technical analysis 101 : session 2 stanley yabroff val alekseyev
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Technical Analysis 101 : Session 2
Stanley YabroffVal Alekseyev
Trending Indicators Parabolic Indicator Moving Averages Ichimoku Clouds Elliot Waves Bollinger bands Average Directional Movement
Indicator
Session 2
Trend Following MACD = Moving Average Convergence Divergence
SAR = Parabolic Stop and Reverse
Momentum IndicatorsRSI = Relative Strength Index
Slow Stochastic = %K and %D
ROC = Rate of Change
TimingElliot Wave
Oscillators and Studies
Parabolic
• Parabolic (Para)
• Welles Wilder's Parabolic study is a time/price reversal system. The letters "SAR" stand for "stop and reverse" meaning that the position is reversed when the protective stop is hit. It is a trend-following system. As prices trend higher, the SARs tend to start out slower and then accelerate with the trend. In a downtrend, the same thing happens but in the opposite direction. The SAR numbers are calculated and available to the user for the following day based on the following equation:
• SAR (tomorrow)= SAR (today) + AF(EP trade – SAR today)
• where: AF begins at 0.020 (default value) and is increased by .02 each bar that a new high/low is made (depending on the trend direction) until a value of 0.20 is reached; EP = Extreme Price point for the trade made so far (if Long, EP is the extreme high price for the trade; if Short, EP is the extreme low price for the trade).
• Thus, the Parabolic Time/Price System rides the trend until the SAR price is penetrated. Then the existing position is closed out and the reverse position is opened.
Parabolic Stop and Reverse (SAR)
Time/Price Reversal System
Trend Following System
Moving Averages
• Trend following indicator• Moving average is a smoothing indicator • Moving averages are lagging indicators which do not work
well in non-trending markets. Results in trading whipsaws
Types of Moving Averages
• Simple Moving Average– Most commonly used – arithmetic mean– Gives equal weight to each price
• Weighted Moving Average– Puts greater weight on the most recent activity. For example in a 5 bar
weighted moving average the last bar is multiplied by 5, the next to the last bar is multiplied by 4 and so on. The total value is divided by the sum of the multipliers, i.e. the divisor to the 5 bar WMA is 15 ( 5+4+3+2+1=15)
• Exponential Moving Average– Also puts greater weight on the most recent activity.– Percentage weight is used t give greatest weight to most recent activity.
• Smoothed Moving Average– Similar to the simple moving average except the previous smooth average
value is subtracted rather than the oldest value in a simple moving average.
Simple Moving Average• For the following example the PERIOD = 3.• The first value for a Simple Average is determined by
formula SIMPLE. It is plotted on the chart at the third bar from the left side of the screen.
• SIMPLE = (PRICE 1 + PRICE 2 + PRICE 3) / PERIOD• The next value would be plotted at the fourth bar from the
left side of the screen.• SIMPLE = (PRICE 2 + PRICE 3 + PRICE 4)/PERIOD• Subsequent values would be determined by eliminating the
oldest PRICE from the calculation, and including the next more recent PRICE.
• Most widely used of all technical indicators
Weighted Moving Average
• The CQG weighted moving average assigns weights linearly, assigning greater weights to more recent data points.
• Example:• A 21 period weighted moving average would be calculated
as follows: • [21 * Close (0)] + [20 * Close (-1)] + [19 * Close (-2)] +…….
[1 * Close (-20)]
Exponential Moving Average Calculation• Exponential Moving Average Calculation
• For the following example the PERIOD = 3 and the PRICE = CLOSE.• To calculate an Exponentially Smoothed Moving Average, (ESMA), the user must enter an integer value for the PERIOD or a
decimal value Smoothing Constant. • A decimal value Smoothing Constant must be greater than 0.0 and less than or equal to 2.0. Example: .5 • When an integer value is entered for PERIOD, the smoothing constant is converted by the system to a decimal value using the
following formula: • Smoothing Constant:
• = 2 / (PERIOD + 1)• = 2 / (3+1)• = 2 / 4• = .5
• The Exponentially Smoothed Moving Average, ESMA, may be calculated after the Smoothing Constant is known.
• The first ESMA value is initially set to the first PRICE before the calculation begins. The first PRICE is from the leftmost bar on the screen.
• The formula for calculating the ESMA is as follows:
• ESMA = pESMA - ( Smoothing Constant X ( pESMA - PRICE ) )
• In the above formula:
• ESMA is the new Exponentially Smoothed Moving Average.• pESMA is the Previous ESMA value.• PRICE is the value of the PRICE used for each bar, e.g. CLOSE
• Note: A decimal value Smoothing Constant equal to 0.0 stops the ESMA from being displayed, however, an ESMA will appear if the integer 0 is entered without the decimal point.
Smooth Moving Average• A Smoothed Moving Average is similar to a simple moving average. However, in a smoothed moving average, rather
than subtracting the oldest value, as in a simple moving average, the previous smoothed average value is subtracted.• For the following example the PERIOD = 3.• First value is ready when Period first bars are accumulated.• First value SMOOTH(1) = AccumulatedPrice / Period where AccumulatedPrice is a sum of Period input prices.• Next value (say SMOOTH(N)) is calculated as:
• SMOOTH(N) = SMOOTH(N-1) + (Price(N) - SMOOTH(N-1)) / Period• The next value would be plotted at the fourth bar from the left side of the screen.• SMOOTH2 = (PREVIOUS SUM - PREVIOUS AVG + PRICE 4) / PERIOD • For the second calculation of SMOOTH, PREVIOUS SUM is the sum of PRICE 1 + PRICE 2 + PRICE 3; and
PREVIOUS AVG is the initial value of SMOOTH. • The next value would be plotted at the fifth bar from the left side of the screen.• SMOOTH = (PREVIOUS SUM - PREVIOUS AVG + PRICE 5) / PERIOD
• Subsequent values would be determined by subtracting the PREVIOUS AVG from the PREVIOUS SUM, adding the next more recent PRICE, then dividing by the PERIOD.
• Example: • If the values 1,2,3,4 and 5 were reported for the first 5 bars the 3-period smoothed moving averages for those bars
would be calculated as follows:
• (1+2 +3)/3 = 2• This is the first value and would be plotted on the 3rd bar from the left.
• (6 - 2 + 4)/3 = 2.67• This second value would be plotted on the 4th bar from the left.
• (8-2.67+5)/3 = 3.44• This third value would be plotted on the 5th bar from the left.
Single Moving Average Cross
Two Moving Average Cross
Three Moving Average Cross
Ichimoku Cloud
• Trend following tool. Used heavily by Japanese traders, especially currency traders. It is gaining popularity in the United States.
• Ichimoku cloud system is comprised of five moving averages.– Kijun (Trend) Line: (highest high + lowest low)/2 calculated over last 26
periods– Tenkan (Signal) Line: (highest high + lowest low)/2 calculated over last 9
periods– Chikou (Lagging) Span: Most current closing price plotted 26 time periods
back– Kumo (Cloud)
• Senkou Span A: (Tenkan line + Kijun Line)/2 plotted 26 time periods ahead• Senkou Span B: (highest high + lowest low)/2 calculated over past 52 time periods, sent 26
periods ahead.
Advantages of the Ichimoku Clouds
• Trend identification• Displays multiple levels of support and resistance, both
currently and projects into the future.• Comprised of moving averages with its strengths and
weakness.• Thickness of the cloud represents both the strength of the
support or resistance and volatility.– Thin cloud is little support or resistance .– Thick cloud is strong support or resistance.
• Price closes above the cloud, the trend is up.• Price closes below the cloud, the trend is down.• Price closes in the cloud, the market is sideways.
Ichimoku Cloud Chart
Elliott Wave
• A trend moves in five waves.• A trend can be in either direction.• A correction occurs in three waves.• Wave 1
– In a bullish trend wave 1 is accumulation stage and the very beginning of the new trend. Look for a bullish divergence between price and RSI.
– Volume is declining as the previous trend comes to an end.
• Wave 2– First retracement, retraces wave 1 but does not violate the low of
wave 1. This retracement should not retrace more than 61.8% of the original move.
Ichimoku Cloud with Japanese Candlesticks
Elliot Wave
Elliot Wave: Impulse wave formation followed by a Corrective wave.
Impulse wave: Three waves in the direction of the trend Corrective wave: Three waves against the trend
Elliott Wave 2• Wave 3
– Usually the longest, strongest wave in the direction of the trend.– Higher than wave 1.– Volume and open interest accelerates
• Wave 4– Countertrend trend wave. – Wave 4 should not go lower than the low of wave 2.
• Wave 5– Wave 5 is in the direction of the trend.– Wave 5 is either the longest, strongest wave or second to wave 3.– Wave 3 and Wave 5 are the strongest waves in the direction of the trend.
• A wave– In a bull market, A wave is bearish.
Elliott Wave 3• Wave B
– Wave B is an up wave.– Should not take out the high of Wave 5.
• Wave C – Wave C is a down wave.– Should take out the low of Wave B.
• Most often there is a 5 wave structure within the major 5 wave structure.
• The placement of the wave identifiers moves if new highs or lows are made. They can’t be used in trade systems.
• They are timing indicators and can identify which moves can be the ultimate high or low, but must be confirmed by other indicators such as RSI, MACD or slow stochastic.
• Elliott Wave works well with the Imoku Clouds.
