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Technical Analysis

Special Report Week: The Big Picture

special report world viewVolatility in global markets is at the lowest level since 1993.

And one thing I've learnt over the last 32-years is that high levels of volatility tend to follow.

Which means something big could be brewing.

But the question is, where?

And how do we profit from it?

We're going to try to answer these questions for you...

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Trading With Divergence

ASX share prices 2The world of Technical Analysis is saturated with indicators, oscillators, lines and other weird and wonderful esoteric attempts at finding the Holy Grail. There are a couple of absolutes; price and volume. Together, with time, patience and a level head, these tend to be all we need to be successful in the markets.

There is however one indicator, or method of using certain indicators, that has an extremely powerful edge. This method is divergence.

Divergence is where price moves in one direction and the indicator starts moving in the opposite direction.

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Liquidity & Position Sizing

Position sizing

The following conversation was conducted on the old Chartist Traders Forum. This type of conversation is now run through The Chartist Community. Traders share ideas and help each other solve problems they are experiencing with their trading and, in this case, coding their trading system.

Question: I am trying to design a liquidity filter / position size algorithm that will give me a good chance of getting filled with minimal effect on market price. These are my current thoughts:

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Fibonacci Time & Price

Fibonacci snail shellFibonacci analysis is used to monitor the extension or retracement of price in a chart pattern or the extension of time based on the prior period.

About Fibonacci
‘Named after Fibonacci, also known as Leonardo of Pisa or Leonardo Pisano, Fibonacci numbers were first introduced in his Liber abaci in 1202. The son of a Pisan merchant, Fibonacci traveled widely and traded extensively. Math was incredibly important to those in the trading industry, and his passion for numbers was cultivated in his youth.’ LiveScience

If you would like to learn about Fibonacci time & price for trading then consider reading:

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The Oops! Pattern - In Sample / Out of Sample

Percentage manThe terms In Sample and Out of Sample refer to a technique for backtesting trading strategies where there is some kind of optimisation or data mining taking place, i.e. finding the ideal parameters to trade with. It's common to use two sets of data, however, I was always taught to use three. Here's how it works...

  1. Take a data set, let's use 2000 through 2015.
  2. Divide that set into three, so we'll use 2000-2005, 2005-2010 and 2010-2015
  3. Next, take the middle set 2005-2010, which is known as the In-Sample data, and do all testing, data mining and wanted optimisation on it.
  4. Then take the parameters and rules from that and apply it to the other two sets of data, which are both considered the Out of Sample data.

If the results appear consistent across the entire data series then you may be on to something.

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Survivorship Bias

chart guyLast weeks Double 7's Strategy article proved to be a very popular topic - thanks for all the feedback. In the article I stated, "...we'll use historical constituents to remove survivorship bias" and this has created a few questions, namely what the heck does it mean?

According to Wikipedia, "Survivorship Bias is the logical error of concentrating on the people or things that "survived" some process and inadvertently overlooking those that did not because of their lack of visibility. This can lead to false conclusions..."

When it comes to the stockmarket, investing and systematic trading, Survivorship Bias is not only prolific, but can greatly exaggerate reality going forward. The following chart shows the rise and fall of Regis Resources (RRL), a current member of the ASX-100.

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Turnkey Trading Systems


Important Information and System Requirements:

  1. All code provided is in Amibroker Formula Language (AFL) for Amibroker v5.0 of higher.
  2. All code is sold 'as is' and a working knowledge of Amibroker is suggested.
  3. Purchase includes Operating Code, Monte Carlo Simulation Code and Instructions.
  4. No refund is available on this product after the code has been provided.
  5. All purchasers will be required to sign a Sale Agreement that conatins a non-disclosure clause.

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Technical Analysis – Indicators

stock chart manOne of the early decisions a new trader needs to make is what sort of trading they wish to undertake. Usually following on from that answer, the question as to whether some type of stock market analysis tool (i.e. trading software) is required, then presents itself.

As the budding trader embarks on the due diligence of purchasing a trading software package they can be subjected to the amount of indicators the package has or can be created, as a selling point. Once the decision is made and software downloaded, a potential problem begins to manifest itself, unbeknown at this point to the trader. Within the indicator section of the software is a plethora of indicators, each with adjustable parameters, styles and colours.

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Free E-book: Successful Stock Trading – A Guide to Profitability

successful stock trading by Nick RadgeNick Radge’s book Adaptive Analysis for Australian Stocks has been a huge success with some readers claiming the first 50 pages to be the 'stock trader’s bible'. As only a few copies of Adaptive Analysis are still available from The Chartist, we have decided to update and release those crucial pages as a free eBook.

Successful Stock Trading by Nick Radge will show you the maths behind profitability. It really is simple and is something that ALL traders, no matter the market being traded, must understand.

About Nick Radge has been trading and investing for 30 years. He is Head of Trading and Research at The Chartist. Nick and his wife, Trish Radge, established Reef Capital Coaching t/as The Chartist in 1998 and continue to work full time on the business. They also trade the same strategies alongside their clients.

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Short Term Trading – Trailing Stops

trailing stopsTrailing stop losses are a valuable tool when short term trading using technical analysis. Once a breakeven stop is reached, the trailing stop helps lock in profits as the trade progresses. The trailing stop removes angst and decision making during the trade as it provides a definitive answer as to when to close a position. They can be part of a computerised trading system to trigger exits or as part of a discretionary trader’s arsenal.

As with profit targets, the exit criteria is known and planned for before the trade is initiated. The exact level at which the trailing stop triggers is not known, but the conditions which are to trigger an exit certainly are. Such stops can be left in the market so they are triggered on an intraday basis for the end of day trader, negating the need to constantly watch the market, and allow the user to let profits run and cut losses short.

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