In this webinar we looked at the Top Five Technical Indicators.
For a free trial of the software used in this presentation visit www.traderdealer.com.au/d2mxIRESS.aspx
Thanks to everyone who attended!
There are many different ways that you can display price movement on a chart in the new D2MX Charts tool (included in the d2mxIRESS, Bourse and Market Analyser platforms). You can use lines, bars, candlesticks, point and figure and swing charts. Today we’ll take a look at the point and figure charts in more detail. These may not be as widely used as other charting styles, but they do offer a range of benefits to improve your analysis and help you identify trading opportunities.
First of all it is necessary to understand how a point and figure chart is constructed. Most charting techniques display a chart with one bar or candle for each day of trading. Point and figure does not do this. Point and figure charting considers price movement only and time is irrelevant. It is not possible to locate what happened on a particular day on the chart. There is still a date scale at the bottom of the chart, but the spacing between months can vary dramatically.
While time is more or less ignored when using point and figure charts the important dimension of price movement is recorded in detail. Price movement is where money is made or lost and this is the key to point and figure charts. If price moves up by a set amount, then a green cross is drawn and every time price rises by this set amount another green cross is drawn. If you set a box size of 50 cents then an upward price move of $2 will be displayed as four green crosses stacked on top of each other. If on any day the price moves up 30 cents then nothing will be displayed for that day as the price did not move by the minimum amount.
When the price stops moving up and starts to move down a red circle is drawn in the next column to the right of the green crosses. Now when the price moves down by the set amount another red circle is drawn underneath the previous circle. In this way up trends are easily identified on the point and figure chart, by a column of green crosses and down trends by a column of red circles.
You can adjust the point and figure parameters with a right click on the chart and then select chart properties. Scroll down to find the Point and Figure Settings in the Parameter list. The box size controls the amount of movement required for a green cross or red circle to be drawn. It can be set as a percentage or in points (in most cases this is cents) controlled by the Calculation Settings. You can also control when the chart starts a new column by adjusting the Reversal periods. The settings that are shown above draw a mark every time the share moves 1% and starts a new column if the share reverses direction by 3%. Playing around with these parameters you can easily end up with a lot of crosses, or very few, depending on the settings you choose. This can make the chart look a little odd. Adjust the parameters until the crosses and circles are clearly visible on the chart.
One of the big advantages of point and figure charts is the removal of “noise” from the price action allowing the underlying trends of the share to be more easily seen. When you are analysing point and figure charts; trend lines, support and resistance lines are important and useful tools that are easily applied.
In the chart below Brambles (BXB) has a clear resistance level at $7.30 which it has remained below for a long period of time, in fact since sometime in 2010. There is also a strong support level at $6.10 which has held up for over a year. Trend lines can be drawn easily on the chart with a break in a trend line signalling a change in trend, just as it would be interpreted on any other charting style.
BHP Billiton (BHP) has been in a long term downtrend for more than a year and a break through this down trend line may signal the start of a new advance in BHP shares.
In ANZ Bank (ANZ) the break in the long term trend lines signalled the start of a strong move in the share price shown below.
Point and figure charts can be used to identify long term trends in shares as well as critical levels of support and resistance. By removing some of the noise of day to day price action these trends can be much clearer to see on the charts. It is certainly worth taking a look at point and figure charting to see if it works for the way you approach the markets.
By Jeff Cartridge
You may have heard people talk about the market being overbought or oversold, but what do they really mean? A share can move to an extreme level that will often lead to a reversal, if it moves too far too fast. But what is too far and too fast and how can you measure this? Today we’ll take a look at some of the indicators built into the D2MX Trade Tools plugin for IRESS Trader that can be used to identify when these conditions occur and how you use them to identify entry and exit opportunities when trading.
>> Get a free trial of the d2mxIRESS software to test this out for yourself
The group of indicators that can be used to measure overbought oversold conditions are known as oscillators. These indicators fluctuate up and down between two extremes, often 0 – 100. Indicators like moving averages or On Balance Volume will have different values on every share as the price of every share varies, but oscillators remain within their designated range on every share, regardless of price or volume. Commonly used oscillators include the Stochastic, Relative Strength Index (RSI), Commodity Channel Index (CCI) and the Williams %R. These are all available in the Standard Indicators in the D2MX Charts window. Oscillators are normally displayed in a separate window to the price and usually have reference levels marked on the chart as well.
The RSI is displayed in the chart above and fluctuates between 0 – 100 with reference lines at 30 and 70 on the chart. The top reference line marks when the indicator is overbought and the bottom line when it is oversold. You can select the timeframes you wish to use for the indicators and it is a good idea to align these with your trading timeframe. If your average holding time is a few days, then you will use a setting of between 3 – 5 days for your indicator. If you wish to hold a trade for about a month then use a longer timeframe, something nearer to 20 – 25 days. The shorter timeframes will allow the indicator to fluctuate more rapidly back and forward between the extremes and will provide more signals of overbought or oversold.
The Stochastic indicator is usually plotted with a signal line, similar to the MACD indicator, along with the two reference levels at 80 and 20. The blue dotted line is a moving average of the red stochastic line and is referred to as the %D in the chart properties. As with the RSI this indicator is overbought when it crosses above the top signal line and oversold when it crosses below the lower signal line. The crossover between the indicator %K and its signal line %D can be used as a buy or sell signal.
We can test how well trading overbought or oversold signals works using the Trading System tool, located under the D2MX Trade Tools menu. The following setup uses the Commodity Channel Index (CCI) oscillator which fluctuates between 100 and – 100. The entry signal is to buy shares when the 21-day CCI indicator is below -70 and sell shares when the share hits a 3% trailing stop. This strategy will be traded on the top 20 Australian companies (ASX20) with $5000 placed on each trade. The test will be run over the last 10 years, from 2002 – 2012.
The results below show how the strategy performed. Overall it has been profitable with strong gains through the bull market from 2002 – 2007. It did lose money late in 2007 and into 2008, but remember the strategy trades long only and the markets did fall heavily during this time. Recently the performance has improved with good results so far in 2012.
You can test out the other indicators or alter the parameters of this indicator and view the results for yourself in the D2MX Trading System.
Now you know how you can identify overbought or oversold conditions in a share and you can test how well different indicators work using the Trading System tool in the D2MX Trade Tools plugin. Trading overbought or oversold signals can work very well, as seen from the result of just one test we have run here. The new d2mxIRESS platform gives you the tools to build your own trading strategy.
By Jeff Cartridge
In this webinar we looked at fundamental concepts of technical analysis – what it is, and how you can use your charting software to monitor trends and make informed trading decisions.
For a free trial of the software used in this presentation visit www.traderdealer.com.au/d2mxIRESS.aspx
Thanks to everyone who attended!
The basis of technical analysis is to identify a trend and then trade in that direction. There are a number of different ways to identify a trend and today we will take a look at some of the tools in the D2MX Chart system that can assist you with this process. D2MX Charts are part of the D2MX Trade Tools plugin available in the d2mxIRESS, Bourse and Market Analyser platforms.
The simplest way to identify a trend is to take a look at the bars or candlesticks on a D2MX chart. A series of green candles or bars show a rising trend while a series of red candles or bars show a falling trend. Using this simple analysis allows you to quickly identify a trend. It works particularly well in longer timeframes, like weekly or monthly as some of the “noise” is filtered out.
Taking trend analysis one step further we can take a look at the definition of a trend which was created by Charles Dow, who also created the Dow Jones Index. This is known as Dow Theory and states an uptrend is defined as a series of higher lows and higher highs. A downtrend is defined as a series of lower highs and lower lows. At a transition between trends the share fails to make a higher high and forms a lower high. This is not yet a downtrend, until it breaks below the previous low (blue line) to form a lower low. From this point on there is now a downtrend in place.
You can also use trend lines to define the direction of a trend. A downtrend line is drawn above the share price joining up as many of the highs as possible. This line is then monitored for a break to the upside signalling a change in trend. An uptrend line can be drawn underneath the share price joining as many lows as possible. A break in this line signals a change in trend. A word of caution however – a break in a steep downtrend line may just mean the share is no longer going down as fast as it was.
Take a look at the chart below for an example of a break in the downtrend in GRY. The initial breakouts did not signal the start of a new uptrend, instead the share is no longer falling as fast. A break of a flat trend line, close to horizontal, is better as the share price has no choice but now to move higher.
Other than just looking at the chart and the candles you can use indicators to identify trends as well. The most common of these is the moving average. If the share price is above average it is rising and if it is below average it is falling. While this simple definition can work, it is more common for two moving averages to be combined to identify a trend. When the faster moving average (red line) is above the slower moving average (blue line) then the share is in an uptrend and when the moving averages turn down and the faster crosses below the slower average the share is now in a down trend.
One more indicator that is widely used to define a trend is the MACD. Before a moving average crosses over the two averages must come closer together. The MACD is an indicator based on the distance between two moving averages. The MACD was originally calculated as the difference between a 26 period and a 12 period moving average (red line). A signal line of 9 periods (blue line) is then used to provide a crossover signal similar to that which occurs in a moving average. The indicator is also displayed in the chart below as a histogram, with bars above and below the zero line.
We have looked at a number of different ways here to define a trend. It is obviously not possible and certainly not recommended, to use all of these approaches. Choose one that you are comfortable with and then stick with it.
There are a number of different ways you can view price data in the new D2MX charts. You can look at lines, bars, point and figure, swing charts or candlesticks. These are all accessible from the buttons at the top of the chart window. Today we will take a look at the candlesticks and how to interpret a chart when it is displayed in this way.
A candle is made up of two parts: a body, and a line on the top or the bottom of the candle, known as a shadow. Candles display the data for the time period that is being viewed. If you are looking at a daily chart there will be one candle per day, if you are looking at a 5 minute intraday chart there will be one candle every 5 minutes.
The body of the candle shows the price movement from the open to close for the time period. The body of the candle can either be open as in the green candles in the chart above or shaded in, shown by the red candles. An open candle means the price was higher at the close than it was at the open. A solid candle means the price was lower at the close than the open. In the charts here the candles are coloured; green for up and red for down. Candles can however be black and white and still provide the same information. You can alter the colours of the candlesticks in the D2MX charts if you choose, with a right click on the chart, click Chart Properties and scroll down to the Colour Settings.
The shadow on the top of the candle marks the highest price the share reached during the time period. If this is the same as the open or closing price then there will be no shadow. The shadow on the bottom of the candle marks the lowest price the share reached during the time period.
The shape of the candlestick provides information on what happened for the time period you are looking at. A candle that opened at the bottom and climbed to the top of the candle shows the market moved strongly in that direction for the day (highlighted yellow on the chart below). A strong move will often see more of the same the next day. On the other hand if the candle has a long shadow on the top, this means the price climbed higher, but then fell back during the day (highlighted brown on the chart below). It is likely that the price will continue lower the next day.
And the reverse of this is also true, with a long shadow on the bottom of the candle indicating a sell off was reversed during the day (highlighted green on the chart below) and the price will be more likely to rise the next day.
Sometimes a candle has a shadow on the top and the bottom and no body to it. This is known as a doji (pronounced doh-jee ) and shows that the share price moved higher and lower during the day but closed near where it opened. This is a sign of indecision in the market and a move in either direction could unfold the next day.
While individual candlesticks can be interpreted by the shape of the candle it is also possible to identify patterns in two or more candlesticks combined together. When the first candle is green and the second candle is red with a range higher and lower than the previous candle, this is called an engulfing pattern (or an outside day in bar chart terminology). This sharp change of direction in the share will often lead to more follow-through in the direction of the large candle. There are two bearish engulfing patterns shown in brown and two bullish engulfing patterns shown in green in the chart below. If the highest price for the day is the same as the previous period’s high then the pattern is known as a tweezer top. Two lows the same is called a tweezer bottom. This is like a mini resistance level that the share has been unable to break above and a reversal of direction is possible.
This is an introductory look at using candlesticks in the D2MX charts to assist interpreting the market movements and assist you to form trading ideas. For more information on Candlesticks see Louise Bedford’s book “The Secrets Of Candlestick Charting” or the reference book for candlesticks by Steve Nison “Japanese Candlestick Charting Techniques”.
To see the D2MX Charts in action download a free trial from the Trader Dealer website.
With the release of the Market Analyser 7 and Bourse 7 trading platforms there are a few tips and tricks you may not know about the new D2MX charts, and how to make the most of them.
To draw a trend line you can use the drawing tool bar located on the left of your chart. This toolbar can be hidden away and there may only be a small arrow visible. If this is the case then click on the arrow to show the toolbar. Click on the Trend Line button to begin drawing a trend line. Click where you want to start the line and click where you want the line to finish. You can now draw another line in the same way – click where you want to start and click where you want to finish. To stop drawing trend lines, click the cancel “X” button located on the drawing toolbar, or right click on the chart.
Once you have drawn a trend line you can right click on it to change the properties, including the colour, or to extend the line to the right. You can also duplicate the line, which will create a parallel line allowing you to easily draw channels. You can also delete the line from the right click menu.
You can move a line around by dragging it – hold down the left mouse button on the line and move it to where you want it to be. If you pick up the middle of the line you will move the whole line or pick up one end of the line to change the slope or end point only.
And here is a trick you may not know: to draw a horizontal line, click on the trend line tool on the toolbar. Hold down the Shift key on your keyboard and drag the line across your screen. While still holding down the shift key, click to finish the horizontal line.
Another keyboard trick when using the D2MX charts is to display the cross hairs, allowing you to line up indicators and see what is happening with these. Hold down your right mouse button while moving the mouse and the cross hairs will display on your screen. This allows you to easily line up a specific day and see the data on that day or where an indicator crosses over in relation to the chart.
And one last trick you may not have found yet is located within the wealth of information contained in Chart Properties. With a right click on the chart window you can adjust the properties of the chart, including changing the colour scheme, changing the intraday timeframe and the amount of data that is loaded. You can even turn on a data window that will float over the top of the screen, which shows you the current price and indicator levels.
At the bottom of the Chart Properties list you have the ability to change the way the scale is displayed. You can change to log scale if you prefer to use that, or by turning the automatic scaling off you can specify the range that you want to display by setting minimum and maximum levels.
In this webinar Jeff Cartridge demonstrated some tips and tricks for using the advanced features in Market Analyser 7′s powerful technical analysis charting engine.
Thanks to everyone who joined in!
For more online training sessions and recordings of past events check our full webinar program page.
In this introductory webinar we looked at Market Analyser 7′s powerful charting engine.
Applying chart tools and technical indicators effectively can be a great way to find trade ideas, so why not make the most of the tools available?
If you liked this, look out for our advanced-level charting webinar. View the full program here.
The advanced charting engine you know from previous editions of Market Analyser has been incorporated into the new Market Analyser 7 platform. Go to the D2MX Trade Tools menu, and select Chart, or right-click on a symbol in your watchlist and select D2MX Chart.
In this video tutorial:
* get tips on customising the D2MX Charts
* using chart tools to draw trendlines and highlight areas of interest
* find ways to navigate easily to your D2MX Chart windows within the platform.