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Common Cents Investment Group. October 15 th 2012. Agenda. FX on Investopedia Today in the market Technical Analysis – Part II Pick a stock!. FX on Investopedia. Our apologies, FX is not trading in our simulator

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october 15 th 2012

Common Cents

Investment Group

October 15th 2012

  • FX on Investopedia
  • Today in the market
  • Technical Analysis – Part II
  • Pick a stock!
fx on investopedia
FX on Investopedia
  • Our apologies, FX is not trading in our simulator
  • ETFs that follow FX indices
  • FXKing on Investopedia…
    • 100k
    • 100:1 leverage
    • http://fxtrader.investopedia.com/
today in the market2
Today in the Market
  • How does the stock market impact the presidential election
    • If the market is good…the incumbent has the upper hand & vice versa
  • How does the presidential election impact the stock market
today in the market3
Today in the Market
  • How the presidential election can affect the stock market:


useful definition
Useful Definition
  • Entry Level: The price at which you buy the security
  • Stop Loss: A trade entered that limits the potential loss of value in a security
  • Support: Price level at which demand is thought to be strong enough to prevent the price from declining further
  • Resistance: Price level at which selling is thought to be strong enough to prevent the price from rising further
technical analysis
Technical Analysis


  • Not an exact science
  • Based on the assumption that all market information is reflected in the price
  • Three simples steps
    • Determine market bias
    • Pick a trading strategy based on bias
    • Use technical indicators to capture best entry point
determine bias
Determine Bias
  • Uptrend: Markets that continuously make higher highs and higher lows.
    • Look for a buying opportunity at the supports
determine bias1
Determine Bias
  • Downtrend: Markets that continuously make lower highs and lower lows.
    • Look for a selling opportunity at the resistance
determine bias2
Determine Bias
  • Range Trade: Markets that are not in an uptrend or downtrend
    • Look for a selling opportunity at the resistance and buying opportunity at the supports
trading approach
Trading Approach
  • Choose between Long or Short
    • Downtrends => Go Short
    • Uptrends => Go Long
    • Entry points can be at either the Resistance (Short) or Support (Long) for simplicity
    • Further indicators are used to create a trading strategy
trading approach1
Trading Approach
  • Indicators are used to determine:
    • Entry levels
    • Stop Loss levels
    • Profit taking (Limit) levels
  • Organization is half the battle!
technical indicators3
Technical Indicators
  • Trend Line: A straight line connecting consecutive higher lows and consecutive lower lows
    • These are highly watched by most traders and corporations
    • Good basis to use with or without other indicators to find good entry point
technical indicators5
Technical Indicators
  • Phychological Numbers: Price levels that are considered important by the markets
    • These numbers are generally round numbers like 10, 20, 25, 50, 100, etc.
    • A number of traders place orders at round numbers, thus providing support or resistance to price movements
    • Use to identify an entry point
technical indicators7
Technical Indicators
  • Relative Strength Indicator (RSI): An oscillating indicator
    • Can have values from 0 – 100
      • 0 – 30 => Oversold markets (undervalued)
      • 70 – 100 => Overbought markets (overvalued)
    • Place trades on a confirmed move out of a certain condition
    • RS = Average number of days with ‘up’ closes divided by average number of days with ‘down’ closes

RSI = 100-100/(1+RS)

technical indicators8
Technical Indicators
  • Prepare to sell short once RSI moves above 70 and goes into downtrend
  • Book profits when RSI touches oversold levels (~30)


technical indicators9
Technical Indicators
  • Moving Averages: Calculated by averaging the closing prices of the market over a specified time
    • Simple Moving Average (SMA): Places equal weight on every price point over time
    • Exponential Moving Average (EMA): Places higher weight on more recent price points
    • Commonly over 200 days, 100 days, 10 days
technical indicators11
Technical Indicators
  • Bollinger Bands: use a simple moving average of a price standard deviation around that moving average to generate trading signals
    • Usually a 20 period moving average and a 2 standard deviation band around the moving average
technical indicators13
Technical Indicators
  • Moving Average Convergence Divergence (MACD): uses a combination of moving averages to generate a trading signal
    • Plots the difference between 12 period & 24 period EMA (called the MACD)
    • Plots a 9 period EMA of the MACD (called the MACD signal)
    • Look at the crossovers of the MACD and MACD signal lines to sell/buy
technical indicators15
Technical Indicators
  • Stochastic: Another oscillating indicator that takes values of 0 – 100
    • 0 – 20 => Oversold markets
    • 80 – 100 => Overbought markets
    • C = most recent closing price
    • L14 = the low over the last 14 trading sessions
    • H14 = the high over the last 14 trading sessions

%K = 100[(C-L14)/(H14-L14)]

technical indicators16
Technical Indicators
  • The transaction signal occurs when %K crosses through the %D

%D = 3 Period moving average of %K



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