technical analysis course at CQG

7/29/2019 technical analysis course at CQG

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Parabolic

Parabolic (Para)

Welles Wilder's Parabolic study is a time/price reversal system. The letters "SAR" standfor "stop and reverse" meaning that the position is reversed when the protective stop ishit. It is a trend-following system. As prices trend higher, the SARs tend to start outslower and then accelerate with the trend. In a downtrend, the same thing happens but inthe opposite direction. The SAR numbers are calculated and available to the user for thefollowing day based on the following equation:

SAR (tomorrow)= SAR (today) + AF(EP trade SAR today)

where: AF begins at 0.020 (default value) and is increased by .02 each bar that a newhigh/low is made (depending on the trend direction) until a value of 0.20 is reached; EP =Extreme Price point for the trade made so far (if Long, EP is the extreme high price forthe trade; if Short, EP is the extreme low price for the trade).

Thus, the Parabolic Time/Price System rides the trend until the SAR price is penetrated.Then the existing position is closed out and the reverse position is opened.


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Moving Averages

Trend following indicator

Moving average is a smoothing indicator

Moving averages are lagging indicators which do not work

well in non-trending markets. Results in trading whipsaws


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Types of Moving Averages

Simple Moving Average Most commonly used arithmetic mean

Gives equal weight to each price

Weighted Moving Average

Puts greater weight on the most recent activity. For example in a 5 barweighted moving average the last bar is multiplied by 5, the next to the lastbar is multiplied by 4 and so on. The total value is divided by the sum ofthe multipliers, i.e. the divisor to the 5 bar WMA is 15 ( 5+4+3+2+1=15)

Exponential Moving Average Also puts greater weight on the most recent activity.

Percentage weight is used t give greatest weight to most recent activity.

Smoothed Moving Average Similar to the simple moving average except the previous smooth average

value is subtracted rather than the oldest value in a simple movingaverage.


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Simple Moving Average

For the following example the PERIOD = 3.

The first value for a Simple Average is determined byformula SIMPLE. It is plotted on the chart at the third barfrom the left side of the screen.

SIMPLE = (PRICE 1 + PRICE 2 + PRICE 3) / PERIOD The next value would be plotted at the fourth bar from the

left side of the screen.

SIMPLE = (PRICE 2 + PRICE 3 + PRICE 4)/PERIOD

Subsequent values would be determined by eliminating theoldest PRICE from the calculation, and including the nextmore recent PRICE.

Most widely used of all technical indicators


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Weighted Moving Average

The CQG weighted moving average assigns weights

linearly, assigning greater weights to more recent data

points.

Example:

A 21 period weighted moving average would be calculated

as follows:

[21 * Close (0)] + [20 * Close (-1)] + [19 * Close (-2)]

+.[1 * Close (-20)]


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Exponential Moving Average Calculation Exponential Moving Average Calculation

For the following example the PERIOD = 3 and the PRICE = CLOSE.

To calculate an Exponentially Smoothed Moving Average, (ESMA), the user must enter an integer value for the PERIOD or adecimal value Smoothing Constant.

A decimal value Smoothing Constant must be greater than 0.0 and less than or equal to 2.0. Example: .5

When an integer value is entered for PERIOD, the smoothing constant is converted by the system to a decimal value using thefollowing formula:

Smoothing Constant:

= 2 / (PERIOD + 1)

= 2 / (3+1) = 2 / 4

= .5

The Exponentially Smoothed Moving Average, ESMA, may be calculated after the Smoothing Constant is known.

The first ESMA value is initially set to the first PRICE before the calculation begins. The first PRICE is from the leftmost bar on thescreen.

The formula for calculating the ESMA is as follows:

ESMA = pESMA - ( Smoothing Constant X ( pESMA - PRICE ) )

In the above formula:

ESMA is the new Exponentially Smoothed Moving Average.

pESMA is the Previous ESMA value.

PRICE is the value of the PRICE used for each bar, e.g. CLOSE

Note: A decimal value Smoothing Constant equal to 0.0 stops the ESMA from being displayed, however, an ESMA will appearif the integer 0 is entered without the decimal point.


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Smooth Moving Average

A Smoothed Moving Average is similar to a simple moving average. However, in a smoothed moving average, ratherthan subtracting the oldest value, as in a simple moving average, the previous smoothed average value is subtracted.

For the following example the PERIOD = 3.

First value is ready when Period first bars are accumulated.

First value SMOOTH(1) = AccumulatedPrice / Period where AccumulatedPrice is a sum of Period input prices.

Next value (say SMOOTH(N)) is calculated as:

SMOOTH(N) = SMOOTH(N-1) + (Price(N) - SMOOTH(N-1)) / Period

The next value would be plotted at the fourth bar from the left side of the screen.

SMOOTH2 = (PREVIOUS SUM - PREVIOUS AVG + PRICE 4) / PERIOD For the second calculation of SMOOTH, PREVIOUS SUM is the sum of PRICE 1 + PRICE 2 + PRICE 3; and

PREVIOUS AVG is the initial value of SMOOTH.

The next value would be plotted at the fifth bar from the left side of the screen.

SMOOTH = (PREVIOUS SUM - PREVIOUS AVG + PRICE 5) / PERIOD

Subsequent values would be determined by subtracting the PREVIOUS AVG from the PREVIOUS SUM, adding thenext more recent PRICE, then dividing by the PERIOD.

Example:

If the values 1,2,3,4 and 5 were reported for the first 5 bars the 3-period smoothed moving averages for those barswould be calculated as follows:

(1+2 +3)/3 = 2

This is the first value and would be plotted on the 3rd bar from the left.

(6 - 2 + 4)/3 = 2.67

This second value would be plotted on the 4th bar from the left.

(8-2.67+5)/3 = 3.44 This third value would be plotted on the 5th bar from the left.


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Single Moving Average Cross


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Two Moving Average Cross


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Three Moving Average Cross


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Ichimoku Cloud

Trend following tool. Used heavily by Japanese traders,

especially currency traders. It is gaining popularity in the

United States.

Ichimoku cloud system is comprised of five moving

averages. Kijun (Trend) Line: (highest high + lowest low)/2 calculated over last 26

periods

Tenkan (Signal) Line: (highest high + lowest low)/2 calculated over last 9

periods

Chikou (Lagging) Span: Most current closing price plotted 26 time periodsback

Kumo (Cloud) Senkou Span A: (Tenkan line + Kijun Line)/2 plotted 26 time periods ahead

Senkou Span B: (highest high + lowest low)/2 calculated over past 52 time periods, sent 26

periods ahead.


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Advantages of the Ichimoku Clouds

Trend identification

Displays multiple levels of support and resistance, bothcurrently and projects into the future.

Comprised of moving averages with its strengths and

weakness. Thickness of the cloud represents both the strength of the

support or resistance and volatility. Thin cloud is little support or resistance .

Thick cloud is strong support or resistance.

Price closes above the cloud, the trend is up.

Price closes below the cloud, the trend is down.

Price closes in the cloud, the market is sideways.


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Ichimoku Cloud Chart


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Elliott Wave

A trend moves in five waves.

A trend can be in either direction.

A correction occurs in three waves.

Wave 1

In a bullish trend wave 1 is accumulation stage and the very

beginning of the new trend. Look for a bullish divergence between

price and RSI.

Volume is declining as the previous trend comes to an end.

Wave 2 First retracement, retraces wave 1 but does not violate the low of

wave 1. This retracement should not retrace more than 61.8% of

the original move.


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Ichimoku Cloud with Japanese Candlesticks


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Elliott Wave 2

Wave 3 Usually the longest, strongest wave in the direction of the trend.

Higher than wave 1.

Volume and open interest accelerates

Wave 4 Countertrend trend wave.

Wave 4 should not go lower than the low of wave 2.

Wave 5 Wave 5 is in the direction of the trend.

Wave 5 is either the longest, strongest wave or second to wave 3.

Wave 3 and Wave 5 are the strongest waves in the direction of the trend.

A wave In a bull market, A wave is bearish.


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Elliott Wave 3

Wave B Wave B is an up wave.

Should not take out the high of Wave 5.

Wave C Wave C is a down wave.

Should take out the low of Wave B.

Most often there is a 5 wave structure within the major 5wave structure.

The placement of the wave identifiers moves if new highs

or lows are made. They cant be used in trade systems. They are timing indicators and can identify which moves

can be the ultimate high or low, but must be confirmed byother indicators such as RSI, MACD or slow stochastic.

Elliott Wave works well with the Imoku Clouds.


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1 800-525-7082 www.cqg.com

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