your first step intothe world of trading understanding the basics of trading

Your First Step Into the World Of Trading

Understanding The Basics of Trading

Today’s Economy:The good, the bad and the ugly.

Technical Analysis Trading Patterns

Forex 201 B - Technical Analysis

Definition

oStudy of market action through the use of historical charts

oTo forecast future price trends

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Trend & Channel Line

oThe trend is simply the direction of the market

oMarket moves are characterized by a series of consecutive waves with peaks and troughs

oIt is the direction of those peaks and troughs that forms the trend

oTrends can be classified in three types:

• Uptrend & Ascending Channel• Downtrend & Descending Channel• Sideways & Horizontal Channel


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Trend & Channel Line

Example – Uptrend

oA series of consecutive higher highs and higher lows where the overall direction of the market is upward.oInvestors usually go long the market (buy)oExample of an Uptrend with ascending peaks and troughs


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Support & Resistance

Support

oBuying force of traders is strong enough to overcome the selling pressure.

oBuyers become more inclined to buy.

oBuyers don’t want to miss out on the opportunity again.

oSupport does not always hold where a decline below that level indicates that sellers in the market have won out over the buyers.

oPrices can sometimes break a support but stay trading near that level and turn back higher. In this case, a false break is generated.


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Support


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Resistance

oSellers outnumber the buyers and prices correct toward lower levels.

oThe increase in prices is halted and turned back.


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Reversal Patterns

Head and Shoulders


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Reversal Patterns

Double Top

oTop-“M” Shaped Reversal Pattern.

oMarkets are in an upward trend and have two peaks.

oThe reversal pattern is not complete unless selling pressure is accelerated to break and close below the support on a continuous basis.


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Reversal Patterns

Double Top


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Continuation Patterns

oOccurs when prices move sideways after the formation of a trend (uptrend or downtrend).oContinues in the same direction as the previous trend after completing the pause and breaking the pattern.

TrianglesoPatterns form shapes of triangles.oComposed of three types: Symmetrical, Ascending, Descending.

Symmetrical TriangleoNeutral pattern formed by upper descending and lower ascending lines.oConnecting at least two lower highs and two higher lows.oTrend lines act as supports and resistances and any break is followed by significant move.oUsually, pattern breakout follows the previous trend before the triangle.


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Symmetrical Triangle


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Ascending TriangleoA bullish pattern is formed by a horizontal upper line with equal highs and an ascending line with higher lows.oBuyers outweigh sellers to an extent pushing prices higher and breaking the upper resistance line.

Descending TriangleoA bearish pattern is formed by a horizontal line with equal lows and a descending line with lower highs.oMirror image of the ascending triangle.oSellers are more aggressive and push prices below the support line.


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Ascending Triangle


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Descending Triangle

Technical AnalysisTrading Indicators

Moving Averages

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Definition

oThe average of the closing prices of the last “X” number of days.

oUsed to give an indication about trends’ direction such as the end of an old trend, the beginning of a new trend, the reverse of a trend to the upside or the downside and the levels of support and resistance.

Moving Averages

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Role

Generating Signals:

oUsing one MA: Prices cross above MA, a buy signal is generated and vice versa.

oUsing two MA: If shorter period (50 day MA) crosses above longer one (100 day MA), buy signal is generated.

Moving Averages

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Simple Moving Average

Moving Averages

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Moving Averages – Cross Signals

Moving Averages

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Determining Levels of Support & Resistance

oMostly used moving averages are 10, 50, 100 and 200 days.oMost traders react simultaneously when prices reach these lines.

Oscillators

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Relative Strength Index (RSI)

oRanges from 0 to 100, however, most traders interpret 70 and 30 as the Overbought and Oversold levels.

oRSI > 70, prices are overvalued and a correction to the downside should be in place.

oRSI < 30, prices are undervalued and a correction to the upside should be in place.

Oscillators

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Oscillators

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Oscillators

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Relative Strength Index (RSI) – Divergence

Oscillators

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Relative Strength Index (RSI) – Divergence

Fibonacci Retracement

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oBased on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.

oDetermine major prices in the markets at which the security will retrace before continuing in the original trend or direction.

oHelp identify strategic places for transactions to be placed, target prices or stop losses.

oUse the Fibonacci tool by identifying a major peak and trough on a chart.

oMajor horizontal lines of supports and resistance levels are identified by the key Fibonacci ratios of 23.6%, 38.2%, 50% and 61.8%, 76.4%.

Oscillators

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Example

Intermarket Analysis

Intermarket Analysis:An introduction

What is Intermarket Analysis?

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The analysis of more than one related asset class or financial market to determine the strength or weakness of the financial markets or asset classes being considered.

This type of analysis expands on simply looking at each individual market or asset in isolation by also looking at other markets or assets that have a strong relationship to the market or asset being considered.

Single-market analysis is the study of one asset class or market in a single country. Intermarket analysis, on the other hand, is the study of multiple asset classes in a variety of markets in nations around the globe.

Advantages of Intermarket Analysis

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1) The market is a big, confusing beast. It can be overwhelming for the eager investor.

2) By following multiple markets, an investor gets the big picture and is able to see significant market and economic changes earlier than investors with a single market focus

3) If we know how to use Intermarket analysis it will enhance our performance over time

How it is done ?

S&P 500 vs Bond Yields

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EUR and DAX after QE

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Market Movers

NZD vs Food Prices

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AUD vs Gold

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JPY vs Nikkei

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How Intermarket Analysis Affects Your Decision on Correlation?

Oil vs CADJPY

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Case Study: US Dollar and US Equities

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Utilities leads Financials

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your first step intothe world of trading understanding the basics of trading

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