITH IN THE TREND. Class - A This occurs when a Price Line reach to new high, but oscillator reach a lower high.. then it did on a previous rally Class - B Price line making double top or double bottom, but Oscillator makes lower tops or higher bottoms. Negativity of the running trend • Class - C • Price line reach a new high, oscillator will not move.. • (rare… if it found… like Class-A trade comes)… which has not much importance according to Alexander elder also. venKEY

  4. DIVERGENCE DIVERGENCE VIDEO CLASS - A BULLISH BEARISH CLASS - B BULLISH BEARISH Formations-Stochastic CLASS - C It has no Technical Importance (which are similar to CLASS-A) just comes after struggling with same pattern venKEY

  5. George Lane • STOCHASTIC made up of 2 lines. • 1) % K is a SOLID (Stochastic line) • 2) %D is a DOTTED line (Signal Line) • Relative Position of this 2 lines deliver “BUY / SELL” Signals as the case may be • Stochastic is plotted on a vertical scale where • Below 20 – Over Sold zone • Above 80 - Over Bought zone STOCHASTICS -1 • BUY/ SELL signals: • %K and %D only above20 - Bullish signal • %K and %D only below 80 – Bearish signal. • In a perfect Bullish Momentum • K% will be greater than %D Stochastic Fast plots the location of the current price in relation to the range of a certain number of prior bars (dependent upon user-input, usually 14-periods) • CALCULATION : • Fast Stochastic : • Fast %K: [(Close - Low) / (High - Low)] x 100] • Fast %D: Simple moving average of Fast K (usually 3-period moving average) • Slow Stochastic : • Slow %K: Equal to Fast %D (i.e. 3-period MA of Fast %K) • Slow %D: A MA(again, usually 3-period) of Slow %K • Stochastic Slow is similar in calculation and interpretation to Stochastic Fast. • C lose= Closing Price of today • Low = Lowest Price for the N=5 days • High = Highest Price for the N=5 days. Formations-Stochastic • TOPICs • Stochastics Fast & Slow • Stochastic Buy & Sell Signals • Stochastic Price Divergences • FAST stochastic venKEY

  6. STOCHASTICS (Formations) -2 Formations-Stochastic venKEY

  7. STOCHASTICS (Formations) -3 Formations-Stochastic venKEY

  8. STOCHASTICS (Formations) -3 Formations-Stochastic venKEY

  9. RSI (Trading Methods)-1 Wales Walder (1974) • RSI plotted on vertical scale with • 0-30 is Over Sold • 30-70 is Neutral Zone • 50 Range : Support / Resistance • 70-100 is over Bought • 1. TRENDLINE application • PATTERN identification • DIVERGENCE • Failure SWING • RSI-50 Support • Advance BREAK OUT/DOWN RSI - Trade Methods • Trend line Application: • Trader can apply Trend line in RSI. • Only this Oscillator where one can draw\Trend Line to analyze the strength of the existing trend. • It is an amazing features of the RSI that it deliver Prior/Advance Signal than the price line. • RSI used to penetrates or violate trend line before 2-3 trading sessions than the price line. • Alert us to : • - Exit your holding/current position • - Wait for break of trend line in price • - As it is a prior indication- close positions and wait for trend-break • X-days preferred by trader Walder suggested 14 days ) • X= 7 days new days works well as present day market movement become higher. venKEY

  10. RSI (Trading Methods)-1 • Pattern Identification: • Trader can identify some patterns which appears in the Price chart and which give advance/prior indication of breakage of trend lines. • Mostly we can find • Head and Shoulders/ • Inverted Head & shoulder. • It is used to deliver prior signal than the price line. • Trader have just confirm VOLUME action before entering into trade. RSI - Trade Methods • Divergence: • It is made up of 3 tops and 3 bottoms. • See…following chart venKEY

  11. RSI (Trading Methods)-2 • Failure Swing : • It has described as 2 types • Top failure swing (Bearish): • 1st top is placed above 70 and 2nd top is placed below 70 ( if appears on the top of the chart after a prolonged rally indicates that the Rally is over. • Bottom Failure Swing (Bullish) • 1st Bottom placed before 30 and 2nd top placed above 30 (if appears on bottom of the chart after prolonged down trend indicates bottom-out) • RSI @ 50 Levels: • It should look-out at 14 and above days(follow strictly). • This is the acts as Strong Supports and resistance of a rally as the case may me. • It is to be checked after a long rally for advance information. indicates bottom-out) RSI - Trade Methods • Advance Break-out/down • IN case of the advance breakout price unable to cross its last established higher tops but RSI able to cross its Last established Tops. Before going long Trader should examine the liquidity of the said underline. • In advance break-down is reverse to the above and Where liquidity has no importance venKEY

  12. 1) Advance trend following indicator • 2) Measures the maturity level of the existing trend. • 3) Based on BAR-CHART. ADX – Direction Index Wales Walder (1974) Why ADX is Powerful ADX calculation Stages Direction System venKEY

  13. ADX – Direction Index ADX Trading IDEAS Direction System ADX ADX venKEY

  14. Average Directional Index(ADX)-1 To identify TREND (great compliment to other Indicators) DIVERGENCE ADX Average Directional Index The Average Directional Movement Index (ADX) technical analysis indicator describes when a market is trending or not trending. When combined with the DMI+ plus and DMI- minus (see: DMI) the ADX can generate buy and sell signals. However, the main purpose of the ADX is to determine whether a stock, future, or currency pair is trending or is in a trading range. Determining which mode a market is in is helpful because it can guide a trader to which other technical analysis indicators to use. • ADX Shows Trend Strength • The first concept to remember is that the direction that the ADX moves doesn't depend upon the direction of the underlying stock.  • All the ADX shows is the trend strength. • Strong upward trend of stock = Increasing ADX and Strong downward trend = Increasing ADX (can be identified on the above chart) • When the e-mini futures contract moved into a non-directional consolidation phase, the ADX decreased. • The ADX is so popular because determining whether a stock, commodity, or currency market is trending or not trending can help a trader avoid the pitfalls of some indicators. • Moving Averages • Moving averages and their variants are effective during trending markets; however, during consolidation periods when prices go up and down, but in no direction, moving average indicators have a tendency to give numerous false buy and sell signals that add up to trading losses. During trending markets, use moving averages, trendlines, and other trend following technical indicators. • Oscillators • Oscillators are extremely effective in non-trending markets. Buying low and selling high is accomplished quite readily with oscillators. Unfortunately, during trending markets, oscillators perform quite poorly, often selling short during a bull market run or buying during a bear market downtrend, adding up to large losses. For periods of non-trending, use oscillators like Stochastic Fast & Slow,RSI, or Williams %R and other range-bound indicators like Bollinger Bands or Moving Average Envelopes. DIVERGENCE venKEY

  15. Accumulation & Distribution Detect Divergence between Price & Volume movement DIVERGENCE • Accumulation Distribution uses volume to confirm price trends or warn of weak movements that could result in a price reversal. • Accumulation: Volume is considered to be accumulated when the day's close is higher than the previous day's closing price. Thus the term "accumulation day" • Distribution: Volume is distributed when the day's close is lower than the previous day's closing price. Many traders use the term "distribution day" • Therefore, when a day is an accumulation day, the day's volume is added to the previous day's Accumulation Distribution Line. Similarly, when a day is a distribution day, the day's volume is subtracted from the previous day's Accumulation Distribution Line. • The main use of the Accumulation Distribution Line is to detect divergences between the price movement and volume movement. • Volume Interpretation must: • Increasing and decreasing prices are confirmed by increasing volume. • Increasing and decreasing prices are not confirmed and warn of future trouble when volume is decreasing. www.forex2tradeindia.weebly.com0 DIVERGENCE Finally, Accumulation Distribution Line is a very effective tool to confirm price action and show warnings of potential price reversals. It is important to incorporate volume into price analysis, and the Accumulation Distribution Line is one of many indicators to do just this. Other indicators that include price and volume analysis and could be considered more accurate than the Accumulation Distribution Line include the Chaikin Oscillator Money Flow Index ,Price Volume Trend indicator venKEY

  16. Accumulative Swing Index(ASI) Divergence Confirming Tool –(Welles Wilder) DIVERGENCE Buy Signal - Accumulative Swing Index Buy when Accumulative Swing Index breaks above a downward trendline or, in a price consolidation period, above resistance. Sell Signal - Accumulative Swing Index Sell when the Accumulative Swing Index breaks below an upward trendline or, in a price consolidation period, below support. Can be used for buy and sell signals as well. It was designed to be used for futures trading, but can be used for stock trading and currency trading too. The Accumulative Swing Index is a running total of the Swing Index (see: Swing Index). Accumulative Swing Index as a Confirmation Tool Accumulative Swing Index confirmed Gold's downtrend. Subsequently, when Gold broke the downward trend-line, the Accumulative Swing Index confirmed the trend-line break as well. Similarly, the upward move in the Gold futures contract was confirmed by the Accumulative Swing Index and the upward trendline break was confirmed too. DIVERGENCE In summary, the Accumulative Swing Index is best used as a confirmation tool with other technical indicators and charting patterns (see: Support & Resistance). venKEY

  17. Advance – Decline Line (ADL) To identify the INDEX trading point of view DIVERGENCE High #1 to High #2 The mini-Dow future contract made a higher high at High #2; however, the Advance Decline Line failed to make a newer high, in fact it made a lower low. At High #2, less stocks were participating in the rally; thus, there was less strength behind the rally in the Dow Jones Industrial Average. This failure of the Advance Decline Line signaled a strong bearish divergence. High #2 to High #3 This is an example of the Advance Decline Line confirming the trend in price of the mini-Dow future. The mini-Dow future made lower highs and likewise, the Advance Decline Ratio made lower highs. Low #1 to Low #2 Yet another bearish divergence occured from Low #1 to Low #2. The mini-Dow futures contract made a higher low, an acknowledged bullish sign. However, the Advance Decline Line did not confirm the mini-Dow future's ascent. In fact, during the entire rally of the mini-Dow from Low #1 to Low #2, the Advance Decline Line was making lower lows. This bearish divergence signaled that stock investors and index futures traders should be wary of the recent increases; the market as a whole is not behind the recent move higher. In conclusion, the Advance Decline Line is a very effective tool to confirm price action in stocks and stock indexes as well assignaling potential reversals or weak price moves. Another similar indicator is the Arms Index The Advance Decline Line is used primarily toconfirm price movement and detect divergences. The calculation of the Advance Decline Line is quite simple: The calculated number is then added to the previous day's Advance Decline Line. To illustrate, say that todays advancing issues ($ADV or $NYADV) is 1,692 stocks. That is 1,692 stocks closed the day with an increase in their share price. The declining issues ($DECL or $NYDEC) is 1,311. At the NYSE, 1,311 closed the day with a decrease in their share price. 1,692 - 1,311 = +381 For the day, 381 more stocks closed the day higher than closed the day lower. This is a bullish sign. To continue the example, yesterday's Advance Decline Line totaled 45,874. Today's reading of +381 would be added to the total of yesterday. This would result in an updated total of 46,255. Whether the total is positive or negative is irrelevant; what is relevant is the direction or the trend of the Advance Decline Line. An increasing Advance Decline Line is bullish because more stocks at the NYSE are closing the day with gains; whereas a decreasing Advance Decline Line is bearish because more stocks are closing the day with losses. The Advance Decline Line is a powerful confirmation tool and divergence warning tool. The chart of the mini-Dow future contract of the Dow Jones Industrial Average or Dow 30 represents these confirmation and divergence signals: DIVERGENCE venKEY

  18. If you are working for someone, you obviously cannot do scalping and day trading. These two types of trading requires full concentration throughout the trading period. You will start your day an hour before the markets open. Then you will need to find opportunities and once you are in, you will need to monitor them second by second and minutes by minutes. Guerrilla Trading is also not suitable for someone having a job because you need to look at some intraday charts as well. You will buy the stock today and perhaps sell it tomorrow morning. You will need to be in front of your computer at times. The best type of trading for those who have a job is swing trading, momentum trading and position trading. These type of trades hold position more than 2 days. You don't need to make intraday decisions. You will work primarily from daily and weekly charts. You can make your decisions after the market closes. Once you have identified a trade, you can input a buy order and leave it with your broker. Once, the buy setup is triggered, your broker will automatically purchase the stocks for you. The same thing goes for selling and setting stop losses. Your personality The next important thing to consider when deciding which trading styles to choose is your own personality. Are you someone who can't pay long attention to the computer all day? Are you someone who don't like to wait too long to find trading opportunities? If you are someone who don't have the discipline and concentration to sit in front of the computer for long periods of time, then day trading is not for you. If you are someone who wants lots of action and can't wait to get into the market, then position trading which covers weeks and months is not for you. Choosing the right style will mean success or failure You can't force yourself to be something that you can't be. Trading is the same. You need to find something that suits you. For me, I cannot do day trading. I'm not really good at it. I will only take day trades occasionally. I prefer swing, momentum and position trades. I like to make decisions slowly. Think through it. I also like the freedom to be away from the computer for a day or two without constantly needing to check my computer screen. That way, I can go on a holiday for a week or two and still make money. All I need is 5 min to check on my trades now and then to change my stops or take partial or full profits. You need to find a trading style that can fit into your time and that is comfortable to your personality. You are at Foundation Level of the Stephen Loke Trading Course and have finished "How To Choose The Correct Trading Style". Important How To Choose Correct Trading Style: If there is one important wisdom about trading, it is that you must choose the correct trading style that suits you. Choosing the wrong type of trading is one of the reasons why people lose money. As mentioned in the previous article, there are 6 types of trading styles. They are: ScalpingDay TradingGuerrilla TradingSwing TradingMomentum TradingPosition Trading The first 2 involves you being in the market one day. You will not hold any positions overnight. The other 4 requires you to hold stocks for more than a day. Time constraints One of the factors to help you determine which trading style is suitable for you is Time Constraints. Do you have a job? Or are you your own boss? DIVERGENCE venKEY

  19. Popular Words in Tech. Analysis • L • Linear Regression Channel • Linear Regression Curve • Linear Regression Line • M • Moving Average Convergence Divergence (MACD) • Moving Averages • Market Thrust • Mass Index • McClellan Oscillator • Momentum • Money Flow Index (MFI) • Moving Average Envelopes • O • On Balance Volume (OBV) • Open Interest • P • Parabolic SAR • Point and Figure Charting • Price Channels • Price Oscillator • Price Volume Trend • R • Rate of Change • Relative Strength Index (RSI) • S • Simple Moving Average • Standard Error Bands • Stochastic RSI • Stochastics Fast and Slow • Swing Index • A • Adaptive Moving Average • Average Directional Movement Index (ADX) • Andrews Pitchfork • Arms Index (TRIN) • Aroon Indicator and Oscillator • B • Bollinger Bands • C • Chaikin Oscillator • Commodity Channel Index (CCI) • Commodity Select Index • D • Detrended Price Oscillator • Directional Movement Index (DMI) • E • Ease of Movement • Elliott Wave • Exponential Moving Average (EMA) • Exponential Ribbons • F • Fibonacci Retracements • Fibonacci Arcs • Fibonacci Fans • Fibonacci Time Extensions • G • Gann Theory • H • Herrick Payoff Index • K • Keltner Channel • T • Time Series Forecast • Triangular Moving Average • Triple Exponential Average (TRIX) • Typical Price (Pivot Point) Moving Average • U • Ulcer Index • Ultimate Oscillator • V • VIX & VXN Volatility Index • Volatility Indicator • Volume • Volume Accumulation • Volume Oscillator • Volume Rate of Change • W • Weighted Moving Average • Williams %R • Z • ZigZag

  20. Calculators • Fibonacci Calculator • • ForexCalender : • • Pip Value Calculator • • Pivot Point Calculator • • Positiona Size Calculator : • • Risk: Rewqrd Calculator : • hp • Currency Converter : • • Compare Forex Brokers : •

  21. Relevant Other Information • Entry, Tgt. & Sl. Fixing • Various BUY/SELL indicators & Oscillators • Trading Strategies • Trade Vs. Capital Management • Investment Types & Decision Points " TIME -N-SMILE " ARE THE TWO CRUCIAL THINGS IN OUR LIFE . " SOME TIMES, TIME MAKES US FORGET SMILE AND SOME TIMES SOME ONES SMILE MAKE US FORGET TIME" INDEX 21

  22. Human & Relations vs. Technical Analysis INDEX venKEYspoint of view 22