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Technical indicators in the technical analysis of financial markets Part III

12-01-2018 | No Views : 449

Technical indicators in the technical analysis of financial markets Part III

In the previous sections of the technical indicators lesson series we discussed the oscillators in this section. In this lesson we will discuss the most important trend indicators, with a practical application to integrate technical indicators with other technical analysis tools.

Trend Indicators in Technical Analysis

In this lesson, we will deal with one of the most important technical indicators in the technical analysis, namely, the arithmetic mean, but it will be dealt with in a different perspective, where we will deal with a complete strategy that integrates other indicators with it,

Moving Average

The arithmetic mean is one of the most important indicators of trend in the technical analysis. It is used by many technical analysts and traders, as it has many uses. It can also act as a statistical trend line, and also acts as a support and resistance to the move.
In this lesson, we will discuss a strategy for the EMA. The mathematical averages are discussed in the technical arithmetic mean in the technical analysis, in which you can identify the types of moving averages in the technical analysis, and you can know the equation for each type.
Dear reader, In this lesson from the technical indicators series in the Technical Analysis of Capital Markets, we will address a trading strategy consisting of more than one EMA combined with the RSI and the MACD index, which was dealt with in a previous lesson of this educational series, Integrate technical analysis tools to reach the best result.

Day Trading Strategy using technical indicators in technical analysis

User time frame

The strategy can be used on more than one time frame, since it can work on the half-hour time frame to the weekly time frame, as it includes the three most important technical indicators in the technical analysis, but we prefer to use the time frame four hours to the time frame Daily. 

Best pairs to trade Day Trading

Indicators used in the trading strategy

  • The EMA has different time settings.
  • RSI.
  • MACD From.

Indicators in the technical analysis used in the trading strategy Day Trade

Although the strategy depends on three of the most important technical indicators in the technical analysis, the settings differ from the default settings for each indicator and this will be explained in this part of the lesson.

The EMA

The strategy consists of a set of quick arithmetic averages with default settings but for different periods as follows:

  • It starts with the 21-day EMA 21 high in red.
  • Then six-day EMA 6 in dark blue.
  • Then the following averages are in light green
EMA 7 / EMA 8 / EMA 9 / EMA 10 / EMA 11 / EMA 12 / EMA 13 / EMA 14 / EMA 15 / EMA 16 / EMA 17 / EMA 18 / EMA 19 / EMA 20
EMAAfter adjusting the quick arithmetic averages with the above settings, the graph appears as a zipper moving with the price, as shown in the picture attached above, and the EMA 21 and EMA 6 arithmetic are shown in red and blue in the two hues of the cloud.

Relative Strength Index "RSI"

The second indicator in the strategy is RSI, which is one of the most commonly used technical indicators in technical analysis. 

RSI settings

  • Period: 10.
  • Apply To: Close.
Relative Strength Index "RSI"
Note that the settings here do not differ significantly from the default settings, since the change is only in the period that is in the default settings 14, but we use in the strategy here the duration 10, as shown in the picture attached above
 

MACD

MACD is the third and last indicator used in Day Trading, and the indicator settings are different from the index's default settings. 

MACD settings

  • Fast EMA: 3.
  • Slow EMA: 26.
  • MACD SMA: 1.
  • Apply To: Close.
MACD
Dear reader, we have completed the technical indicators used in the trading strategy (Day Trade), and now move to the signals of entry with the identification of the target and stop losses.

Buy signals for the technical indicators strategy in Day Trading Technical Analysis

  1. The MACD is higher above the central line.
  2. The RSI is above the 50 level.
  3. Cross the moving averages and close the candle above the average area.
  4. The mean red or blue mean should be clear and non-overlapping with the rest of the green averages, preferably the blue EMA 6 is higher than the other averages.

Example

Buy
In the clear example in the attached picture, we notice the rise in prices after the completion of the entry signals, as the white candle closed the highest area of ​​averages after the intersection, and we notice the presence of the blue medium at the top and not overlapping with the rest of the averages. The RSI is above the 60 level. 

Sell ​​Indicators for Technical Indicators in Day Trading

  1. MACD falls below the midline.
  2. The RSI is below the 50 level.
  3. Cross the moving averages and close the candle below the averages area.
  4. The average red or blue medium must be clear and not overlapped with the other averages. The blue EMA 6 should be below the other averages.

Example

Sale
In the clear example in the attached picture above, we note the closing of the candle below the arithmetic averages. We also see the clarity of the blue arithmetic mean below the other averages. The RSI is moving below the 50 level, and in the MACD we find that the other fell below the middle line, In decline after the sell signals are completed.

Stop loss in technical indicators strategy in technical analysis

  • Pivot Points, or classical support and resistance levels can be used to determine stop points.
  • Also you can break out of the trade with the reverse cross of the moving averages.
  • You can combine other tools with technical indicators for technical analysis, such as the emergence of a classic reversal pattern, or the completion of a harmonic trading model.
  • In the event of trading on the daily time frame, the stop loss should not be less than 200 points.

Goal setting in the trading strategy Technical indicators in the technical analysis

  • Use support and resistance in target setting.
  • The target should be a double stop loss.
Dear Reader, Although the strategy works well because of its reliance on three of the most commonly used technical indicators in technical analysis, we prefer to combine them with other technical analysis tools, such as Japanese candlesticks.
The trading strategy can be combined with the harmonic trading models to extract the best entry and exit places to reach the best results, and the classic models are also working well with any trading strategy.

An example of a trading strategy incorporating technical indicators in technical analysis with a classic model

In the following example we observe the completion of the classic form of head and shoulders complex with the completion of the terms of purchase of the trading strategy, from which the price has risen.
An example of a trading strategy incorporating technical indicators in technical analysis with a classic model
The data were as follows: The breach of the neckline of the complex head and shoulders pattern came after the intersection of the arithmetic averages. We saw a white candlestick closed above the range of the arithmetic averages. We also notice the clarity of the blue medium and its presence above the other averages.
Looking at the MACD index, we see the rise of the index above the zero level, and the RSI is moving above the 50 level. After the completion of the conditions and the neckline breach of the head and shoulders pattern which was a strong confirmation of the entry signals, the price started to rise as shown on the chart The attached photo. 
Dear reader, when you combine other technical analysis tools with the trading strategy described above, which is based on three of the most technical indicators in the technical analysis used, you can get high quality signals to increase the success of future price forecasts, which increases the number of successful transactions.

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