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MODULE 2 TUESDAY JULY 23 6PM-9PM
FOREX TECHNICAL ANALYSIS
PRESENTATION BY ABE COFNAS
Identifying Highly Probable Signals
INTRODUCTION
WHAT IS TECHNICAL ANALYSIS?
¡ ANALYSIS OF CHARTS ¡ ANALYSIS OF PRICE ACTION
WHAT IS GOAL OF TECHNICAL ANALYSIS?
¡ TO ACCURATELY DESCRIBE THE SHAPE OF MARKET PATTERNS
¡ TO PROJECT PRICE DIRECTION ¡ TO IDENTIFY HIGHLY PROBABLE TRADING
OPPORTUNITIES
WHAT ARE TECHNICAL INDICATORS?
¡ TECHNICAL ANALYSIS INDICATORS ARE MATHEMATICAL EQUATIONS THAT SUMMARIZE PRICE ACTION
MOVING AVERAGE OSCILLATORS STOCHASTICS
WHAT TECHNICAL INDICATORS ARE USEFUL?
¡ VERY FEW ¡ MOST ARE LAGGING ¡ THE USE OF INDICATORS MAY IMPAIR THE ABILITY OF
THE TRADER TO UNDERSTAND PRICE ACTION ITSELF.
WHAT IS THE MOST USEFUL TECHNICAL INDICATOR? ¡ BOLLINGER OR VOLATILITY BANDS BECAUSE THEY
MAP A PATTERN BASED ON ¡ VOLATILITY WHICH IS AN IMPORTANT ASPECT OF
PRICE ACTION.
WHAT ABOUT CANDLESTICKS?
¡ CANDLESTICKS ARE WAYS OF VISUALIZING SHAPE AND EMOTION IN THE MARKET.
¡ LEARNING CANDLESTICKS OVER TIME IS A WORTHY GOAL
¡ GETTING STARTED IN TRADING SHOULD BEGIN WITH PRICE PATTERNS.
2: WHAT ARE PRICE PATTERNS?
WHAT ARE PRICE PATTERNS?
¡ PRICE PATTERNS ARE SHAPES THAT PRICES FORM OVER TIME.
¡ THE SCIENCE OF MORPHOMETRICS
Wikipedia
Morphometric refers to the quantitative analysis of form, a concept that encompasses size and shape
WHAT ARE PATTERNS?
¡ A Price Pattern is recognizable shape indicating a persistence in the direction of the underlying currency pair.
¡ A “Deterministic Oscillation”
¡ A Price Pattern can be for any time duration.
¡ The shorter the time duration- the less stable the pattern.
WHAT IS A SHAPE?
¡ IS A FACE IN A CLOUD A SHAPE?
¡ A SHAPE IS A PATTERN THAT STAYS INTACT
¡ WHEN ROTATES IN ANY DIRECTION
¡ THE QUESTION FOR THE TRADER IS: ▪ DO PRICES HAVE SHAPES?
ARE PRICE PATTERNS LEADING OR LAGGING ?
¡ PRICE PATTERNS ARE NEITHER LEADING OR LAGGING. THEY ARE PROJECTIONS THAT SUGGEST BOUNDARIES THAT HAVE BEEN ESTABLISHED.
¡ IF THE PATTERNS ARE ROBUST THEY HAVE IMPLICATIONS FOR SHAPING THE TRADE.
DO PRICE PATTERNS REFLECT MARKET EMOTIONS?
¡ YES-AND THAT IS A CRITICAL COMPONENT OF THEIR VALUE
¡ MARKETS CAN IN FACT BE CONSIDERED EMOTIONAL ENGINES
WHEEL OF EMOTIONS
WHICH MARKET EMOTIONS DO PATTERNS REFLECT OR EXPRESS?
¡ EUPHORIA ¡ REGRET ¡ HOPE-EXPECTATION ¡ OPTIMISM ¡ PANIC ¡ CONFIDENCE ¡ HESITATION ¡ FEAR ¡ GREED ¡ ANXIETY ¡ LOVE ¡ SURPRISE ¡ SORRY ¡ JOY
Charles Darwin. The Expression of the Emotions in Man and Animals. D. Appleton and Company: New York (1872).
KEY PATTERNS YOU SHOULD KNOW
¡ TREND LINE ¡ RESISTANCE AND SUPPORT LINES ¡ CHANNEL ¡ TRIANGLE ¡ PARABOLA ¡ FIBONACCI ¡ BOLLINGER BANDS ¡ CORRELATION DIVERGENCES
TREND LINES
! !
THE POWER OF TREND LINES
¡ Trend lines are boundary mapping direction ¡ They are not an indicator ¡ They help identify buy and sell zones.
RESISTANCE AND SUPPORT LINES
SUPPORT AND RESISTANCE LINES ARE BOUNDARIES WHERE THE PRICE STOPS GOING UP OR DOWN. EVERY PATTERN IS IN A SENSE A SUPPORT OR RESISTANCE LINE DEPENDING ON THE PERSPECTIVE OF THE TRADER.
CHANNEL PATTERNS
Very Stable “envelopes” of performance Sideways, Upward, and Downward Channels, and Expanding Channels
TRIANGLES
CLASSIC HESITATION TRIANGLE
PARABOLIC CURVES
PARABOLIC CURVES HAVE PREDICTIVE POWER
REVERSALS: PARABOLIC CURVES
¡ WHAT ARE THE BEST PATTERNS THAT PREDICT REVERSALS
BOLLINGER BANDS
REVERSALS: DOUBLE BOLLINGER BAND
¡ AN EXCELLENT MODIFICATION OF BOLLINGER BANDS IS TO ADD ANOTHER BAND.
¡ STANDARD BAND SETTINGS IS: (20,2)
¡ ADDITIONAL BAND SETTING IS: (13,2.618)
EXAMPLE OF DOUBLE BOLLINGER BAND
CORRELATION AND DIVERGENCES
KEEP TRACK OF CORRELATIONS AND DIVERGENCES FROM CORRELATIONS BETWEEN MARKETS TO HELP DECIDE DIRECTION. CORRELATION ANALYSIS ALSO HELPS CREATE A DIVERSIFIED PORTOLIO BY CHOOSING LEAST CORRELATED CURRENCIES.
CHALLENGE: FIND LEAST CORRELATED CURRENCIES
LATEST CORRELATIONS
AUSSIE AND COPPER
CAD AND WTI
USDJPY AND EURJPY
NIKKEI AND YEN
SHANGHI COMPOSITE INDEX AND AUDUSD
ADVANCED: RISK REVERSALS AND SPOT CORRELATIONS
FEAR AS A REVERSAL INDICATOR
¡ WHEN MARKETS REACH EXCESSIVE LEVELS OF FEAR (LOW OR HIGH) IT IS AN INDICATOR OF REVERSAL OF DIRECTION
FIBONACCI PATTERNS
FIB REACTION TO GREEK VOTE
3: PRICE SIGNALS
¡ A PRICE SIGNAL IS A PROBE, BREAK, OR FAILURE TO BREAK A PATTERN.
THEREFORE
THERE ARE ALWAYS TWO LOCATIONS FOR YOUR NEXT TRADE!
PART 2- PRICE SIGNALS
¡ ONCE A PATTERN IS IDENTIFIED A PRICE SIGNAL BECOMES DETECTABLE.
¡ A PRICE SIGNAL IS A CHANGE IN THE PATTERN.
¡ A PRICE SIGNAL IS A FAILURE TO CHANGE THE PATTERN.
PRICE SIGNAL EXAMPLE
PART 3- SHAPING YOUR NEXT TRADE
¡ THERE IS ALWAYS A NEXT TRADE.
KEY STEPS IN SHAPING YOUR NEXT TRADE
1. SELECT UNDERLYING MARKET 2. SELECT DIRECTION 3. FIND ROBUST PATTERN 4. LOCATE BUY ZONE AND SELL ZONE
PART 4: OPTIMAL ENTRY AND EXITS
¡ NOW WE CONSIDER WHEN DO WE GET IN AND WHEN DO WE GET OUT OF A POSITION?
¡ THE BEST CRITERIA TO GET IN IS?
¡ THE BEST CRITERIA TO GET OUT IS?
BEST ENTRY CONDITIONS
¡ THE BEST ENTRY IS WHEN A NEW TREND IS BEGINNING
¡ THE BEST ENTRY IS WHEN A BREAK HAS OCCURRED
¡ THE BEST ENTRY IS WHEN A FAILURE TO BREAK HAS OCCURRED.
IDENTIFYING TREND CONDITIONS
¡ TRENDS GET STARTED ¡ TRENDS GET TIRED ¡ TRENDS REVERSE ¡ HOW DO WE KNOW HOW TO SPOT THESE CONDITIONS?
PRICE BREAK FOR OPTIMAL ENTRY
PRICE BREAK DOWNTREND REVERSALS
PRICE BREAK UP-TREND REVERSAL
MULTIPLE TIME FRAMES AND PRICE BREAK
PRICE BREAK FATIGUE IS A KEY INDICATOR
FLIP FLOP
FIBS AND PRICE BREAK
EXIT CONDITIONS
¡ WHEN YOUR IN A POSITION, WHEN DO YOU GET OUT?
¡ WHEN YOU HAVE REACHED YOUR GOALS?
¡ WHEN THERE IS EVIDENCE THAT THERE IS SENTIMENT AGAINST YOU!
RENKO IS A GREAT TOOL TO GET OUT ¡ RENKO BLOCKS MEASURE CONSECUTIVE CLOSES OF
A PRE-DETERMINED SIZE.
¡ 1 PIP SIZE FOR CURRENCIES IS RECOMMENDED
RENKO PROVIDES A MICRO-DETECTION OF SENTIMENT
¡ EVEN AT 1 PIP LEVELS, PATTERNS EMERGE.
¡ IF THE PATTERN IS FAVORABLE -IT IS CONFIRMING EVIDENCE TO STAY IN.
¡ IF THE PATTERN IS NOT FAVORABLE –IT IS CONFIRMING EVIDENCE TO GET OUT.
RENKO DETECTS PERSISTANCE OF BULLISH OR BEARISH SENTIMENT
SOME RENKO EXITING STRATEGIES
WHEN SHOULD THE TRADER GET OUT?
USING RENKO TO GET OUT
RENKO CHALLENGE
RENKO RULE OF THREE
RENKO AND A 61.8 FIB
USE RENKO FOR CONFIRMING CANDLES
PART 6: RISK CONTROL
¡ WHERE DO WE PUT STOPS?
¡ WHERE DO WE PUT LIMITS?
¡ HOW MUCH LEVERAGE IS TOO MUCH?
STOP LOCATION
1. WHERE YOUR RISK TARGET TOLERANCE IS REACHED
2. WHERE THERE IS A CONFIRMED CHANGE IN THE PATTERN
3. OR USE WIDE STOPS AND APPLY BINARIES INSTEAD OF STOPS
PROFIT TARGET LOCATION
1. WHERE YOUR GOAL IS MET
2. WHERE TECHNICAL RESISTANCE OR SUPPORT IS OCCURING
PART 7: TRADER EVOLUTION THE TRADER SCORECARD
¡ EVOLUTION OF TRADER REQUIRES EXPERIENCIAL LEARNING
¡ EVERY 10 TRADES CREATES A SIGNATURE OF PERFORMANCE.
TRADER TOOLS
¡ TRADER SCORECARD ¡ TRADER COACHING ¡ TRADER SIGNALS
TRADER SCORECARD
¡ PROVIDES NUMEROUS VISUALIZATIONS OF YOUR TRADING PATTERNS
¡ IDENTIFIES KEY AREAS OF STRENGTHS AND WEAKNESSES
¡ LEADS TO QUICK PERFORMANCE IMPROVEMENT
TRADER SCORECARD
THE PROFITABILITY CURVE
FOREX COACHING
¡ PERSONAL CUSTOMIZED SKYPE BASED COURSE.
FOREX ALERTS
¡ UNIQUE SIGNALS IDENTIFYING TREND REVERSALS!
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