rule #1 investing technical indicators

Rule #1 InvestingTechnical Indicators

Technical Indicators

• 3 Arrows

• Floors and Ceilings (FACs)

• Trendlines

• Fibonacci Retracements

Technical Indicators

• Where financial statements are the language of investing, technical indicators are the language of trading

• Technical Indicators help us see patterns

3 Arrows

• Used for broad based Mutual Funds and ETFs– Not for investing in individual companies

• Helps us see big institutional dollars sneaking in or out – we can follow them

• Settings:– 10 period simple moving average (SMA)– MACD (8,17,9)– Slow Stochastics (14,5,0)

• 10 Year Monthly Chart

Testing the Arrows

• SPY – S&P 500 Index Exchange Traded Fund (ETF)

• Get in on 3 green arrows

• Get out on 3 red arrows

• Compare results using the arrows vs buy and hold

SPY Sep 2007 – Sep 2017

SPY Sep 2007 – Sep 2017

Arrows vs Buy and Hold

SPY PORTFOLIO

DATE $ BUY SHARES $ SELL $100,000

Jan-00 140 714

Sep-00 145 $103,571

Mar-02 112 925

Apr-02 110 $101,722

Apr-03 90 1,130

Apr-05 116 $131,108

Jul-05 121 1,084

Dec-07 146 $158,197

Jun-09 92 1,720

Aug-11 125 $214,941

Feb-12 134 1,604

Aug-15 203 $325,620

Jul-16 213 1,529

Sep-17 250 $382,183

IN NOW CAGR

ARROWS $100,000 $382,183 7.9%

HOLD $100,000 $178,571 3.3%

Trendlines – Helpful for our Trades

• Helps us see the patterns that are already there – like looking up in to the clouds and seeing a shape

• Nothing goes up or down in a straight line

• Trends:

– Trending Up – higher highs and higher lows

– Trending Down – lower highs and lower lows

– Channeling – moving sideways

Up Trend

Down Trend

Channeling

Floors and Ceilings (FACs)

• At least 2 points of contact

• Areas where we’re not surprised when the prices reverse – we expect it

• Very often Ceilings become Floors and Floors become ceilings

FACs

Fibonacci Retracements

• Fibonacci Spiral is found all through nature, art, architecture

• Shows up in Stock Charts too

• Can use Fibonacci Retracements to help us see FACs that may not be obvious at first glance

• Draw between a floor and a ceiling• Generally use a 6-9 month timeframe• Day Chart• Looking for a good fit

Fib Retracements