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_NNForex > Technical Analysis > Flashcards

Technical Analysis Flashcards

1
Q

What is a fast rule when searching for Trend Indicators and not Reversal Indicators

A

If the indicator search for tops/bottoms/over bought/over sold then it is NOT a trend indicator

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2
Q

Which Technical Indicator Tools can be excluded from the start. (Unless much newer/updated and improved)

A
  • ADX - Average Directional Index (Volume)
  • Trendlines
  • Stochastics - Over bought/sold
  • Price Levels - Psychological level
  • CCI Commodity Channel Index
  • Support and Resistance Lines - too subjective / Banks love to play around these hot spot areas…
  • Japanese Candlesticks
  • Chart Patterns(Stock trading ok / trader’s sentiment)
  • Bollinger Bands
  • Fibonacci
  • RSI - Relative Strength Index (over bought/sold. Stock ok)
  • Moving Average Crossover (there is some usefulness)
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3
Q

Which is the one indicator that must be used and why?

A

ATR - Average True Range

ATR - Use in Risk Management / Trade Management (Stop Loss / First Take Profit / Risk)

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4
Q

RSI - Relative Strength Indicator
Why not suited for Forex?
How is it used?

A

Overbought / Oversold indicator - better suited for Stocks due to intrinsic value. Used to find Price reversals.

Overbought territory - above 70 Oversold territory - below 30.

So for reversals - if the price goes above 70, wait until it crosses back down and then enter a short / vice versa. Goes below 30, turns and enter long when breaking back up through 30

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5
Q

Trend Confirmation Indicators

What are you looking for?

A
  1. Doesn’t get you into a trade too early / too choppy / false signals - not a trend.
  2. Too Slow - only gets you in way too late / you’ve either lost out on too many pips / get you in at the top / misses trends too often.
  3. Avoids Whipsaw / False Trends - it will only avoid some, it will never avoid all - your CI must at least avoid some of them
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6
Q

Trend Confirmation Indicators

Of which type should they be?

A
  1. Zero line cross - long/short once 0 line crossed
  2. Two line cross - long/short once line cross up/down
  3. Chart Indicators - indicators on price chart
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7
Q

MACD - Moving Average Convergence Divergence Indicator

What is it?

A

Two lines cross indicator, can also add a Zero line cross on the MACD
Indicator for Trends and Reversals

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8
Q

What can the MACD be used for?

A

Trend and Reversals - but, best at using Continuation Trades

  • Wait until both lines are either under or above the zero line.
  • And neither one of them has crossed upward over the zero line or crossed over the other upward if below the line; or neither one of them has crossed downward over the zero line or crossed over the other downward if above the line.
  • Lines must cross (if below the line) downward, (if above the line) upward. So with the trend.

Long:
Make sure both lines are above the zero line, and have never gone below it since it last crossed itself.
Then, if they cross upward, go long.
Remember, if either of those lines had crossed below the histogram at any time, it’s no longer a valid trade. You would have to wait for them to stay above the histogram and start again.

Short:

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9
Q

Price Levels / Psychological Levels - Any Good? Why?

A

No, very subjective, e.g., big figure 1700 1750 etc. It is similar to price on product like R50 or then R49,99

The levels create HOT Spots - Action for the banks to look into taking dumb money / hit stop losses.

When it hits these levels - how do you know it is going long or short?

At these levels, you can see where the banks play - look at long shadows to take out stop losses before taking it in the opposite direction. e.g. see long wig upwards to take out stop losses and then they took it short. These are for Reversal Traders - the banks first take their money.

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10
Q

Heiken Ashi - How does it work?

Any Good for Trade Entries?

A

White=Long Red=Short
No good for Trade Entry
You can use it for Exit Indicator but only after you’ve taken profit and moved Stop Loss

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11
Q

Fibonacci - Why is it not any good?

A

It is a mathematical sequence, numbers, found in nature.
Just too many lines - what should you do at each line?
Reversals - why would price reverse due to a number - only dumb money made hot spots there.

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12
Q

Indicator Basics

  1. When to check ATR values?
  2. When do Spreads shoot up?
A
  1. Full/Closed Candle - use daily close if from the day before. Do not use ATR which includes Half a candle from the current trading period.
  2. Spreads shoot up hour after daily close of candle - check 20minutes before daily close for best spreads.
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13
Q

Forex Volume: What does Volume do for Trading?

A

Volume provides the strength to cause a Trend. You must have volume to trade, without volume you will have too many losses.

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14
Q

What is the use of a Volume Indicator?

A

Volume is an Elimination Indicator - it Eliminates losses, doesn’t indicate to GO/Trade, the aim is to STOP / Do NOT Trade. Eliminates Losses that the Confirmation Indicator Gives.

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15
Q

What does a Good Volume Indicator Do?

A
  1. Tells you when there is enough Volume to trade.
  2. Tells you when there is not enough Volume to trade - Do Not Trade.
  3. Lags as little as possible. - You want your indicator to tell you as soon as possible that the volume is there when it comes.
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16
Q

Moving Average - How can a Moving Average benefit you?

A

Moving Averages on Indicates can be of great assistance.
Placing an MA on an Indicator gives overall direction.
How to Place on Indicator?:
MT4&raquo_space; Navigator Section&raquo_space;Trend Folder»Moving Average»Select and Drag it ontop of Indicator you want to use»Parameters»Apply to»First Indicator’s Data
–If Apply to Close it will be on-top of the main price chart

17
Q

How do you search for a Volume Indicator?

A

Search for Volume, Volatility and Volume and Volatility

18
Q

How do you use Moving Average as a Signal?

A

Place Moving Average on an Indicator, e.g. Single Line indicator.
Now, with the Moving Average indicator overall Trend - you take trade signals when the Single line crosses under the MA, trending downwards to then only take short entries. Or, if MA is trending upwards, enter for Longs when the single line crosses upward of the MA for upward trend. Trading with the Trend.
Trend (MA) Downward - only Short when indicator below
Trend (MA) Upwards - only Longs when indicator above
**Can turn any Online Line indicator Into Two Lines Cross!! And trade with Trend.

19
Q

Describe and give an Overview of the 2nd Confirmation Indicator

A
  1. We win by not losing
  2. 2nd CI is used as a NO GO, against your Main CI
  3. It should, preferably be of different type than your main CI (Zero line, Two Line Cross, Chart)
  4. Your 2nd CI should, minimize losses - but if good, minimize keeping you out of winning trades.
20
Q

Exit Indicator - What are the main functions?

A
  1. Gets you out of the trade at the most optimal point
  2. Before it hits SL and before it hits Trailing SL
  3. A good Exit Indicator will get you out of a Loss way more times than the trade hitting your SL - Measure the ratio - SL vs. Exit Indicator.
21
Q

Exit Indicator - What are the rules to find?

A
  1. Exit Indicator Might be your CI indicator
  2. Measure - Exit ratio more than SL ratio
  3. Tweak / Measure - Exit not too early / Measure PIPS over the entire trade…
  4. Two Lines Cross generally Makes GREAT Exit Indicators
  5. Look at Reversal Indicators - But Just for Exit
22
Q

Moving Average Crossovers - Any Good?

A
  1. Generally - as a Confirmation Indicator, it makes you enter the trades way too late. Price has moved too much already, in general, when using a MA crossover.
  2. NB! For Entries - if you can find a MA, and tweak it, and use it as when the candle crosses and closes above / below it - then it is excellent. e.g. 20 day EMA and price crosses upward, over and closes then go long!!
23
Q

Moving Average Crossovers in Stocks - Describe

A

Some relevance in Stocks due to sentiment.

Golden Cross - when 50 MA cross over 200 MA upwards and Death Cross when 50 MA cross downward over 200 MA

24
Q

BASELINE - describe

A

Baseline is a portion of the Trading Algo.
Best to use a specific Moving Average.
Baseline is an indicator that tells you that you are now officially in a Trend and in which direction the trend moves.

25
Q

What are the Baseline Basics?

A

If Price Above Baseline - NO short trades, only LONG
If Price Below Baseline - NO long trades, only SHORT
Can be used for entries as well - if price crosses and closes upward across the MA then LONG etc
1. Use as BASE - Only long/short trades coupled with Confirmation Indicator
2. Use as Entry indicator - when price crosses
**A good one will keep you out of some losing trades as well.

26
Q

Baseline - What are the rules?

A

For Trade Entry and Exit

  1. Enter when price crosses over and closes beyond your baseline
  2. Check rest of ALGO
  3. Exit once it crosses and closes the other way
    * *Baseline and CI1 is used for Trade Entry - both can Indicate Trade Signal - Increasing the chance for entries - both indicates entry.
27
Q

Baseline Timing - Describe

A

The Baseline settings should be such that it Indicates trades - but is not too late for entry and not too soon.
The main aim of the Baseline is to filter out losses - i.e., gives you a NO GO for CI1, but since it also serves as Trade Entry - it needs to somewhat match up with other indicators.
If your Baseline is Mostly late, Often AFTER CI1 gives an Entry - then it needs tweaking. Baseline should rather lead CI1 than lag CI1.
If Baseline lags CI1 then you enter the trade too late and might lose out on PIPS.
Only Enter Trade if Price is within 1 X ATR of the Baseline - No Trade if Price has moved away more than 1 X ATR from the Baseline.

28
Q

One Candle Rules - and Baseline? Describe

A

The ONE Candle Rule doesn’t apply to the baseline.
The ONE Candle Rule applies to everything else - NOT the Baseline.
If the Candle crosses and closes over your baseline - give your other indicators a couple of days to Catch-up. Unlike the other indicators which must catchup within 1 candle - with the Baseline, the other indicators have a couple more days. Except if Crosses and Closes the opposite direction.

29
Q

Pullback - What is it?

A

A big candle, followed by a shorter candle going to other way.
Reasons for Big candles:
News, Big Banks doing Stop Hunting

30
Q

What are the Rules for Pullbacks

A
  1. Only applies when price, in ONE candle, has shot way past your BASELINE. (Candle closing price - baseline price when the candle crossed it > 1 x ATR)
  2. Do NOT ENTER the trade if price has traveled and closed more than 1 X ATR beyond your Baseline price
  3. If price traveled more than 1 x ATR beyond Baseline, then wait for a pullback - ONE Candle RULE. If after ONE Candle, price is now within 1 X ATR beyond Baseline, and all other indicators are a GO, then you can enter - if after 1 candle, price is still more than 1 X ATR away or crossed the other way then NO Entry
    (Except Continuation Trades - Continuation Trades are allowed where price is more than 1 x ATR from Baseline)
31
Q

Baseline and ATR

A

If Candle crossed the Baseline - signalling entry. And you are only waiting for the other Indicators to Catch-UP, but once caught up, price is more than 1 x ATR away from Baseline (moved ahead already) - Then No Trade, too late.
If price is more than 1 x ATR away from Baseline when Algo says it is a Go - Then NO Trade. Except for Continuation Trades, Continuation trades you are allowed to enter if Price is futher than 1 x ATR from Baseline

32
Q

Continuation Trades - What are the Rules

A
  1. If Exit or Confirmation Indicator Flips the other way then you exit the trade, as per normal
  2. The Rule we break - if price is more than 1 X ATR from Baseline then not allowed to Enter – EXCEPT for Continuation Trades
  3. The Rule we break - Ignore VOLUME indicator
    RULES we FOLLOW:
  4. Price must have NEVER crossed and closed the other way on our BASELINE. Candle Never Crossed and Closed over Baseline.
  5. If your confirmation indicator is a Zero Line Cross - then, you exit as per usual when it crosses, but, you can enter again, if price Never crossed and closed the other way on your Baseline, then you enter when Zero Line Cross crossed again.
33
Q

Continuation Trades - How do you trade them

A

Example - Zero Line Cross
Candle crosses Baseline Short - Algo says it is a go and you enter.
Stay in trade, then Zero line cross crossed back up over Zero Line - Exit as per normal. Price never crosses and closes backup over the Baseline. Zero Line cross, crosses down over Zero line again - you Enter.
** If you are using a two line cross (MACD) then - for Example - two lines crosses down over the zero line - and then crosses down over each other again - But the two lines never crossed over the Zero line - With two line cross the two lines are not allowed to Cross back over the Zero line.
See snippets in folder

34
Q

Williams%R Indicator: How to Use it

A

Williams%R Indicator - Flip It.
Reversal Indicator - But, on smaller time frames (4 hours / 1 hours), changing the settings to an 8 it can be used similar to the RSI - Over bought and Sold - but use in the following manner
Use as Confirmation Indicator:
When Baseline cross candle Says Long then Williams must be within the Overbought Territory to enter
When Baseline cross candle Says Short then Williams must be within the Oversold Territory to enter

35
Q

Advanced Strategy Tactic - 7 Candle rule - Describe

A
  1. It is a PIP saver, not maker
  2. Only works if Confirmation Indicator 1 is a two line cross indicator
  3. One candle rule doesn’t apply due to Baseline
  4. Entry based on baseline first
  5. Price must cross and close over Baseline
  6. Everything else lines up
  7. Except - your Main Confirmation Indicator crossed and closed in the trade’s direction, seven or more candles ago. So, candle crossed closed LONG over Baseline, but your Confirmation Indicator 1 (Two lines cross) crossed seven or more candles ago also Long, without crossing back over.
  8. NO TRADE - see snippet

_NNForex (6 decks)

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