![Page 1: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/1.jpg)
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What is Technical Analysis Technical analysis is the study of price movement In one word technical analysis = studying charts The
idea is that a person can look at historical price movements and based on the price action can
determine at some level where the price will go By looking at charts you can identify trends and
patterns which can help you find good trading opportunities
Types of Charts
bull Line Chart
A Lline Chart draws a line from one closing price to the next closing price When strung together with a
line we can see the general price movement of a currency pair over a period of time
bull Bar Chart
A bar chart simultaneously shows Open High Low and Close prices on a single bar stick Bar
charts are also called ldquoOHLCrdquo charts
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bull Candle Stick Chart
Candlestick charts show the same information as a bar chart but in a more intuitive graphic
format Up and down bars are identified by the color of the body The purpose of candlestick
charting is strictly to serve as a visual aid since the exact same information appears on an OHLC
bar chart The advantages of candlestick charting are
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Candlesticks are easy to interpret Your eyes adapt almost immediately to the information in the
bar notation
Candlesticks are good at identifying marketing turning points - reversals from an uptrend to a
downtrend or a downtrend to an uptrend
Long bodies indicate strong buying or selling The longer the body is the more intense the buying
or selling pressure Short bodies imply very little buying or selling activity
bull Spinning Top
Candlesticks with a long upper shadow long lower shadow and small real bodies are called
spinning tops The pattern indicates the indecision between the buyers and sellers The small real
body (whether hollow or filled) shows little movement from open to close and the shadows
indicate that both buyers and sellers were fighting but nobody could gain the upper hand
If a spinning top forms during an uptrend this usually means there arenrsquot many buyers left and a
possible reversal in direction could occur
If a spinning top forms during a downtrend this usually means there arenrsquot many sellers left and a
possible reversal in direction could occur
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bull Marubozu
Marubozu bars have little shadows from the bodies Depending on whether the candlestickrsquos
body is filled or hollow the high and low are the same as itrsquos open or close
Up Marubozu The open price equals the low price and the close price equals the high price This
is a very bullish candle as it shows that buyers were in control the whole entire session It usually
becomes the first part of a bullish continuation or a bullish reversal pattern
Down Marubozu The open equals the high and the close equals the low This is a very bearish
candle as it shows that sellers controlled the price action the whole entire session It usually
implies bearish continuation or bearish reversal
bull Doji
Doji candlesticks have a very small body the same open and close Doji suggest indecision or a
struggle for turf positioning between buyers and sellers Prices move above and below the open
price during the session but close at or very near the open price Neither buyers nor sellers were
able to gain control and the result was essentially a draw
When a doji forms on your chart pay special attention to the preceding candlesticks If a doji
forms after a series of candlesticks with long bodies (like white marubozus) the doji signals that
the buyers(sellers) are becoming exhausted and weakening
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bull Hammer Inverted Hammer
Hammer bars have a short body on one end and long tail at the other end
Hammers signal that the bottom is near and price will start rising again The long lower shadow
indicates that sellers pushed prices lower but buyers were able to overcome this selling pressure
and closed near the open
Inverted Hammers signal that the top is near and price will start falling again The long upper
shadow indicates that buyers pushed prices higher but sellers were able to overcome this buying
pressure and closed near the open
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Fibonacci Retracement
Traders use the Fibonacci retracement levels as support and resistance levels Since so many
traders watch these same levels and place buy and sell orders on them to enter trades or place
stops the support and resistance levels become a self-fulfilling expectation
Most commonly used Fibonacci Retracement Levels are 236 382 50 618 764
Most charting software includes both Fibonacci retracement and extension tools You do not need
to calculate yourself In an uptrend the general idea is to go long the market on a retracement to
a Fibonacci support level In order to find the retracement levels you would click on a significant
Swing Low and drag the cursor to the most recent Swing High This will display each of the
Retracement Levels showing both the ratio and corresponding price level
This is an example of USDJPY In an up trend market price find a support at around 618
retracement and resumed the bull trend because traders will be placing buy orders at these levels
as the market pulls back
Generally speaking a deep retracement (eg 618 or more) gives you more price buffer against
when you make a wrong bet But at the same time it has less probability that the trend will
continue A shallow retracement (eg 382) has the highest probability that trend will continue
but you have less price buffer because you bought at a higher price Trading Fibonacci is about
finding the best combination of probability and price edge
wwwgoldexhkGOLDEX GROUP LIMITED
Elliott Wave
Back in the old school days during the 1920-30s there was this mad genius named Ralph Nelson
Elliott Elliott discovered that stock markets thought to behave in a somewhat chaotic manner
actually did not They traded in repetitive cycles which he pointed out were the emotions of
investors and traders caused by outside influences or the predominant psychology of the masses
at the time
Elliott explained that the upward and downward swings of the mass psychology always showed
up in the same repetitive patterns which were then divided into patterns he called waves
Market moves in a 5-3 wave pattern The first 5-wave pattern is called Impulse Waves and the
last 3-wave pattern is called Corrective Waves Wave 12345 are often refered to as ABCDE
waves
bull Wave 1A
The stock makes its initial move upwards This is usually caused by a relatively small number of
people that all of the sudden (for a variety of reasons real or imagined) feel that the price of the
stock is cheap so itrsquos a perfect time to buy This causes the price to rise
bull Wave 2B
At this point enough people who were in the original wave consider the price overvalued and take
profits This causes the market to go down However the market will not make it to its previous
lows before it is considered a bargain again
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bull Wave 3C
This is usually the longest and strongest wave The stock has caught the attention of the mass
public More people find out about the stock and want to buy it This causes the stockrsquos price to go
higher and higher This wave usually exceeds the high created at the end of wave 1
bull Wave 4D
People take profits because the stock is considered expensive again This wave tends to be weak
because there are usually more people that are still bullish on the stock and are waiting to ldquobuy on
the dipsrdquo
bull Wave 5E
This is the point that most people get on the stock and is most driven by hysteria You usually
start seeing the CEO of the company on the front page of major magazines as the Person of the
Year People start coming up with ridiculous reasons to buy the stock This is when the stock
becomes the most overpriced Contrarians start shorting the stock which starts the ABC pattern
Elliott Wave was originally invented to explain the Stock market But the same pattern is seen in
every market FX bond commodity etc here is an example of Forex market
A-B-C correction is the repeat of 1-2-3 wave in a reversal
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Chart Patterns
Certain chart paterns more often than not will form before a big movements Chart formations will
greatly help us spot conditions where the market is ready to break out
bull Symmetrical Triangle
Symmetrical triangles are chart formations where the slope of the pricersquos highs and the slope of
the pricersquos lows converge together to a point where it looks like a triangle What is happening
during this formation is that the market is making lower highs and higher lows This means that
neither the buyers nor the sellers are pushing the price far enough to make a clear trend
As these two slopes get closer to each other it means that a breakout is getting near We donrsquot
know what direction the breakout will be but we do know that the market will break out
Eventually one side of the market will give in
bull AscendingDescending Triangle
This type of formation occurs when there is a resistance level and a slope of higher lows What
happens during this time is that there is a certain level that the buyers cannot seem to exceed
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The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
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A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
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Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
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bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
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bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
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Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
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Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
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bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
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Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
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Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
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bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
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Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
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Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
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Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
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and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
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![Page 2: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/2.jpg)
bull Bar Chart
A bar chart simultaneously shows Open High Low and Close prices on a single bar stick Bar
charts are also called ldquoOHLCrdquo charts
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bull Candle Stick Chart
Candlestick charts show the same information as a bar chart but in a more intuitive graphic
format Up and down bars are identified by the color of the body The purpose of candlestick
charting is strictly to serve as a visual aid since the exact same information appears on an OHLC
bar chart The advantages of candlestick charting are
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Candlesticks are easy to interpret Your eyes adapt almost immediately to the information in the
bar notation
Candlesticks are good at identifying marketing turning points - reversals from an uptrend to a
downtrend or a downtrend to an uptrend
Long bodies indicate strong buying or selling The longer the body is the more intense the buying
or selling pressure Short bodies imply very little buying or selling activity
bull Spinning Top
Candlesticks with a long upper shadow long lower shadow and small real bodies are called
spinning tops The pattern indicates the indecision between the buyers and sellers The small real
body (whether hollow or filled) shows little movement from open to close and the shadows
indicate that both buyers and sellers were fighting but nobody could gain the upper hand
If a spinning top forms during an uptrend this usually means there arenrsquot many buyers left and a
possible reversal in direction could occur
If a spinning top forms during a downtrend this usually means there arenrsquot many sellers left and a
possible reversal in direction could occur
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bull Marubozu
Marubozu bars have little shadows from the bodies Depending on whether the candlestickrsquos
body is filled or hollow the high and low are the same as itrsquos open or close
Up Marubozu The open price equals the low price and the close price equals the high price This
is a very bullish candle as it shows that buyers were in control the whole entire session It usually
becomes the first part of a bullish continuation or a bullish reversal pattern
Down Marubozu The open equals the high and the close equals the low This is a very bearish
candle as it shows that sellers controlled the price action the whole entire session It usually
implies bearish continuation or bearish reversal
bull Doji
Doji candlesticks have a very small body the same open and close Doji suggest indecision or a
struggle for turf positioning between buyers and sellers Prices move above and below the open
price during the session but close at or very near the open price Neither buyers nor sellers were
able to gain control and the result was essentially a draw
When a doji forms on your chart pay special attention to the preceding candlesticks If a doji
forms after a series of candlesticks with long bodies (like white marubozus) the doji signals that
the buyers(sellers) are becoming exhausted and weakening
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bull Hammer Inverted Hammer
Hammer bars have a short body on one end and long tail at the other end
Hammers signal that the bottom is near and price will start rising again The long lower shadow
indicates that sellers pushed prices lower but buyers were able to overcome this selling pressure
and closed near the open
Inverted Hammers signal that the top is near and price will start falling again The long upper
shadow indicates that buyers pushed prices higher but sellers were able to overcome this buying
pressure and closed near the open
wwwgoldexhkGOLDEX GROUP LIMITED
Fibonacci Retracement
Traders use the Fibonacci retracement levels as support and resistance levels Since so many
traders watch these same levels and place buy and sell orders on them to enter trades or place
stops the support and resistance levels become a self-fulfilling expectation
Most commonly used Fibonacci Retracement Levels are 236 382 50 618 764
Most charting software includes both Fibonacci retracement and extension tools You do not need
to calculate yourself In an uptrend the general idea is to go long the market on a retracement to
a Fibonacci support level In order to find the retracement levels you would click on a significant
Swing Low and drag the cursor to the most recent Swing High This will display each of the
Retracement Levels showing both the ratio and corresponding price level
This is an example of USDJPY In an up trend market price find a support at around 618
retracement and resumed the bull trend because traders will be placing buy orders at these levels
as the market pulls back
Generally speaking a deep retracement (eg 618 or more) gives you more price buffer against
when you make a wrong bet But at the same time it has less probability that the trend will
continue A shallow retracement (eg 382) has the highest probability that trend will continue
but you have less price buffer because you bought at a higher price Trading Fibonacci is about
finding the best combination of probability and price edge
wwwgoldexhkGOLDEX GROUP LIMITED
Elliott Wave
Back in the old school days during the 1920-30s there was this mad genius named Ralph Nelson
Elliott Elliott discovered that stock markets thought to behave in a somewhat chaotic manner
actually did not They traded in repetitive cycles which he pointed out were the emotions of
investors and traders caused by outside influences or the predominant psychology of the masses
at the time
Elliott explained that the upward and downward swings of the mass psychology always showed
up in the same repetitive patterns which were then divided into patterns he called waves
Market moves in a 5-3 wave pattern The first 5-wave pattern is called Impulse Waves and the
last 3-wave pattern is called Corrective Waves Wave 12345 are often refered to as ABCDE
waves
bull Wave 1A
The stock makes its initial move upwards This is usually caused by a relatively small number of
people that all of the sudden (for a variety of reasons real or imagined) feel that the price of the
stock is cheap so itrsquos a perfect time to buy This causes the price to rise
bull Wave 2B
At this point enough people who were in the original wave consider the price overvalued and take
profits This causes the market to go down However the market will not make it to its previous
lows before it is considered a bargain again
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bull Wave 3C
This is usually the longest and strongest wave The stock has caught the attention of the mass
public More people find out about the stock and want to buy it This causes the stockrsquos price to go
higher and higher This wave usually exceeds the high created at the end of wave 1
bull Wave 4D
People take profits because the stock is considered expensive again This wave tends to be weak
because there are usually more people that are still bullish on the stock and are waiting to ldquobuy on
the dipsrdquo
bull Wave 5E
This is the point that most people get on the stock and is most driven by hysteria You usually
start seeing the CEO of the company on the front page of major magazines as the Person of the
Year People start coming up with ridiculous reasons to buy the stock This is when the stock
becomes the most overpriced Contrarians start shorting the stock which starts the ABC pattern
Elliott Wave was originally invented to explain the Stock market But the same pattern is seen in
every market FX bond commodity etc here is an example of Forex market
A-B-C correction is the repeat of 1-2-3 wave in a reversal
wwwgoldexhkGOLDEX GROUP LIMITEDGOLDEX GROUP LIMITED wwwgoldexhk
Chart Patterns
Certain chart paterns more often than not will form before a big movements Chart formations will
greatly help us spot conditions where the market is ready to break out
bull Symmetrical Triangle
Symmetrical triangles are chart formations where the slope of the pricersquos highs and the slope of
the pricersquos lows converge together to a point where it looks like a triangle What is happening
during this formation is that the market is making lower highs and higher lows This means that
neither the buyers nor the sellers are pushing the price far enough to make a clear trend
As these two slopes get closer to each other it means that a breakout is getting near We donrsquot
know what direction the breakout will be but we do know that the market will break out
Eventually one side of the market will give in
bull AscendingDescending Triangle
This type of formation occurs when there is a resistance level and a slope of higher lows What
happens during this time is that there is a certain level that the buyers cannot seem to exceed
GOLDEX GROUP LIMITED wwwgoldexhk
The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
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A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
GOLDEX GROUP LIMITED wwwgoldexhk
Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
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bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
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bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
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Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
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bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
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Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
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bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
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Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 3: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/3.jpg)
bull Candle Stick Chart
Candlestick charts show the same information as a bar chart but in a more intuitive graphic
format Up and down bars are identified by the color of the body The purpose of candlestick
charting is strictly to serve as a visual aid since the exact same information appears on an OHLC
bar chart The advantages of candlestick charting are
GOLDEX GROUP LIMITED wwwgoldexhk
Candlesticks are easy to interpret Your eyes adapt almost immediately to the information in the
bar notation
Candlesticks are good at identifying marketing turning points - reversals from an uptrend to a
downtrend or a downtrend to an uptrend
Long bodies indicate strong buying or selling The longer the body is the more intense the buying
or selling pressure Short bodies imply very little buying or selling activity
bull Spinning Top
Candlesticks with a long upper shadow long lower shadow and small real bodies are called
spinning tops The pattern indicates the indecision between the buyers and sellers The small real
body (whether hollow or filled) shows little movement from open to close and the shadows
indicate that both buyers and sellers were fighting but nobody could gain the upper hand
If a spinning top forms during an uptrend this usually means there arenrsquot many buyers left and a
possible reversal in direction could occur
If a spinning top forms during a downtrend this usually means there arenrsquot many sellers left and a
possible reversal in direction could occur
GOLDEX GROUP LIMITED wwwgoldexhk
bull Marubozu
Marubozu bars have little shadows from the bodies Depending on whether the candlestickrsquos
body is filled or hollow the high and low are the same as itrsquos open or close
Up Marubozu The open price equals the low price and the close price equals the high price This
is a very bullish candle as it shows that buyers were in control the whole entire session It usually
becomes the first part of a bullish continuation or a bullish reversal pattern
Down Marubozu The open equals the high and the close equals the low This is a very bearish
candle as it shows that sellers controlled the price action the whole entire session It usually
implies bearish continuation or bearish reversal
bull Doji
Doji candlesticks have a very small body the same open and close Doji suggest indecision or a
struggle for turf positioning between buyers and sellers Prices move above and below the open
price during the session but close at or very near the open price Neither buyers nor sellers were
able to gain control and the result was essentially a draw
When a doji forms on your chart pay special attention to the preceding candlesticks If a doji
forms after a series of candlesticks with long bodies (like white marubozus) the doji signals that
the buyers(sellers) are becoming exhausted and weakening
wwwgoldexhkGOLDEX GROUP LIMITEDGOLDEX GROUP LIMITED wwwgoldexhk
bull Hammer Inverted Hammer
Hammer bars have a short body on one end and long tail at the other end
Hammers signal that the bottom is near and price will start rising again The long lower shadow
indicates that sellers pushed prices lower but buyers were able to overcome this selling pressure
and closed near the open
Inverted Hammers signal that the top is near and price will start falling again The long upper
shadow indicates that buyers pushed prices higher but sellers were able to overcome this buying
pressure and closed near the open
wwwgoldexhkGOLDEX GROUP LIMITED
Fibonacci Retracement
Traders use the Fibonacci retracement levels as support and resistance levels Since so many
traders watch these same levels and place buy and sell orders on them to enter trades or place
stops the support and resistance levels become a self-fulfilling expectation
Most commonly used Fibonacci Retracement Levels are 236 382 50 618 764
Most charting software includes both Fibonacci retracement and extension tools You do not need
to calculate yourself In an uptrend the general idea is to go long the market on a retracement to
a Fibonacci support level In order to find the retracement levels you would click on a significant
Swing Low and drag the cursor to the most recent Swing High This will display each of the
Retracement Levels showing both the ratio and corresponding price level
This is an example of USDJPY In an up trend market price find a support at around 618
retracement and resumed the bull trend because traders will be placing buy orders at these levels
as the market pulls back
Generally speaking a deep retracement (eg 618 or more) gives you more price buffer against
when you make a wrong bet But at the same time it has less probability that the trend will
continue A shallow retracement (eg 382) has the highest probability that trend will continue
but you have less price buffer because you bought at a higher price Trading Fibonacci is about
finding the best combination of probability and price edge
wwwgoldexhkGOLDEX GROUP LIMITED
Elliott Wave
Back in the old school days during the 1920-30s there was this mad genius named Ralph Nelson
Elliott Elliott discovered that stock markets thought to behave in a somewhat chaotic manner
actually did not They traded in repetitive cycles which he pointed out were the emotions of
investors and traders caused by outside influences or the predominant psychology of the masses
at the time
Elliott explained that the upward and downward swings of the mass psychology always showed
up in the same repetitive patterns which were then divided into patterns he called waves
Market moves in a 5-3 wave pattern The first 5-wave pattern is called Impulse Waves and the
last 3-wave pattern is called Corrective Waves Wave 12345 are often refered to as ABCDE
waves
bull Wave 1A
The stock makes its initial move upwards This is usually caused by a relatively small number of
people that all of the sudden (for a variety of reasons real or imagined) feel that the price of the
stock is cheap so itrsquos a perfect time to buy This causes the price to rise
bull Wave 2B
At this point enough people who were in the original wave consider the price overvalued and take
profits This causes the market to go down However the market will not make it to its previous
lows before it is considered a bargain again
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bull Wave 3C
This is usually the longest and strongest wave The stock has caught the attention of the mass
public More people find out about the stock and want to buy it This causes the stockrsquos price to go
higher and higher This wave usually exceeds the high created at the end of wave 1
bull Wave 4D
People take profits because the stock is considered expensive again This wave tends to be weak
because there are usually more people that are still bullish on the stock and are waiting to ldquobuy on
the dipsrdquo
bull Wave 5E
This is the point that most people get on the stock and is most driven by hysteria You usually
start seeing the CEO of the company on the front page of major magazines as the Person of the
Year People start coming up with ridiculous reasons to buy the stock This is when the stock
becomes the most overpriced Contrarians start shorting the stock which starts the ABC pattern
Elliott Wave was originally invented to explain the Stock market But the same pattern is seen in
every market FX bond commodity etc here is an example of Forex market
A-B-C correction is the repeat of 1-2-3 wave in a reversal
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Chart Patterns
Certain chart paterns more often than not will form before a big movements Chart formations will
greatly help us spot conditions where the market is ready to break out
bull Symmetrical Triangle
Symmetrical triangles are chart formations where the slope of the pricersquos highs and the slope of
the pricersquos lows converge together to a point where it looks like a triangle What is happening
during this formation is that the market is making lower highs and higher lows This means that
neither the buyers nor the sellers are pushing the price far enough to make a clear trend
As these two slopes get closer to each other it means that a breakout is getting near We donrsquot
know what direction the breakout will be but we do know that the market will break out
Eventually one side of the market will give in
bull AscendingDescending Triangle
This type of formation occurs when there is a resistance level and a slope of higher lows What
happens during this time is that there is a certain level that the buyers cannot seem to exceed
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The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
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A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
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Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
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bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
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bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
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Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
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Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
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bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
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Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
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bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
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Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
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Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
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Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 4: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/4.jpg)
Candlesticks are easy to interpret Your eyes adapt almost immediately to the information in the
bar notation
Candlesticks are good at identifying marketing turning points - reversals from an uptrend to a
downtrend or a downtrend to an uptrend
Long bodies indicate strong buying or selling The longer the body is the more intense the buying
or selling pressure Short bodies imply very little buying or selling activity
bull Spinning Top
Candlesticks with a long upper shadow long lower shadow and small real bodies are called
spinning tops The pattern indicates the indecision between the buyers and sellers The small real
body (whether hollow or filled) shows little movement from open to close and the shadows
indicate that both buyers and sellers were fighting but nobody could gain the upper hand
If a spinning top forms during an uptrend this usually means there arenrsquot many buyers left and a
possible reversal in direction could occur
If a spinning top forms during a downtrend this usually means there arenrsquot many sellers left and a
possible reversal in direction could occur
GOLDEX GROUP LIMITED wwwgoldexhk
bull Marubozu
Marubozu bars have little shadows from the bodies Depending on whether the candlestickrsquos
body is filled or hollow the high and low are the same as itrsquos open or close
Up Marubozu The open price equals the low price and the close price equals the high price This
is a very bullish candle as it shows that buyers were in control the whole entire session It usually
becomes the first part of a bullish continuation or a bullish reversal pattern
Down Marubozu The open equals the high and the close equals the low This is a very bearish
candle as it shows that sellers controlled the price action the whole entire session It usually
implies bearish continuation or bearish reversal
bull Doji
Doji candlesticks have a very small body the same open and close Doji suggest indecision or a
struggle for turf positioning between buyers and sellers Prices move above and below the open
price during the session but close at or very near the open price Neither buyers nor sellers were
able to gain control and the result was essentially a draw
When a doji forms on your chart pay special attention to the preceding candlesticks If a doji
forms after a series of candlesticks with long bodies (like white marubozus) the doji signals that
the buyers(sellers) are becoming exhausted and weakening
wwwgoldexhkGOLDEX GROUP LIMITEDGOLDEX GROUP LIMITED wwwgoldexhk
bull Hammer Inverted Hammer
Hammer bars have a short body on one end and long tail at the other end
Hammers signal that the bottom is near and price will start rising again The long lower shadow
indicates that sellers pushed prices lower but buyers were able to overcome this selling pressure
and closed near the open
Inverted Hammers signal that the top is near and price will start falling again The long upper
shadow indicates that buyers pushed prices higher but sellers were able to overcome this buying
pressure and closed near the open
wwwgoldexhkGOLDEX GROUP LIMITED
Fibonacci Retracement
Traders use the Fibonacci retracement levels as support and resistance levels Since so many
traders watch these same levels and place buy and sell orders on them to enter trades or place
stops the support and resistance levels become a self-fulfilling expectation
Most commonly used Fibonacci Retracement Levels are 236 382 50 618 764
Most charting software includes both Fibonacci retracement and extension tools You do not need
to calculate yourself In an uptrend the general idea is to go long the market on a retracement to
a Fibonacci support level In order to find the retracement levels you would click on a significant
Swing Low and drag the cursor to the most recent Swing High This will display each of the
Retracement Levels showing both the ratio and corresponding price level
This is an example of USDJPY In an up trend market price find a support at around 618
retracement and resumed the bull trend because traders will be placing buy orders at these levels
as the market pulls back
Generally speaking a deep retracement (eg 618 or more) gives you more price buffer against
when you make a wrong bet But at the same time it has less probability that the trend will
continue A shallow retracement (eg 382) has the highest probability that trend will continue
but you have less price buffer because you bought at a higher price Trading Fibonacci is about
finding the best combination of probability and price edge
wwwgoldexhkGOLDEX GROUP LIMITED
Elliott Wave
Back in the old school days during the 1920-30s there was this mad genius named Ralph Nelson
Elliott Elliott discovered that stock markets thought to behave in a somewhat chaotic manner
actually did not They traded in repetitive cycles which he pointed out were the emotions of
investors and traders caused by outside influences or the predominant psychology of the masses
at the time
Elliott explained that the upward and downward swings of the mass psychology always showed
up in the same repetitive patterns which were then divided into patterns he called waves
Market moves in a 5-3 wave pattern The first 5-wave pattern is called Impulse Waves and the
last 3-wave pattern is called Corrective Waves Wave 12345 are often refered to as ABCDE
waves
bull Wave 1A
The stock makes its initial move upwards This is usually caused by a relatively small number of
people that all of the sudden (for a variety of reasons real or imagined) feel that the price of the
stock is cheap so itrsquos a perfect time to buy This causes the price to rise
bull Wave 2B
At this point enough people who were in the original wave consider the price overvalued and take
profits This causes the market to go down However the market will not make it to its previous
lows before it is considered a bargain again
GOLDEX GROUP LIMITED wwwgoldexhk
bull Wave 3C
This is usually the longest and strongest wave The stock has caught the attention of the mass
public More people find out about the stock and want to buy it This causes the stockrsquos price to go
higher and higher This wave usually exceeds the high created at the end of wave 1
bull Wave 4D
People take profits because the stock is considered expensive again This wave tends to be weak
because there are usually more people that are still bullish on the stock and are waiting to ldquobuy on
the dipsrdquo
bull Wave 5E
This is the point that most people get on the stock and is most driven by hysteria You usually
start seeing the CEO of the company on the front page of major magazines as the Person of the
Year People start coming up with ridiculous reasons to buy the stock This is when the stock
becomes the most overpriced Contrarians start shorting the stock which starts the ABC pattern
Elliott Wave was originally invented to explain the Stock market But the same pattern is seen in
every market FX bond commodity etc here is an example of Forex market
A-B-C correction is the repeat of 1-2-3 wave in a reversal
wwwgoldexhkGOLDEX GROUP LIMITEDGOLDEX GROUP LIMITED wwwgoldexhk
Chart Patterns
Certain chart paterns more often than not will form before a big movements Chart formations will
greatly help us spot conditions where the market is ready to break out
bull Symmetrical Triangle
Symmetrical triangles are chart formations where the slope of the pricersquos highs and the slope of
the pricersquos lows converge together to a point where it looks like a triangle What is happening
during this formation is that the market is making lower highs and higher lows This means that
neither the buyers nor the sellers are pushing the price far enough to make a clear trend
As these two slopes get closer to each other it means that a breakout is getting near We donrsquot
know what direction the breakout will be but we do know that the market will break out
Eventually one side of the market will give in
bull AscendingDescending Triangle
This type of formation occurs when there is a resistance level and a slope of higher lows What
happens during this time is that there is a certain level that the buyers cannot seem to exceed
GOLDEX GROUP LIMITED wwwgoldexhk
The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
GOLDEX GROUP LIMITED wwwgoldexhk
A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
GOLDEX GROUP LIMITED wwwgoldexhk
Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
GOLDEX GROUP LIMITED wwwgoldexhk
bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
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bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 5: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/5.jpg)
bull Marubozu
Marubozu bars have little shadows from the bodies Depending on whether the candlestickrsquos
body is filled or hollow the high and low are the same as itrsquos open or close
Up Marubozu The open price equals the low price and the close price equals the high price This
is a very bullish candle as it shows that buyers were in control the whole entire session It usually
becomes the first part of a bullish continuation or a bullish reversal pattern
Down Marubozu The open equals the high and the close equals the low This is a very bearish
candle as it shows that sellers controlled the price action the whole entire session It usually
implies bearish continuation or bearish reversal
bull Doji
Doji candlesticks have a very small body the same open and close Doji suggest indecision or a
struggle for turf positioning between buyers and sellers Prices move above and below the open
price during the session but close at or very near the open price Neither buyers nor sellers were
able to gain control and the result was essentially a draw
When a doji forms on your chart pay special attention to the preceding candlesticks If a doji
forms after a series of candlesticks with long bodies (like white marubozus) the doji signals that
the buyers(sellers) are becoming exhausted and weakening
wwwgoldexhkGOLDEX GROUP LIMITEDGOLDEX GROUP LIMITED wwwgoldexhk
bull Hammer Inverted Hammer
Hammer bars have a short body on one end and long tail at the other end
Hammers signal that the bottom is near and price will start rising again The long lower shadow
indicates that sellers pushed prices lower but buyers were able to overcome this selling pressure
and closed near the open
Inverted Hammers signal that the top is near and price will start falling again The long upper
shadow indicates that buyers pushed prices higher but sellers were able to overcome this buying
pressure and closed near the open
wwwgoldexhkGOLDEX GROUP LIMITED
Fibonacci Retracement
Traders use the Fibonacci retracement levels as support and resistance levels Since so many
traders watch these same levels and place buy and sell orders on them to enter trades or place
stops the support and resistance levels become a self-fulfilling expectation
Most commonly used Fibonacci Retracement Levels are 236 382 50 618 764
Most charting software includes both Fibonacci retracement and extension tools You do not need
to calculate yourself In an uptrend the general idea is to go long the market on a retracement to
a Fibonacci support level In order to find the retracement levels you would click on a significant
Swing Low and drag the cursor to the most recent Swing High This will display each of the
Retracement Levels showing both the ratio and corresponding price level
This is an example of USDJPY In an up trend market price find a support at around 618
retracement and resumed the bull trend because traders will be placing buy orders at these levels
as the market pulls back
Generally speaking a deep retracement (eg 618 or more) gives you more price buffer against
when you make a wrong bet But at the same time it has less probability that the trend will
continue A shallow retracement (eg 382) has the highest probability that trend will continue
but you have less price buffer because you bought at a higher price Trading Fibonacci is about
finding the best combination of probability and price edge
wwwgoldexhkGOLDEX GROUP LIMITED
Elliott Wave
Back in the old school days during the 1920-30s there was this mad genius named Ralph Nelson
Elliott Elliott discovered that stock markets thought to behave in a somewhat chaotic manner
actually did not They traded in repetitive cycles which he pointed out were the emotions of
investors and traders caused by outside influences or the predominant psychology of the masses
at the time
Elliott explained that the upward and downward swings of the mass psychology always showed
up in the same repetitive patterns which were then divided into patterns he called waves
Market moves in a 5-3 wave pattern The first 5-wave pattern is called Impulse Waves and the
last 3-wave pattern is called Corrective Waves Wave 12345 are often refered to as ABCDE
waves
bull Wave 1A
The stock makes its initial move upwards This is usually caused by a relatively small number of
people that all of the sudden (for a variety of reasons real or imagined) feel that the price of the
stock is cheap so itrsquos a perfect time to buy This causes the price to rise
bull Wave 2B
At this point enough people who were in the original wave consider the price overvalued and take
profits This causes the market to go down However the market will not make it to its previous
lows before it is considered a bargain again
GOLDEX GROUP LIMITED wwwgoldexhk
bull Wave 3C
This is usually the longest and strongest wave The stock has caught the attention of the mass
public More people find out about the stock and want to buy it This causes the stockrsquos price to go
higher and higher This wave usually exceeds the high created at the end of wave 1
bull Wave 4D
People take profits because the stock is considered expensive again This wave tends to be weak
because there are usually more people that are still bullish on the stock and are waiting to ldquobuy on
the dipsrdquo
bull Wave 5E
This is the point that most people get on the stock and is most driven by hysteria You usually
start seeing the CEO of the company on the front page of major magazines as the Person of the
Year People start coming up with ridiculous reasons to buy the stock This is when the stock
becomes the most overpriced Contrarians start shorting the stock which starts the ABC pattern
Elliott Wave was originally invented to explain the Stock market But the same pattern is seen in
every market FX bond commodity etc here is an example of Forex market
A-B-C correction is the repeat of 1-2-3 wave in a reversal
wwwgoldexhkGOLDEX GROUP LIMITEDGOLDEX GROUP LIMITED wwwgoldexhk
Chart Patterns
Certain chart paterns more often than not will form before a big movements Chart formations will
greatly help us spot conditions where the market is ready to break out
bull Symmetrical Triangle
Symmetrical triangles are chart formations where the slope of the pricersquos highs and the slope of
the pricersquos lows converge together to a point where it looks like a triangle What is happening
during this formation is that the market is making lower highs and higher lows This means that
neither the buyers nor the sellers are pushing the price far enough to make a clear trend
As these two slopes get closer to each other it means that a breakout is getting near We donrsquot
know what direction the breakout will be but we do know that the market will break out
Eventually one side of the market will give in
bull AscendingDescending Triangle
This type of formation occurs when there is a resistance level and a slope of higher lows What
happens during this time is that there is a certain level that the buyers cannot seem to exceed
GOLDEX GROUP LIMITED wwwgoldexhk
The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
GOLDEX GROUP LIMITED wwwgoldexhk
A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
GOLDEX GROUP LIMITED wwwgoldexhk
Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
GOLDEX GROUP LIMITED wwwgoldexhk
bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 6: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/6.jpg)
bull Hammer Inverted Hammer
Hammer bars have a short body on one end and long tail at the other end
Hammers signal that the bottom is near and price will start rising again The long lower shadow
indicates that sellers pushed prices lower but buyers were able to overcome this selling pressure
and closed near the open
Inverted Hammers signal that the top is near and price will start falling again The long upper
shadow indicates that buyers pushed prices higher but sellers were able to overcome this buying
pressure and closed near the open
wwwgoldexhkGOLDEX GROUP LIMITED
Fibonacci Retracement
Traders use the Fibonacci retracement levels as support and resistance levels Since so many
traders watch these same levels and place buy and sell orders on them to enter trades or place
stops the support and resistance levels become a self-fulfilling expectation
Most commonly used Fibonacci Retracement Levels are 236 382 50 618 764
Most charting software includes both Fibonacci retracement and extension tools You do not need
to calculate yourself In an uptrend the general idea is to go long the market on a retracement to
a Fibonacci support level In order to find the retracement levels you would click on a significant
Swing Low and drag the cursor to the most recent Swing High This will display each of the
Retracement Levels showing both the ratio and corresponding price level
This is an example of USDJPY In an up trend market price find a support at around 618
retracement and resumed the bull trend because traders will be placing buy orders at these levels
as the market pulls back
Generally speaking a deep retracement (eg 618 or more) gives you more price buffer against
when you make a wrong bet But at the same time it has less probability that the trend will
continue A shallow retracement (eg 382) has the highest probability that trend will continue
but you have less price buffer because you bought at a higher price Trading Fibonacci is about
finding the best combination of probability and price edge
wwwgoldexhkGOLDEX GROUP LIMITED
Elliott Wave
Back in the old school days during the 1920-30s there was this mad genius named Ralph Nelson
Elliott Elliott discovered that stock markets thought to behave in a somewhat chaotic manner
actually did not They traded in repetitive cycles which he pointed out were the emotions of
investors and traders caused by outside influences or the predominant psychology of the masses
at the time
Elliott explained that the upward and downward swings of the mass psychology always showed
up in the same repetitive patterns which were then divided into patterns he called waves
Market moves in a 5-3 wave pattern The first 5-wave pattern is called Impulse Waves and the
last 3-wave pattern is called Corrective Waves Wave 12345 are often refered to as ABCDE
waves
bull Wave 1A
The stock makes its initial move upwards This is usually caused by a relatively small number of
people that all of the sudden (for a variety of reasons real or imagined) feel that the price of the
stock is cheap so itrsquos a perfect time to buy This causes the price to rise
bull Wave 2B
At this point enough people who were in the original wave consider the price overvalued and take
profits This causes the market to go down However the market will not make it to its previous
lows before it is considered a bargain again
GOLDEX GROUP LIMITED wwwgoldexhk
bull Wave 3C
This is usually the longest and strongest wave The stock has caught the attention of the mass
public More people find out about the stock and want to buy it This causes the stockrsquos price to go
higher and higher This wave usually exceeds the high created at the end of wave 1
bull Wave 4D
People take profits because the stock is considered expensive again This wave tends to be weak
because there are usually more people that are still bullish on the stock and are waiting to ldquobuy on
the dipsrdquo
bull Wave 5E
This is the point that most people get on the stock and is most driven by hysteria You usually
start seeing the CEO of the company on the front page of major magazines as the Person of the
Year People start coming up with ridiculous reasons to buy the stock This is when the stock
becomes the most overpriced Contrarians start shorting the stock which starts the ABC pattern
Elliott Wave was originally invented to explain the Stock market But the same pattern is seen in
every market FX bond commodity etc here is an example of Forex market
A-B-C correction is the repeat of 1-2-3 wave in a reversal
wwwgoldexhkGOLDEX GROUP LIMITEDGOLDEX GROUP LIMITED wwwgoldexhk
Chart Patterns
Certain chart paterns more often than not will form before a big movements Chart formations will
greatly help us spot conditions where the market is ready to break out
bull Symmetrical Triangle
Symmetrical triangles are chart formations where the slope of the pricersquos highs and the slope of
the pricersquos lows converge together to a point where it looks like a triangle What is happening
during this formation is that the market is making lower highs and higher lows This means that
neither the buyers nor the sellers are pushing the price far enough to make a clear trend
As these two slopes get closer to each other it means that a breakout is getting near We donrsquot
know what direction the breakout will be but we do know that the market will break out
Eventually one side of the market will give in
bull AscendingDescending Triangle
This type of formation occurs when there is a resistance level and a slope of higher lows What
happens during this time is that there is a certain level that the buyers cannot seem to exceed
GOLDEX GROUP LIMITED wwwgoldexhk
The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
GOLDEX GROUP LIMITED wwwgoldexhk
A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
GOLDEX GROUP LIMITED wwwgoldexhk
Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
GOLDEX GROUP LIMITED wwwgoldexhk
bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 7: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/7.jpg)
Fibonacci Retracement
Traders use the Fibonacci retracement levels as support and resistance levels Since so many
traders watch these same levels and place buy and sell orders on them to enter trades or place
stops the support and resistance levels become a self-fulfilling expectation
Most commonly used Fibonacci Retracement Levels are 236 382 50 618 764
Most charting software includes both Fibonacci retracement and extension tools You do not need
to calculate yourself In an uptrend the general idea is to go long the market on a retracement to
a Fibonacci support level In order to find the retracement levels you would click on a significant
Swing Low and drag the cursor to the most recent Swing High This will display each of the
Retracement Levels showing both the ratio and corresponding price level
This is an example of USDJPY In an up trend market price find a support at around 618
retracement and resumed the bull trend because traders will be placing buy orders at these levels
as the market pulls back
Generally speaking a deep retracement (eg 618 or more) gives you more price buffer against
when you make a wrong bet But at the same time it has less probability that the trend will
continue A shallow retracement (eg 382) has the highest probability that trend will continue
but you have less price buffer because you bought at a higher price Trading Fibonacci is about
finding the best combination of probability and price edge
wwwgoldexhkGOLDEX GROUP LIMITED
Elliott Wave
Back in the old school days during the 1920-30s there was this mad genius named Ralph Nelson
Elliott Elliott discovered that stock markets thought to behave in a somewhat chaotic manner
actually did not They traded in repetitive cycles which he pointed out were the emotions of
investors and traders caused by outside influences or the predominant psychology of the masses
at the time
Elliott explained that the upward and downward swings of the mass psychology always showed
up in the same repetitive patterns which were then divided into patterns he called waves
Market moves in a 5-3 wave pattern The first 5-wave pattern is called Impulse Waves and the
last 3-wave pattern is called Corrective Waves Wave 12345 are often refered to as ABCDE
waves
bull Wave 1A
The stock makes its initial move upwards This is usually caused by a relatively small number of
people that all of the sudden (for a variety of reasons real or imagined) feel that the price of the
stock is cheap so itrsquos a perfect time to buy This causes the price to rise
bull Wave 2B
At this point enough people who were in the original wave consider the price overvalued and take
profits This causes the market to go down However the market will not make it to its previous
lows before it is considered a bargain again
GOLDEX GROUP LIMITED wwwgoldexhk
bull Wave 3C
This is usually the longest and strongest wave The stock has caught the attention of the mass
public More people find out about the stock and want to buy it This causes the stockrsquos price to go
higher and higher This wave usually exceeds the high created at the end of wave 1
bull Wave 4D
People take profits because the stock is considered expensive again This wave tends to be weak
because there are usually more people that are still bullish on the stock and are waiting to ldquobuy on
the dipsrdquo
bull Wave 5E
This is the point that most people get on the stock and is most driven by hysteria You usually
start seeing the CEO of the company on the front page of major magazines as the Person of the
Year People start coming up with ridiculous reasons to buy the stock This is when the stock
becomes the most overpriced Contrarians start shorting the stock which starts the ABC pattern
Elliott Wave was originally invented to explain the Stock market But the same pattern is seen in
every market FX bond commodity etc here is an example of Forex market
A-B-C correction is the repeat of 1-2-3 wave in a reversal
wwwgoldexhkGOLDEX GROUP LIMITEDGOLDEX GROUP LIMITED wwwgoldexhk
Chart Patterns
Certain chart paterns more often than not will form before a big movements Chart formations will
greatly help us spot conditions where the market is ready to break out
bull Symmetrical Triangle
Symmetrical triangles are chart formations where the slope of the pricersquos highs and the slope of
the pricersquos lows converge together to a point where it looks like a triangle What is happening
during this formation is that the market is making lower highs and higher lows This means that
neither the buyers nor the sellers are pushing the price far enough to make a clear trend
As these two slopes get closer to each other it means that a breakout is getting near We donrsquot
know what direction the breakout will be but we do know that the market will break out
Eventually one side of the market will give in
bull AscendingDescending Triangle
This type of formation occurs when there is a resistance level and a slope of higher lows What
happens during this time is that there is a certain level that the buyers cannot seem to exceed
GOLDEX GROUP LIMITED wwwgoldexhk
The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
GOLDEX GROUP LIMITED wwwgoldexhk
A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
GOLDEX GROUP LIMITED wwwgoldexhk
Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
GOLDEX GROUP LIMITED wwwgoldexhk
bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 8: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/8.jpg)
Elliott Wave
Back in the old school days during the 1920-30s there was this mad genius named Ralph Nelson
Elliott Elliott discovered that stock markets thought to behave in a somewhat chaotic manner
actually did not They traded in repetitive cycles which he pointed out were the emotions of
investors and traders caused by outside influences or the predominant psychology of the masses
at the time
Elliott explained that the upward and downward swings of the mass psychology always showed
up in the same repetitive patterns which were then divided into patterns he called waves
Market moves in a 5-3 wave pattern The first 5-wave pattern is called Impulse Waves and the
last 3-wave pattern is called Corrective Waves Wave 12345 are often refered to as ABCDE
waves
bull Wave 1A
The stock makes its initial move upwards This is usually caused by a relatively small number of
people that all of the sudden (for a variety of reasons real or imagined) feel that the price of the
stock is cheap so itrsquos a perfect time to buy This causes the price to rise
bull Wave 2B
At this point enough people who were in the original wave consider the price overvalued and take
profits This causes the market to go down However the market will not make it to its previous
lows before it is considered a bargain again
GOLDEX GROUP LIMITED wwwgoldexhk
bull Wave 3C
This is usually the longest and strongest wave The stock has caught the attention of the mass
public More people find out about the stock and want to buy it This causes the stockrsquos price to go
higher and higher This wave usually exceeds the high created at the end of wave 1
bull Wave 4D
People take profits because the stock is considered expensive again This wave tends to be weak
because there are usually more people that are still bullish on the stock and are waiting to ldquobuy on
the dipsrdquo
bull Wave 5E
This is the point that most people get on the stock and is most driven by hysteria You usually
start seeing the CEO of the company on the front page of major magazines as the Person of the
Year People start coming up with ridiculous reasons to buy the stock This is when the stock
becomes the most overpriced Contrarians start shorting the stock which starts the ABC pattern
Elliott Wave was originally invented to explain the Stock market But the same pattern is seen in
every market FX bond commodity etc here is an example of Forex market
A-B-C correction is the repeat of 1-2-3 wave in a reversal
wwwgoldexhkGOLDEX GROUP LIMITEDGOLDEX GROUP LIMITED wwwgoldexhk
Chart Patterns
Certain chart paterns more often than not will form before a big movements Chart formations will
greatly help us spot conditions where the market is ready to break out
bull Symmetrical Triangle
Symmetrical triangles are chart formations where the slope of the pricersquos highs and the slope of
the pricersquos lows converge together to a point where it looks like a triangle What is happening
during this formation is that the market is making lower highs and higher lows This means that
neither the buyers nor the sellers are pushing the price far enough to make a clear trend
As these two slopes get closer to each other it means that a breakout is getting near We donrsquot
know what direction the breakout will be but we do know that the market will break out
Eventually one side of the market will give in
bull AscendingDescending Triangle
This type of formation occurs when there is a resistance level and a slope of higher lows What
happens during this time is that there is a certain level that the buyers cannot seem to exceed
GOLDEX GROUP LIMITED wwwgoldexhk
The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
GOLDEX GROUP LIMITED wwwgoldexhk
A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
GOLDEX GROUP LIMITED wwwgoldexhk
Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
GOLDEX GROUP LIMITED wwwgoldexhk
bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
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bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 9: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/9.jpg)
bull Wave 3C
This is usually the longest and strongest wave The stock has caught the attention of the mass
public More people find out about the stock and want to buy it This causes the stockrsquos price to go
higher and higher This wave usually exceeds the high created at the end of wave 1
bull Wave 4D
People take profits because the stock is considered expensive again This wave tends to be weak
because there are usually more people that are still bullish on the stock and are waiting to ldquobuy on
the dipsrdquo
bull Wave 5E
This is the point that most people get on the stock and is most driven by hysteria You usually
start seeing the CEO of the company on the front page of major magazines as the Person of the
Year People start coming up with ridiculous reasons to buy the stock This is when the stock
becomes the most overpriced Contrarians start shorting the stock which starts the ABC pattern
Elliott Wave was originally invented to explain the Stock market But the same pattern is seen in
every market FX bond commodity etc here is an example of Forex market
A-B-C correction is the repeat of 1-2-3 wave in a reversal
wwwgoldexhkGOLDEX GROUP LIMITEDGOLDEX GROUP LIMITED wwwgoldexhk
Chart Patterns
Certain chart paterns more often than not will form before a big movements Chart formations will
greatly help us spot conditions where the market is ready to break out
bull Symmetrical Triangle
Symmetrical triangles are chart formations where the slope of the pricersquos highs and the slope of
the pricersquos lows converge together to a point where it looks like a triangle What is happening
during this formation is that the market is making lower highs and higher lows This means that
neither the buyers nor the sellers are pushing the price far enough to make a clear trend
As these two slopes get closer to each other it means that a breakout is getting near We donrsquot
know what direction the breakout will be but we do know that the market will break out
Eventually one side of the market will give in
bull AscendingDescending Triangle
This type of formation occurs when there is a resistance level and a slope of higher lows What
happens during this time is that there is a certain level that the buyers cannot seem to exceed
GOLDEX GROUP LIMITED wwwgoldexhk
The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
GOLDEX GROUP LIMITED wwwgoldexhk
A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
GOLDEX GROUP LIMITED wwwgoldexhk
Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
GOLDEX GROUP LIMITED wwwgoldexhk
bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 10: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/10.jpg)
Chart Patterns
Certain chart paterns more often than not will form before a big movements Chart formations will
greatly help us spot conditions where the market is ready to break out
bull Symmetrical Triangle
Symmetrical triangles are chart formations where the slope of the pricersquos highs and the slope of
the pricersquos lows converge together to a point where it looks like a triangle What is happening
during this formation is that the market is making lower highs and higher lows This means that
neither the buyers nor the sellers are pushing the price far enough to make a clear trend
As these two slopes get closer to each other it means that a breakout is getting near We donrsquot
know what direction the breakout will be but we do know that the market will break out
Eventually one side of the market will give in
bull AscendingDescending Triangle
This type of formation occurs when there is a resistance level and a slope of higher lows What
happens during this time is that there is a certain level that the buyers cannot seem to exceed
GOLDEX GROUP LIMITED wwwgoldexhk
The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
GOLDEX GROUP LIMITED wwwgoldexhk
A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
GOLDEX GROUP LIMITED wwwgoldexhk
Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
GOLDEX GROUP LIMITED wwwgoldexhk
bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 11: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/11.jpg)
The buyers are starting to gain strength because they are making higher lows They keep putting
pressure on that resistance level and as a result a breakout is bound to happen
Descending Triangle is just the opposite of Ascending Triangle
bull Double TopBottom
GOLDEX GROUP LIMITED wwwgoldexhk
A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
GOLDEX GROUP LIMITED wwwgoldexhk
Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
GOLDEX GROUP LIMITED wwwgoldexhk
bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 12: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/12.jpg)
A double top is a reversal pattern that is formed after there is an extended move up The ldquotopsrdquo
are peaks which are formed when the price hits a certain level that canrsquot be broken After hitting
this level the price will bounce off it slightly but then return back to test the level again If the price
bounces off of that level again This is a strong sign that a reversal is going to occur because it is
telling us that the buying pressure is just about finished
Double bottom is just the opposite of what happens on Double Top
bull Head and Shoulders Inverted Head and Shoulder
A head and shoulders pattern is also a trend reversal formation It is formed by a peak (shoulder)
followed by a higher peak (head) and then another lower peak (shoulder) A ldquonecklinerdquo is drawn
by connecting the lowest points of the two troughs You can see that once the price goes below
the neckline it makes a sizable move
GOLDEX GROUP LIMITED wwwgoldexhk
Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
GOLDEX GROUP LIMITED wwwgoldexhk
bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
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Inverted Head and Shoulders is just opposite of what happens on Head amp Shoulders
Moving Average
bull Introduction
Moving average helps to smooth the price curve for better trend identification The longer the MA
period selected the smoother the curve
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bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
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bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
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Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
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Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
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bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
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Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
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bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
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Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
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Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
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Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
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and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
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bull Interpretation
By looking at the slope of the moving average you can make general predictions as to where the
price will go
bull Calculation
There are 2 different types of moving average
bull Simple Moving Average (SMA)
An nndashperiod SMA is simply the sum of the last n periods closing prices divided by n
n period SMA = (Close 1 + Close 2 + Close 3 Close n) n
bull Exponential Moving Average (EMA)
Take current price and multiply it by a constant C Take previous periods EMA and multiplay it by
1 minus that constant C Add the two values together
n period EMA = C Price_current + (1+C) EMA_previous
C = 2 (n+1)
If there is no EMA_previous use SMA instead
MACD
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bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
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Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
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Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
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bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
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Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
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bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
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Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
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Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 15: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/15.jpg)
bull Introduction
MACD stands for Moving Average Convergence Divergence and was invented by Gerald
Appel It is one of the simplest indicators yet considered quite reliable It is considered
particularly effective in wide-swinging markets
The indicator is considered to identify an oversold situation when the MACD is falling and pulls
away rapidly from its moving average In that case the price is expected to go up in the near
future Conversely the indicator is considered to identify an overbought situations occur when the
MACD is rising and pulls away rapidly from its moving average In that case the price is expected
to go down in the near future
bull Interpretation
Crossover Others interpret a crossover as a signal when the MACD crosses and falls below
its moving average a sell signal is generated and when the MACD crosses and rises above its
moving average a buy signal is generated
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
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Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
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bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
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Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
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bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
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Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
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Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 16: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/16.jpg)
Divergence When the MACD does not follow the current trend and moves counter to the
direction of the corresponding exchange rate then this is interpreted as a warning that the
currencys trend may change Hence when the MACD is moving down while the exchange rate is
still rising then this may be interpreted as a sell signal A stronger sell signal occurs when the
MACD is reaching new lows while the corresponding exchange rate is still moving up
Conversely when the MACD is moving up while the exchange rate is still falling then this may be
interpreted as a buy signal A stronger buy signal occurs when the MACD is reaching new highs
while the corresponding exchange rate is still going down
bull Calculation
MACD = EMA(n1) - EMA(n2)
n1 nomber of periods for fast moving average
n2 number of periods for slow moving average
n number of periods to smooth the MACD
GOLDEX GROUP LIMITED wwwgoldexhk
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
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bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 17: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/17.jpg)
Bollinger Band
bull Introduction
Developed by John Bollinger Bollinger Bands are an indicator that allows users to compare
volatility and relative price levels over a period of time The indicator consists of three bands
designed to encompass the majority of a securitys price action
1A simple moving average in the middle
2An upper band (SMA plus k standard deviations)
3A lower band (SMA minus k standard deviations)
bull Interpretation
Overbought Oversold When the price touches the upper band this is as seen as a sell signal
since it is believed that the currency is overbought When the price touches the lower band this is
as seen as a buy signal since it is believed that the currency is oversold
bull Calculation
Middle Line = SMA(n)
Upper Band = Middle Line + k SD(n)
Lower Band = Middle Line - k SD(n)
n periods of moving average and standard deviation
SD Standard Deviation
k Standard Deviation multiplier
RSI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 18: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/18.jpg)
bull Introduction
RSI stands for Relative Strength Index developed by J Welles Wilder and introduced in his
1978 book New Concepts in Technical Trading Systems RSI is an extremely useful and popular
momentum oscillator The RSI compares the magnitude of recent gains to the magnitude of its
recent losses and turns that information into a number that ranges from 0 to 100
bull Interpretation
Overbought Oversold Wilder recommended using 70 and 30 and overbought and oversold
levels respectively Generally if the RSI rises above 30 it is considered bullish for the underlying
stock Conversely if the RSI falls below 70 it is a bearish signal Some traders identify the
long-term trend and then use extreme readings for entry points If the long-term trend is bullish
then oversold readings could mark potential entry points
GOLDEX GROUP LIMITED wwwgoldexhk
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 19: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/19.jpg)
Divergence Buy and sell signals can also be generated by looking for positive and negative
divergences between the RSI and the underlying stock For example consider a rising stock
whose RSI falls from a high point of (for example) 70 back up to say 60 Because of how the RSI
is constructed the underlying stock will often reverse its direction soon after such a divergence
Divergences that occur after an overbought or oversold reading usually provide more reliable
signals
bull Calculation
RSI = 100 - 100(1+RS)
RS = Average Gain Average Loss
Average Gain = [(previous Average Gain) x (n-1) + current Gain] n
First Average Gain = Total of Gains during past n periods n
Average Loss = [(previous Average Loss) x (n-1) + current Loss] n
First Average Loss = Total of Losses during past n periods n
n number of periods included in the calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 20: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/20.jpg)
Parabolic SAR
bull Introduction
Developed by Welles Wilder creator of RSI and DMI the Parabolic SAR sets trailing price stops
for long or short positions Also referred to as the Stop-and-Reversal indicator Parabolic SAR is
more popular for setting stops than for establishing direction or trend Wilder recommended
establishing the trend first and then trading with Parabolic SAR in the direction of the trend
bull Interpretation
If the trend is up long when the price is above SAR
If the trend is down short when the price is below SAR
bull Calculation
SAR = SAR_previous + AF (EP - SAR_previous)
AF Acceleration Factor (how fast it tightens the stop)
EP Extreme Point (highest high lowest low)
CCI
GOLDEX GROUP LIMITED wwwgoldexhk
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
GOLDEX GROUP LIMITED wwwgoldexhk
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 21: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/21.jpg)
bull Introduction
Developed by Donald Lambert the Commodity Channel Index (CCI) was designed to identify
cyclical turns in commodities The assumption behind the indicator is that commodities (or other
financial products) move in cycles with highs and lows coming at periodic intervals Lambert
recommended using 13 of a complete cycle (low to low or high to high) as a time frame for the
CCI (Note Determination of the cycles length is independent of the CCI) For instance if the
cycle runs 60 days (a low about every 60 days) then a 20-day CCI would be recommended
For scaling purposes Lambert set the constant at 015 to ensure that approximately 70 to 80
percent of CCI values would fall between -100 and +100 The CCI fluctuates above and below
zero The percentage of CCI values that fall between +100 and -100 will depend on the number of
periods used A shorter CCI will be more volatile with a smaller percentage of values between
+100 and -100 Conversely the more periods used to calculate the CCI the higher the
percentage of values between +100 and -100
bull Interpretation
Overbought Oversold A security would be deemed oversold when the CCI dips below -100
and overbought when it exceeds +100 From oversold levels a buy signal might be given when
the CCI moves back above -100 From overbought levels a sell signal might be given when the
CCI moved back below +100
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Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
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Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
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Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 22: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/22.jpg)
Trend Line Trend lines can be drawn connecting the peaks and troughs From oversold levels
an advance above -100 and trend line breakout could be considered bullish From overbought
levels a decline below +100 and a trend line break could be considered bearish
bull Calculation
CCI = (TP - SMATP) (015 MD)
TP Typical Price = (High + Low + Close) 3
SMATP simple moving average of TP
MD Mean Deviation = ((TP1-SMATP1) + (TP2-SMATP2) + + (TPn-SMATPn)) n
n number of periods selected for calculation
GOLDEX GROUP LIMITED wwwgoldexhk
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 23: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/23.jpg)
Stochastic Oscillator
bull Introduction
Developed by George C Lane in the late 1950s the Stochastic (Fast Slow Full) Oscillator is
a momentum indicator that shows the location of the current close relative to the highlow range
over a set number of periods Closing levels that are consistently near the top of the range
indicate accumulation (buying pressure) and those near the bottom of the range indicate
distribution (selling pressure)
There are two lines plotted on Stochastic Indicator A K line also called trigger line tells us
which percentile of past n-periods high-low range current price is closed at And a D line a
smoothed version of K is simply the moving average of D
bull Interpretation
Overbought Oversold Readings below 20 are considered oversold and readings above 80 are
considered overbought However a reading above 80 is not necessarily bearish nor a reading
below 20 bullish A security can continue to rise after the Stochastic Oscillator has reached 80
and continue to fall after the Stochastic Oscillator has reached 20 Some of the best signals
occurred when the oscillator moved from overbought territory back below 80 and from oversold
territory back above 20
GOLDEX GROUP LIMITED wwwgoldexhk
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 24: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/24.jpg)
Crossover Buy and sell signals can also be given when K crosses above or below D
However crossover signals are quite frequent and can result in a lot of whipsaws
Divergence One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels Once the oscillator reaches overbought levels wait for a negative
divergence to develop and then a cross below 80 This usually requires a double dip below 80
GOLDEX GROUP LIMITED wwwgoldexhk
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk
![Page 25: What is Technical Analysis - goldex.hk is Technical Analysis.pdf. What is Technical Analysis? Technical analysis is the study of price movement. ... A bar chart simultaneously shows](https://reader038.vdocument.in/reader038/viewer/2022110112/5aff61e77f8b9a814d906350/html5/thumbnails/25.jpg)
and the second dip results in the sell signal For a buy signal wait for a positive divergence to
develop after the indicator moves below 20 This will usually require a trader to disregard the first
break above 20 After the positive divergence forms the second break above 20 confirms the
divergence and a buy signal is given
GOLDEX GROUP LIMITED wwwgoldexhk