 Technical Analysis Implementation

Things to think about…  Technical Analysts do not invest they trade  Focus on price and volume  Flaw in fundamentals

What next?  Choose your investment vehicle  Create a time horizon  Establish your style of trading  Form an entry and exit strategy  Determine what indicators you will use  Trade, trade, trade!

What to trade?  Many different types of investment vehicles  Does not matter which type of investment vehicle you trade  One exception

Time Horizon  Traders typically do not have a “concrete” time horizon Scalper Day-Trader Intra-Week≤ 1 year≥ 5 year 5  100 Trades per day Several trades per day – never hold overnight Trade on multi-hour charts several times during week Several trades within the year – generally look at weekly charts Buy and Hold style of trading – falls into the category of investing Technical Analysis Fundamental Analysis Trading Investing

Trading Style  Trend Trading  Oscillation Trading  Swing Trading

Trend Trading  Seeks to capture the majority of a trend (up or down)  Is the price moving in an uptrend, downtrend, or sideways?  Trends often arise from a flat market  “Foot in the water”

Oscillation Trading  Profitable in sideways markets  Trade until channel breach  Power of the boundary

Swing Trading  Anticipation of most probable future direction of price movement  Looks at relative length of price swings  Projections based on percentages

Fibonacci Ratios  0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610  Ratio of the consecutive number (1, 0.5, 0.618, 1.0, 1.382, 1.5, 1.618, etc.)  Statistical probability of thrusts and pullbacks  Valid retracement between 38.2% & 61.8% of previous swing  Self-fulfilling prophecy  Generate support and resistance levels

Entry and Exit Strategies  Process of buying and selling  Maximize profits, minimize losses  Cut your losses  “Bulls, Bears make money, Pigs get slaughtered” – Jim Cramer

Types of Trades  Market Order  Limit Order  Market-If-Touched Order  Stop Order  Stop Limit Order

Market Order  Execute your trade at the best available price  At the earliest opportunity  Will always be filled ASAP  Generally go to head of the line

Limit Order  Designates the specific price at which you are willing to buy or sell  Buy limit  Sell limit  Limit order paradox*  Most common nowadays

Market-If-Touched  Buy order below the market or sell order above the market  Order will be filled at or near  Unlike limit order where proximity does not equate to a filled order

Stop Order  Buy or sell stop*  Sell stops used to exit long positions  Buy stops used to exit short positions

Stop Limit Orders  Combines stop order and limit order  It requires the entry of both a stop price and limit price  Stop price hit, limit designates*

Making the trade  How do you enter?  Technicians use a variety of different methods  Most common is limit order  Many swear by other techniques  Don’t speculate

Importance of Stop Orders  Minimize potential loss on a long or short position*  Risk deviation Important note: If you have a stop order in place but you exit the position manually, make sure to cancel the stop order or else you may be entered into a position in the direction of the stop

Trailing Stops

Indicators  Section that is highly subjective  Can pick and choose your indicators  Make sure you have support  Do not chart your own future  Efficient Market Hypothesis

Moving Averages and Crossovers  Simple  Exponential  Adaptive

Simple Moving Average  Standard 200-Bar moving average  Each point represents average closing of past 200 bars  Crossover is significant (Most technicians use the crossover of the 20 and 40 bar simple moving average)

SMA Crossover (Bull)

SMA Crossover (Bear)

SMA Trends

Slope Analysis  The slope of the moving average can indicate a buy or sell position

Upward Trend Slope Analysis (SMA)

Downward Trend Slope Analysis (SMA)

EMA and AMA  Similar analysis with other moving averages  Should not be only indicator

Using Oscillators  Different types of oscillators  What is an oscillator and what does it look like?  Using it in conjunction with other indicators  They are price leaders  Oscillate between upper overbought and lower oversold zones

Example of Oscillator

Example of Use

Oscillator Trend Lines

MACD Oscillator  Shows convergence/divergence of short and long moving averages  Signal line  Signal line intersection  What length moving averages should be used in MACD?

The Williams %R Oscillator  Highest Price – Today’s Price / Highest High – Lowest Low  The highest high and lowest low pertain to last ten days*  In uptrend values below -75 represent oversold  In a downtrend values above -20 represent overbought

Example of %R Implementation

Volume  So far we have discussed price  Technicians use both price and volume to make trading decisions

Climaxes and Blowoffs  Climax occurs near market bottom  Blowoff occurs near market peak  Large price moves accompanied by greater than average volume  Volume tends to peak out ahead of price in both up and downtrends

Trading Volume Breakouts  Identifying volume breakouts  Compare current volume bar against moving average  Different ways of defining a breakout  Rule of thumb  Uptrend (Expanding volume on updays and contracting volume on downdays)  Warning Signs

Volume Analysis

Bollinger Bands  Bands plotted above and below SMA  Measured in Standard Deviation  Standard Deviation measure of market volatility  Distance to upper and lower band shows overbought or oversold

Bollinger Bands

Bollinger Band Squeeze  Typical Technical Analysis Strategy  Occurs when volatility falls to low levels  Lower volatility often followed by high volatility  Contraction can represent significant upward or downward movement

The Arps Radar / Fear-Greed Index  Relative Strength of Bulls and Bears  Volume to move equal amount in either direction  If it takes twice the volume to move up on point as it does down one point…  Boulder example*

Plotting Arps Ratio  Plots imbalance  Shows it as histogram subset

Tied assets  Natural gas and oil, if they move in tandem can make money off of deviations from a certain pattern