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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

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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

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

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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

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

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

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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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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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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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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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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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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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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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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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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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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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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