Market Technician No 88 - March 2020

Market Technician

Issue 88 - March 2020

The Journal of the Society of Technical Analysts

STA ANNUAL DINNER PHOTOGRAPHS 50TH ANNIVERSARY BOOK BRONWEN PRIZE WINNER PG.11

PG.51

12

18

24

37

RESEARCH

RESEARCH

RESEARCH

RESEARCH

Gauging Relative Technical Values of G10 Currencies

Something new under the sun?

Hidden Treasures of Ichi

Utilising Wyckoffian Principles in Modern Time

Richard Adcock

Patricia Elbaz

Sankar Sharma

William Reardon

PG.6

Contents Foreword • Editor's letter • Ad: The Forex Valhalla • STA Annual Dinner 2020. Save the Date!

03 04 05

News • Photographs from 2019 STA Annual Dinner • The 32nd Annual IFTA Conference report - Tom Hicks • Christmas party enjoyed by many if not all - Nicole Elliott • 50th Anniversary Book - David Watts

06 08 09 11

Research • Gauging Relative Technical Values of G10 Currencies - Richard Adcock • Something new under the sun? - Patricia Elbaz • Hidden Treasures of Ichi - Sankar Sharma • Utilising Wyckoffian Principles in Modern Time - William Reardon • Did you know?

12 18 24 37 43

Analyst Focus • Head and shoulders above: Tony Plummer FSTA • Interview with former STA Chairman and IFTA President, Adam Sorab - Nicole Elliott • Music, Nature, Stock Charts and a Technical Analyst - Sanchaita Sharma

44 46 48

Book Review • Book Review of Trading Systems - David Watts • Bronwen Wood Memorial Prize 2019

50 51

The Society of Technical Analysts • Ad: STA Home Study Course • Benefits of STA Membership • STA Calendar 2020 • STA Education: the LSE courses, and the Diploma in Technical Analysis • STA Library • Congratulations to the latest STA Diploma MSTAs • The STA Executive Committee • STA Advertising Rates 2020

52 53 54 55 55 56 57 58

Disclaimer: The Society is not responsible for any material published in The Market Technician and publication of any material or expression of opinions does not necessarily imply that the Society agrees with them. The Society is not authorised to conduct investment business and does not provide investment advice or recommendations. Articles are published without responsibility on the part of the Society, the editor or authors for loss occasioned by any person acting or refraining from action as a result of any view expressed therein.

The Society of Technical Analysts: www.sta-org.uk

FOREWORD

3

Editor's Letter I thought a lot had happened when I last wrote to STA members in September 2019’s edition of the Market Technician magazine, - but today I have even more to tell. This is perhaps a reflection of the Britain we live in today, where Brexit looks as though it will actually get done, where Buckingham Palace should find a space for the Palace of Sussex, where women’s sports (I’m thinking of football and darts) are wildly popular and covered in every mainstream media, and where disability and mental illness have become issues for proper discussion.

Nicole Elliott, FSTA

Technical Analyst, Private Investor, E-journalist for the STA

However, change isn’t always welcome; it’s not always for the good, it might be to the detriment of some, and it’s almost always just plain scary. We at the STA Board level and Committee members have also seen quite a few recent changes. As we had known since last summer, Axel Rudolph FSTA stepped down from the board at December’s Annual General Meeting but will continue as Director of Education. Nick Kennedy, another stalwart, resigned but will continue with development of our website.

Leona Mondsee and Ben Tyler resigned from their roles in Treasury.

But it’s not just goodbyes: we are delighted to welcome back Karen Jones FSTA to her old stomping ground, and even more excited to welcome aboard some brand new faces. I’ve a feeling they’ll lower the average age of the Committee, probably a good thing when one wants to keep relevant and up-to-date. So a huge hello to university lecturer Patricia Elbaz, Jeff Boccaccio and Daniel Wynne. Look out for their photos and biographies on the STA website.

Our annual dinner was on Wednesday 18 September, (Pg.6) as always at the National Liberal Club, with an entertaining talk by Clive Lambert, Vice Chairman of the STA. The 32nd IFTA annual meeting on the swanky island of Zamalek, bang in the middle of the Nile at Cairo, went swimmingly; (Pg.8) congratulations to the Egyptian Society of Technical

32nd IFTA annual meeting, Cairo

Analysts. The next one, our 33rd, will take place in October in Philadelphia, hosted by the American Association of Professional Technical Analysts (AAPTA). We should be just in time to catch the fall colours, I hope.

It’s particularly interesting to see two research articles in this issue covering the work of W. D. Gann (Pg.18&44).

Not the easiest of topics, it’s brilliant to see his ideas clearly and concisely explained for a new audience - and one that I know isn’t afraid of ‘the dark and difficult’ side of technical analysis.

Andrew Whatton MSTA

The Bronwen Wood Memorial prize was won by Andrew Whatton MSTA, (Pg.51) a Senior Financial Trader at Anglo American. He says he especially enjoyed the course run at the London School of Economics and that he felt it would be valuable in his professional

work. Do please look at the list of other successful Diploma Part 2 passes (Pg.56). The names reflect a right United Nations of candidates, with only three having what I’d call Anglo Saxon names. This attests to the global reach the society has and the excellent job it does in educating novices and professionals alike in technical analysis. It’s too late to sign for the Spring term as it started on 15 January, so perhaps consider our Home Study Course (Pg.52) which you can tackle when it suits you.

Please keep writing in with comments and suggestions, submissions for publication and book reviews. I’d like to say that I’m especially pleased at the breadth and variety of research in this issue. Not only very solid, detailed pieces by market professionals, but some with a levity that one rarely sees in professional journals. The authors come from a huge range of backgrounds, speak in their own clear voices, and ought to stimulate healthy discussion among their peers. Again, this is a reflection of the broad base the subject, the Diploma Course, and the varied membership that our society attracts.

I’d also suggest that those with a financial book brewing on their back-burner should consider contacting publisher Harriman House (UK) with a detailed outline of their ideas. This year they’ll be publishing a special compendium of past research published in this magazine to coincide (belatedly) with our 50th anniversary. Stephen Eckett is my contact there, so blame me!

Elevating the Future of Forex Board now on our jouney to transform the future of Forex by enabling the very best possible trading experience to institutional clients, money managers and professional traders.

Discover more at scandinavianmarkets.com/forex-valhalla

The Society of Technical Analysts: www.sta-org.uk

FOREWORD

5

STA Annual Dinner 2020 On Wednesday 23 September 2020 the STA will be holding its annual dinner at the National Liberal Club.

This is an excellent opportunity to network with fellow STA members and colleagues in the convivial surroundings of the historic club at its central Westminster location. Guests are able to roam freely between the library, dining room and grand Club Bar with its huge terrace looking over the Thames and South Bank. The evening will start with a networking drinks reception, followed by a sit down three-course dinner.

Booking will open later in the year - in the meantime please save the date!

Save the date!

6

NEWS

Photographs from the 2019 Annual Dinner on Wednesday 18 September at the National Liberal Club.

The Society of Technical Analysts: www.sta-org.uk

7

8

NEWS

The 32nd Annual IFTA Conference The 32nd Annual IFTA Conference was hosted by the Egyptian Society of Technical Analysis (ESTA) in the Cairo Marriott Hotel, Egypt on Friday 4th - Sunday 6th October 2019.

Photographs from 32nd Annual IFTA Conference

More than 200 delegates descended on the fantastic Cairo Marriott Hotel venue in Egypt, which is situated on Gezira Island, literally an island in the middle of the Nile. The venue, originally the royal Gezirah Palace, was opulent and a perfect centre to host not only the conference but for the welcoming mocktails and the gala dinner.

The slogan of the conference was “History Speaks� and this really emphasised not only the history from the setting in Cairo but also the history of technical analysis, with a stellar line up of speakers representing the many different disciplines in TA. A terrific line-up of around 20 excellent speakers debated and discussed themes in technical analysis through talks and panel discussions.

Keynote speakers included Robert Prechter, Robin Griffiths, Rolf Wetzer, Patricia Elbaz, Connie Brown, Guido Riolo, Ron Williams, Francesco Caruso, and Salesh Nasser. There was plenty of opportunity for networking and Saturday evening saw a trip to the incredible pyramids to see a lightshow, which described the history of Egypt and the pyramids. The conference was topped off by an amazing gala dinner on the top of the palace with a fabulous view of the Nile and a jazz band playing. Thanks to Tamer Gamal and Mohamed El Saiid and the rest of ESTA for organising an excellent conference!

The next IFTA conference will be over the other side of the pond in Philadelphia and we look forward to seeing many of you there. The STA will be organising group bookings at a discounted rate. If you wish to put your name down for this provisional, no-obligation group booking please contact info@sta-uk.org Tom Hicks, MSTA

Chairman, Society of Technical Analysts

The Society of Technical Analysts: www.sta-org.uk

NEWS

9

Christmas party enjoyed by many - if not all December’s Monthly Meeting takes a familiar format: Committee members and Directors of the STA release Minutes of the past year’s meeting well ahead to Members and Fellows.

These, plus Associate Members, turn up at One Moorgate Place on the second Tuesday of the month. News from the society, updates, changes at the top and the choice of auditors are (often but not always) waved through.

New Chairman Tom Hicks was especially keen to move on this time round, and it proved an excellent idea. I can honestly say that this year, though perhaps not as well attended as sometimes, there was a real buzz about the place. Wine, beer and soft-drinks were served by the very pleasant staff of the Grade II listed Institute of Chartered Accountants in England and Wales (pictured below).

Determined to get as many views as possible, I targeted one of our longstanding members, Glyn Bradney (nickname ‘Brillo’, I’m told) who joined ACTA in 1973. STA Board member with Trevor Neil in the 1990s, and friends from Cambridge Research days 30 years ago, he was a little hazy about details of their rows with the ‘kitchen cabinet’, claiming his superior vocabulary won the day. Nothing new

under the sun, as they say. Trevor told me that he taught Philip Gray’s (FSTA) daughter and she passed the STA Diploma fairly recently; she now works at Refinitiv (formerly Thomson Reuters Financial Risk); obviously following in her Dad’s footsteps.

I then made a beeline for an attractive young lady wearing fab footwear blame my inner Imelda Marcos!

Elise Grace (what a lovely name too) had become an Associate Member of the STA just two weeks before.

She’d been impressed with Richard Adcock’s technical analysis module on the ACI training course and dived straight in. A mathematics graduate (BSc.) from Imperial College London, she’s now on a semi-informal graduate

training programme at Australia New Zealand Bank in The City covering sales, trading, P+L reports and market analysis. Exactly where I started many moons ago.

Nick Kennedy is standing down having worked on the STA’s website for two consecutive three-year terms where he ‘‘completely dedicated himself to giving us the best website money can buy’’; I so love his hallmark dry sense of humour. He’s found working on the Committee a ‘‘useful experience which allows one to work on things you don’t usually encounter’’, adding: ‘‘I tend to delegate and let other people shine. I’ll never stand in people’s way.”

I moved on to our marketing manager

10

NEWS

Eddie Tofpik who told me he’s aiming at ‘‘a new decade, a bigger, better, faster STA’’. He then slid into talking about the Metatonic Cycle (a new one on me) which, he tells me, is linked to Gann, lasts an average 12.5 years, and the most recent one was in 2008; therefore in 2020 stocks and credit markets are most vulnerable. You have been warned!

Moving over to a trim and happylooking Jeff Boccaccio. A regular presence at out monthly meetings for 10 years, he’s just been voted onto an STA Committee but will only find out in February which one it’ll be. A strong career starting at Deloitte Consulting, he moved into investment banking at UBS and then Barclays Capital.

Finding transitioning to a dealing room environment difficult, it was there he found that ‘‘technical analysis would underpin [his] trading and get the infrastructure down”.

Ex-Nomura head of technical analysis Tom Pelc has, since April, been setting up Pelc Enterprises Ltd, his consultancy firm for institutional investors and high-net-worth individuals. A four-tiered service, unusually without a website (maybe because, as he says, ‘‘you have to value yourself’’), he covers all the key markets including FX, fixed income, indices and major commodities.

A quick chat with a blast from the past, Sankar Sharma who, because he’s been working abroad, hasn’t been to one of our monthly meetings since 2005. And you know what? With like-minded, friendly people, you immediately pick up where you left off.

My last port of call was Axel Rudolph - who was in very good form. Despite stepping down from the Chairman’s role and the Board after 19 years and 10 months, he’s very much in-situ on the education side of things. A new boy on the block back then, and because nobody had formally introduced him to the Board, ‘‘Deborah (Owen) and

Adam (Sorab) were so suspicious of me’’.

“It’s great to give back and great that the STA has people who are so enthusiastic,” he confided, adding that it may not have been such a smooth ride for his wife!

A little glimpse of the STA at work, and bonding at its best.

Nicole Elliott, FSTA

Technical Analyst, Private Investor, E-journalist for the STA

The Society of Technical Analysts: www.sta-org.uk

NEWS

11

STA 50th Anniversary Book David Watts MSTA BSc (Hons) CEng MICE MIWEM MSTA Systems and Website Specialist

In 2020, Harriman House will be publishing a book containing the best Market Technician articles from over the years in celebration of the STA’s 50 plus years.

With article topics written by leading proponents in their field, this book will offer insights into how technical analysis has evolved over the years and highlight the different techniques that can be used to identify trends and patterns.

Wide-ranging topics include Point & Figure, Gann Analysis, Market Psychology, Elliott Wave, Fibonacci, Bollinger Bands, Momentum, Trending and Sentiment, Moving Averages and Systematic Trading techniques.

To receive updates about this exciting new publication, email info@sta-uk.org

12

RESEARCH

Gauging Relative Technical Values of G10 Currencies Introduction: keeping it simple Sitting on an FX trading/sales desk, there were two questions I was asked most.

‘Where’s the next level in...?’ and ‘I know I’m bullish of X, but what should I buy it against?’

At this point I’d look through the various crosses for that currency and come up with my view. While using technicals is obviously much quicker than attempting to give a fundamental perspective, I always thought a consistent and easy way of gauging the technical backdrop of each currency would be ideal.

Richard Adcock MSTA

Richard Adcock MSTA is a Managing Director, Adcock Analysis Ltd, an independent technical research service offering subscriptions for weekly reports and daily updates on FX and rates markets.

Richard previously worked for Brevan Howard and was formerly Global head of Technical Strategy for UBS. He is co-Vice Chair of the Society of Technical Analysts.

I didn’t want anything based on simply how far something had already moved relative to something else, rather a measure to summarise what I was looking at when sifting through all my charts. At this point, I developed my G10 technical ranking and scores table.

I am always one to keep things as simple and easy to understand as possible and this approach is no different. While being simple in its construction, it offers a consistent and reliable appraisal of changes of relative technical value of individual G10 currencies, purely from a technical perspective.

What Indicators Do I Use? I should say here, I use my own proprietary combination of technical indicators. However, anyone who has heard me speak, or has read my previous articles in this journal, will know at the cornerstone of everything I do, are MACD trending and Stochastic momentum tools. These obviously play an important part of the calculation of rankings, alongside other indicators.

While not giving exact details of

what I use, this doesn’t stop you experimenting with your own favourite and trusted indicator combination to achieve a similar result. I use several well-known technical tools, concentrating on momentum, trending and sentiment measures across all 90 G10 pairs.

Once the range of indicators is established, at the end of each trading session, I run a scan on all G10 pairs counting the number of positive indicators and number of negative conditions, ending with a technical ‘score’. The higher the number of positive indicator readings, the higher the ‘score’ and higher a currency’s relative standing within the G10. In my approach, scores range between +18 and -18.

No great surprise that results offered little more than a list of 10 currencies!

True, number 1 is the top technically ranked currency and number 10 the lowest, but it’s very one dimensional and sums up historical activity, rather than having any sort of predictive quality.

Looking Closer at Scores Being technical analysts, we love charts. Let’s be honest, we look for patterns in any chart we see, no matter what the subject.

Thinking about the issue I faced with the basic list of 10 currencies, I decided to look closer at their individual scores.

Table 1 shows a snapshot in time:

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

13

Table 1: G10 Technical Rankings Table & Scores Position

Currency

Change

Score +18/-18

Yesterday’s Score

1

NOK

Unchanged

12

12

2

CHF

Unchanged

10

10

3

CAD

Unchanged

7

5

4

NZD

Unchanged

4

3

5

JPY

Unchanged

0

-1

6

EUR

Up 2

-5

-5

6

SEK

Up 1

-5

-4

8

GBP

Up 2

-6

-10

9

AUD

Down 4

-7

-1

10

USD

Down 1

-10

-9

As you can see, it offers a snapshot of the current ‘relative technical value’ for each currency, and a little more information in terms of direction of both scores and ranking levels. However, as I said, it offers no predictive ability, whatsoever.

The most dynamic measure is the scores figure, so I started to chart this, seeing if this would offer more information to changes in not only the technical relative value of each currency, but also directional risks.

Construction In a similar fashion to stochastics or MACD, to achieve a directional bias of scores, I use two averages (see Figure 1 which uses the NOK as an example). The shorter term average (blue line) rising above the longer term (red line) reflects the number of positive indicators that are improving/number of negative indicators decreasing, while the shorter term average below longer term, shows the number of positive indicators decreasing/number of negative indicators increasing. The grey line shows the ranking standing within G10.

To put it another way, rising averages highlight an increase in the technical relative value of that currency and likely outperformance of those G10 currency’s with declining scores, or in other words, seeing depreciation of their technical relative value.

Figure 1: NOK Smoothed Scores and Ranking Levels

Chart by Adcock Analysis Ltd

14

RESEARCH

In Figure 1, the NOK has just seen its scores turn lower with a top G10 ranking suggesting that a correction, or phase of underperformance is possible, as a reaction to the recent advance. At this point, I would look at the other score charts, seeing which currency has rising scores, as this shift in relative value will likely see more pronounced movement between that pair.

The ideal set-up would be one currency seeing scores turn down, at the same time as another crosses higher. In Figures 2 and 3, I highlight such a signal. At the end of April 2018, GBP smoothed scores crossed lower and broke down from sideways activity; on the same day USD scores crossed higher, reflecting potential for GBPUSD downside. This was based purely on a deteriorating indicator backdrop for sterling, while the USD technical relative value was improving, pointing to new upside risks.

Figure 2: GBP Smoothed Scores and Ranking Levels

Chart by Adcock Analysis Ltd

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

Figure 3: USD Smoothed Scores and Ranking Levels

15

Chart by Adcock Analysis Ltd

In Figure 4, the red arrow pinpoints the session where GBP smoothed scores crossed lower and USD smoothed scores higher.

Evidence was that, while the cross had already fallen, the change in GBP scores reflected a more extended phase of weakness for GBPUSD, resulting in a prolonged decline. If we continued to see GBP smoothed scores fall and USD scores rise, downside risks would remain.

16

RESEARCH

Figure 4: GBPUSD Daily Chart

Chart by Updata

Nine days later USD technical relative value deteriorated, and smoothed scores crossed lower and while GBP smoothed scores continued to fall. This indicated an easing in GBPUSD downside pressure. Not a positive signal for cable, as both scores were now falling, but certainly a sign of consolidation and reaction to what had been a sharp decline.

Figure 5: USD Smoothed Scores and Ranking Levels

Chart by Adcock Analysis Ltd

The red arrow on Figure 6 shows when both GBP and USD smoothed scores started to fall, reflecting a more balanced GBPUSD backdrop, increasing possibilities for a consolidation. It’s at this point we would revert to the sidelines, awaiting fresh signals and a new directional bias to be established.

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

Figure 6: GBPUSD Daily Chart

17

Chart by Updata

Smoothed Scores and Rankings Approach This approach gives an easy-to-calculate, easy-to-understand measure of relative technical value for each G10 currency, by filtering out the subjective nature of indicator analysis. Quite simply, an improving technical backdrop is reflected by an increasing number of positive technical indicators and a turn higher in our smoothed score measure, reflects an improving picture for that currency, especially against those ranked lower and/or with declining smoothed scores.

I monitor these conditions on a day-to-day basis, using them to flag up potential for a more prolonged and extended move, where scores within a pair are moving in opposite directions.

Any questions or for more examples of our smoothed score approach, please email me at richard@adcockanalysis.com

18

RESEARCH

Something new under the sun?

‘If it can’t go up, it’s going down.’

Although it sounds pretty obvious, this advice given to us at a Gann seminar in the 1990s still proves to be highly valuable today. The speaker was referring to a move to the next Gann fan line on an uptrend not reached – which would indicate that the market was potentially heading lower.

I was first introduced to Gann by my then-boss at Standard & Poor’s MMS, Gerry Celaya. We attended a Gann seminar by a company that was developing Gann software. This triggered my interest in the theory and led me to do more research.

Patricia Elbaz MSTA

Patricia Elbaz MSTA was Foreign Exchange Manager - Technical Analysis at MMS Standard & Poor’s before moving on to freelance work. As independent technical analyst she has conducted technical analysis seminars for the French Institute of Bankers, Futures and Options World, Bloomberg, and Association Française d’Analystes Techniques as well as for the STA. She now also lectures on behalf of the STA at Queen Mary University of London.

To put things in context, I was working for ‘workaholic’ Gerry. I can particularly remember being ill with a very bad cold a few days before Christmas, calling Gerry to say that I was too ill to come in. His reply was: “No problem, we’re all ill, come and join the party!”

His persuasive tone led me to head to work and... yes to spend the holiday and New Year’s Eve ill! This is why ‘workaholic’ would be the right adjective. In any case, I would say that my interest in technical analysis stems primarily from working with Gerry in the early 1990s and learning from his highly professional application and research of technical analysis on all markets - so no grudges!

Back to the Gann topic. William Delbert Gann (1878-1955) was said to be an outstanding stock and commodities trader. He was highly praised by Richard Wyckoff , a respected Wall Street trader in the 1900s who recorded gains made by W.D. Gann trading commodities. Gann was also a teacher on how to make speculation a profitable profession using his theory.

He wrote seven books, including 45 Years in Wall Street and produced two courses on trading the stock and commodity markets.

While many books support Gann’s success, there is also much

controversy regarding his work and some critics argue that there is no compelling evidence that Gann was a successful trader. Alexander Elder, in his book Trading for a Living 1993, was one of these critics, and is quite sceptical about Gann’s claimed success.

There are many aspects to Gann’s work, including Gann geometric angles and percentages, Square of 9, swing charts, astrology, the squaring of Price and Time. In this article we are going to focus primarily on the Gann fan lines and their use in some of the FX, equity and commodity markets. The fan lines, as support and resistance lines and as an indication of how impulsive a trend is, have proven to be highly significant.

Gann was fascinated by the relation between price and time. On a proportionally squared paper, the 1x1 geometric angle - which shows a move of one unit in price for one unit in time is a 45-degree angle line.

Applying 9 Gann fan lines to some recent pivotal market moves Today’s computerised Gann fan lines would not show the same equality of price and time scaling, indicating that the Gann angles would also appear differently when drawn on proportioned grid. In the examples that follow, we will look at the fan lines in terms of unit of price and time rather than angle degrees, using weekly charts.

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

19

Figure 1: 9 Gann fan lines on FTSE100 from 2009 post-financial crisis low

CHART 1 - FTSE 100

1x1 KEY RESISTANCE

Starting with Figure 1, the 9 Gann fan lines are drawn on the FTSE100 weekly charts, from the post financial crisis major low of 2009 at 3,462.9. The following figures show the lines as Price x Time, in that order. The weekly charts show that the 1x1 acted as significant support from August 2011 through to August 2015. The break of support at 6560 in Aug 2015 led to a move lower but not as low as the 1x2 support line. This signalled that the down move was not strong.

So, what are the current fan lines indicating? The 1x1 has acted as major resistance and has been touched on seven occasions, and at times briefly broken, but has not given way. The combination of the 1x1 resistance, and the psychological level at 8,000, shows that this is the area likely to be the trigger for a continuation of the FTSE100 rally. The recent series of lower highs point to a potential range ahead rather than a sharp rally.

1 Richard Wyckoff, The Ticker Magazine, 1908 2 W.D. Gann, 45 Years in Wall Street, 1949 3 Alexander Elder, Trading for a Living, 1993

20

RESEARCH

Figure 2: 9 Gann fan lines on S&P500 show low seen in 2009 has acted as major support

CHART 2 - S&P 500

1x1 MAJOR SUPPORT

In Figure 2, the fan lines on the S&P500 clearly show the 2x1 as strong resistance over mid 2010 to mid 2011. The 1x1 taken from the major low seen in 2009 has acted as major support over the 10-year rally. The break of the psychological level at 3,000, and fresh historic highs above 3,220, show that the sharp impulsive move is back. So 3,500 would be the medium-term level to watch.

The 1x2 is seen as the key support line.

4 All Gann lines drawn from ShareScope charts

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

21

Figure 3: 9 Gann Fan lines on GBP/USD from the major peak of November 2007

CHART 3 - GBP/USD

1x1 AT KEY LEVELS

Figure 3 shows the declining GBP/USD, with Gann lines from the major peak of November 2007 just above USD2.10. The weekly chart show how the 1x1 fan line acted as major resistance in 2015 and 2018. The line stands at USD1.31, which is the trigger for GBP climbing back above the USD1.40 area. In this case, the base building in the USD1.20 zone would play out. The pivotal level would be USD1.30 and on a convincing move above the 1x1.

22

RESEARCH

Figure 4: Gann lines on EUR/USD signal potential euro gains

CHART 4 - EUR/USD

BREAK OF 1x1 SIGN OF EUR GAINS

2x1 SUPPORT

Turning to Figure 4, the move above the 1x1 in EUR/USD gives a signal that there are potentially more euro gains ahead. A sustained move above USD1.11 would indicate a potential medium-term rally to USD1.20. Support is at USD1.10 and USD1.08.

Note that the 2x1 fan line acted as major support in 2015. The chart pattern of note in EUR/USD is a descending wedge, which gives a USD1.15 target.

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

23

Figure 5: Gann fan indicates potential for consolidation in spot gold prices

CHART 5 - SPOT GOLD ($)

2 X 1 SUPPORT

BOUNCE OFF 1x1 SIGN DOWNTREND WANING

In our final chart, Figure 5, we looks at the fan lines on spot gold weekly prices. The bounce off the 1x1 support line in December 2016 at USD1,132 was a signal that the down move was waning. The break of the 1x2 encouraged further gains. At present, spot gold is challenging the 1x3 line with the clear trigger higher at USD1,500 on a close basis. Sustained moves above the 1x3 would indicate scope to USD1,600. There is potential for consolidation, then, given the sharp gains seen over 2019.

Conclusion "That which has been is what will be, that which is done is what will be done, and there is nothing new, under the sun."

This quote from Ecclesiastes Chapter 1, Verse 9 was very relevant to the work of W.D. Gann and to his beliefs. He believed that the law of action and reaction meant that history had to repeat itself. Markets are driven by human beings, he reasoned, and they repeat their behaviour cycle after cycle. The Magic Word, published in 1950, was the last book that he wrote. Its subject matter has nothing to do with investing; it contains advice on how to help oneself with the Bible as a guide. Gann gave credit to the Bible for his good health and success.

The five charts analysed above show some of the many uses of the Gann fan lines in assessing the strength of the trend and associated support and resistance lines. They have proven to be a strong signal and, used with other technical analysis indicators, continue to be highly relevant. In this case, there is certainly cause for saying that there is something new under the sun.

24

RESEARCH

Hidden Treasures of Ichi “Ichi -The One That Stands by You When You Need It Most!”

Would you like to know about a strategy that could gives you trend direction that is highly suitable for entries and exits, offers four levels of support and resistance and that also gauges momentum? If the answer is yes, then let me introduce Ichimoku and the hidden secrets of Ichi. Once you see the hidden treasures that Ichi gives you, you won’t need to be sold on to the idea any further; you will be itching to try it out. That is the power of Ichi.

What is Ichimoku?

Ichimoku is a technical analysis strategy, a Japanese charting method. Ichimoku Cloud (also known as Ichimoku Kinko Hyo) was presented by Goichi Hosoda in his 1969 book. The title well describes what Ichi offers: when translated into English, it means ‘One-look equilibrium chart’. At a glance, it enables a technical analyst to identify the trend and direction, and to look for potential signals to enter or exit the trade within the trend.

Sankar Sharma

CEO and Founder of RiskRewardReturn.com Sankar Sharma MSTA MBA is passionate about technical analysis, training, speaking and trading. He is the author of the book Stock Trading Made Simple and also the founder and CEO of RiskRewardReturn.com. Sankar currently trains and mentors students in the trading and investment community from all over the world including UK, Europe and India, sharing his 32 years of market experience. He is the creator of the ‘3R Methodology’, a new systematic method and hexagon framework for trading success and building smart portfolios.

When you first look at Ichi, it can appear overly complex. But once you reach the end of this article, you will have more clarity.

Ichi Vocabulary Before we discuss how to make use of this technique in trading, it is important to get familiar with the vocabulary used in the Ichimoku world. This article will use English equivalents when explaining various aspects of Ichimoku cloud. Hopefully this will make it easy to remember, recollect and reuse.

There are five plots within the Ichimoku Cloud. These are the Turning Line, Standard line, Leading Span A, Leading Span B and Delayed Line (Lagging Span/ Chikou Span).

1. Tenken-Sen/Turning Line/Conversion Line (nine period).

On a daily chart this line is the midpoint of the nine-day high-low range.

This is a faster and active line. Sensitive to price movements. For our discussion we will use Turning Line as our plot name for Tenken-sen.

2. Kijun-Sen/Base line/Standard Line (26 period).

On a daily chart this line is the midpoint of the 26-day High Low Range. For our discussion we use Standard line as our plot name for Kijun-Sen. 3. Senkou Span A/Leading Span A This is the midpoint between the Turning Line and Standard Line. Ichi cloud has two boundaries and the Leading Span A forms one of the two boundaries. This is plotted 26 periods in the future and hence the name Leading Span. Leading Span A is the faster boundary.

4. Senkou Span A/Leading Span B On A daily chart this is the midpoint of 52-day high low range, plotted 26 periods in the future. Leading Span B forms the other boundary. Leading Span B is the slower cloud boundary.

5. Chiko Span (Lagging Span/Delayed Line/Lagging Line) This is, as the name suggests, close plotted 26 days in the past.

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

25

Bullish and Bearish Ichi Clouds (Kumo): The Leading Spans A and B form the cloud. When Leading Span A is above B, we get a Bullish Cloud. When Span B is above Span A then we have a Bearish Cloud. Figure 1 of Citrix Systems prices shows a visual representation of clouds and the five plots of the cloud.

Figure 1: Bullish and bearish clouds and the five plots using Citrix Systems

ŠRiskRewardReturn.com

Ichi Chart Setup and Suggested Colours Set up the Ichi charts as follows: Set your advanced shift to 26 period and the second span to 52 period. You may want to set your Turning Line to nine period and your colour to green while keeping the line size thin. Set the Standard Line as 26 period and the colour for Standard/Base Line/Kijun-sen to a dark red thick line. Set the Delayed or Lagging Line to 52 period and colour to cyan.

You may want to use pink for bearish clouds and cyan for bullish. This selection will avoid colour interference between the Turning and Standard Lines, see Figure 2.

Figure 2: Suggested Ichimoku Chart Settings

ŠRiskRewardReturn.com

In English

Cloud

Base/ Standard Line

Turning/ Conversion Line

Delayed/ Lagging Line

Ichi Name

Kumo

Kijun-Sen

Tenkan-Sen

Chikou-span

Suggested colours to use

Cyan for Bullish Cloud and Pink for Bearish Cloud

Dark Red Thick Line

Green Thin Line

Cyan/Silver Grey

Settings

Advanced shift 26 period and 2nd span 52 period

26 Period

9 Period

52 Period

Additional Terminology The following Terminology will help to simplify your use of the Ichimoku for trading. Figure 3, which shows share prices for Tesla, gives some pictorial representation of these terms.

26

RESEARCH

• Bear Flat Resistance Zone In a Bear Cloud, Leading Span B stays horizontal and flat at times. These flat horizontal levels (Bear Flats) will act as a future resistance (Bear Flat Resistance zone). They are formed at the top of the Bear Cloud. (In Figure 3 they are marked as 1. Bear Flat Resistance Zone. Of course, when the price breaks through them, they will become future support.

• Bull Flat Support Zone In a Bull Cloud, Leading Span B also stays horizontal and flat at times. These Flat horizontal levels (Bull Flats) will act as a future support. (This is marked in Figure 3 as 2. Bull Flat support zone.) These are formed at the bottom of the Bull Cloud. When this support is broken through, it will become future resistance.

• Bull Inversion Support Zone The point at which a Bearish (pink coloured) cloud inverts into a Bull cloud, the point of inversion looks as if it is twisted and inverted. (In Figure 3, this is the Tesla chart node marked as 3). When you draw a horizontal level through this twist, this level acts as a support in future and prices often tend to react at that level.

• Bear Inversion Resistance Zone The point at which a Bullish (cyan coloured) cloud inverts into a Bear cloud (pink), the point of inversion looks as if it is twisted and inverted. (In Figure 3, this is the Tesla chart node at 15 February 2019 marked 4.) When you draw a horizontal level through this twist, this level acts as a resistance in future, and prices often tend to react at that level. (See the elements in Figure 3 marked 5(a) and 5(b).) These inversion resistance and support zones not only spot hidden levels but also add precision to your trading.

Figure 3: Illustration of Additional Terms using Tesla prices

©RiskRewardReturn.com

Resistance and Support Levels There are five plots of Ichi we need to pay attention to in order to gauge support and resistance levels. They are the Turning or Conversion Line, Standard or Base Line, Top of the Cloud (Bear Flat Resistance zone) and Bottom of the Cloud (Bull flat support zone) and of course Bull Inversion Support and Bear Inversion Resistance zones.

Some may argue that the Bull or Bear Inversion zones could be same as the top or bottom of the cloud. However, the distinction is useful at times when we have multiple resistance and supports, and the inversion support and resistance zones take precedence.

When price in an uptrend pulls back, as discussed, it is likely to find support at any of the Turning line, Standard line, Top of the Cloud or Bottom of the Cloud. This is illustrated in Figure 4, which uses Verisk Analytics prices. The levels marked 1 to 4 acted as a support and are marked by blue horizontal lines.

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

Figure 4: Verisk Analytics Prices Show Levels acting as a Support in an Uptrend

27

ŠRiskRewardReturn.com

When the price is in a downtrend and tries to retrace, then it will find resistance at the Turning Line. This is shown in the Xilinx price chart of Figure 5 as Arrow 1, with Standard Line as Arrow 2, Bottom of the Cloud Arrow 3 and Top of the Cloud Arrow 4.

Figure 5: Xilinx Prices Show Levels acting as a Resistance in a Downtrend

ŠRiskRewardReturn.com

Clouds Inversion - Resistance and Support Bull Inversion Support Zone When a Bearish Cloud inverts into a Bullish Cloud (Bull Inversion or Bull Twist) then the horizontal level drawn from the point of inversion indicates a high probability support zone. Figure 6 shows the price chart of Boeing. On 25 February 2019, the Bear Cloud

28

RESEARCH

inverted into a Bull cloud. If we draw a horizontal line at that point we can extend it to draw the Bull inversion support zone. We can then see 69 days later on 4 June 2019 that this line acted as a strong support where price reacted and bounced back.

Figure 6: Boing Prices Show Bull Inversion Support and Bear Inversion Resistance zones

©RiskRewardReturn.com

Next, consider a Bear Inversion Resistance zone, the line drawn through the point where the Bull Cloud gets twisted into a Bear Cloud, acting as resistance. When a Bullish Cloud inverts into a Bearish Cloud (Bear Twist), then the level drawn from the point of inversion gives a high probability resistance zone for future price movements.

In Figure 6, the Bull Cloud inverted (twisted) into a Bear Cloud on 30 April 2019. A line drawn through this exact point, the Bear Inverted Resistance Zone, then acted as a strong resistance on 30 September 2019, 106 days later. Note there are lot of lines we could have drawn with several cloud tops and bottoms, but this Bear Inverted Resistance zone acted as a much stronger resistance zone when compared with any other cloud top or bottom we could have drawn near or around this level.

Managing the Trade Lifecycle using Ichimoku To achieve a successful trade, there are five steps to follow. Ichi helps us through each of these: • • • • •

Step 1: Step 2: Step 3: Step 4: Step 5:

Identifying Trend and Direction Assessing Momentum Identifying high probability entry Identifying where to add to the position Identifying high probability exit

Step 1: Identifying Trend and Direction using Clouds As we all know, the trend is our friend. But to make that work for us, we need to get both the Trend and Direction right before thinking of Entries and Exits.

Bullish Trend and Direction Up Take a look at Figure 7 of Activision Blizzard stock prices. If the Bullish Cloud (cyan) is expanding and is higher than its nearest

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

29

Bearish Cloud (pink), making higher Flat Support zones, then the Direction is suitable for going long on a stock or instrument.

The trend is up! We can see that the price action is very messy between September and November, but the clouds are giving clarity with both Trend and Direction. Bull clouds were expanding and making new highs. Support flats were making higher highs, confirming the future direction of the stock was still up. It is worth noting the bear clouds getting smaller and smaller...

Figure 7: Activision Blizzard Stock in a Strong Uptrend

ŠRiskRewardReturn.com

Bearish Trend and Direction Down If the Bearish Cloud (pink) is expanding, is below its nearest Bullish Cloud (pink), making lower Flat Resistance zones, then the direction is suitable for going short on a stock or instrument. The trend is down. Figure 8, of the stock price of BioMarin Pharmaceutical, shows Bearish Clouds expanding to the downside and Resistance Flats making new lower lows.

Figure 8: BioMarin Pharmaceutical Stock in a Strong Down Trend

ŠRiskRewardReturn.com

30

RESEARCH

Trading Range When Clouds alternate from bull to bear and back, we are in a trading range. The likely future direction can be forecast using a combination of the cloud that is expanding in size and the cloud that is contracting. Figure 9 shows the Teucrium Wheat Fund, with Bull and Bear clouds alternating, implying sideways price action.

Figure 9: Teucrium Wheat Fund Shows Sideways Price Action as Bull and Bear Clouds Alternate

ŠRiskRewardReturn.com

Trend Reversal Clues from the Cloud Now look at the patterns in the General Electric stock price revealed by Figure 10, in particular the parabolic price level drop.

The most important clue comes where the Bullish Clouds (cyan) begin to contract, the Bearish Clouds (pink) start to enlarge and then the Bull Cloud disappears altogether, indicating an imminent downside in price. When the price is under the Bear Cloud (pink) there is no point in opening long-term buys. Following this simple rule could have saved a tonne of losses in this trade while buying a put option would have worked nicely.

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

Figure 10: Trend Reversal clues in General Electric’s share price

31

©RiskRewardReturn.com

Step 2: Assessing Momentum To assess the Momentum, for short-term indicators, we can consider the price position relative to the Turning line. For mediumterm momentum, however, we consider the price movement relative to the Base/Standard Line, the relative angle of ascent or descent between the Turning and Standard Line and distance of the turning as well as the base line from the cloud. An example is shown in Figure 11, which shows equity price moves for Eli Lilly.

Figure 11: Strong Momentum Stock Eli Lilly

©RiskRewardReturn.com

32

RESEARCH

When the price is above the Turning Line (nine period) we have short-term momentum to the upside. When it is above the Standard or Base Line (26 period) we have medium-term momentum to the upside. When the short-term Turning line crosses the medium-term Standard Line to the upside from below, then we have a buy signal to take a long position. Similarly, if the Turning Line crosses below the Standard Line we have a signal to sell or open a short position, or take a put option trade.

Ichimoku Delayed Line The Ichimoku Delayed line is used for confirmation, or as a filter when taking Turning and Standard Line crossovers. If the Delayed Line is above the price, then prices are biased to the upside and the reverse if the delayed line is below the price.

Some analysts might prefer to keep the delayed line switched off most of the time, in order to see a clean chart. In my view, though, it is essential as a filter and switching it on before your final checks is extremely useful. You can switch it off again once the check is made.

Step 3: Identifying high probability entry High probability entries minimise the risk of entering a wrong trade, and give us an incredible opportunity to catch a trend at its start.

Price Crossing the Cloud: Buy and Sell Signals A price “Crosses the Cloud� when it travels in an uptrend then comes down, pierces the cloud to move below it, retraces and does a retest before going down. At this point we get a High Probability Sell signal where we could have taken a short or a put option.

This is a bearish signal, pointing to downwards movement in price. Figure 12 shows an example of this happening in Newmont Goldcorp stocks, with the High Probability sell signal generated on a retest to the bottom of the Bull Cloud on 18 April 2019. On 5 June 2019, we then see a high probability buy signal when the price breaks above the cloud and does a successful retest. Once in the trade, the bull cloud starts to expand and goes higher than the nearest cloud.

Figure 12: High Probability Sell and Buy Signal in Newmont Goldcorp

ŠRiskRewardReturn.com

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

Figure 13: High Probability Buy Signal in Apple Shares

33

©RiskRewardReturn.com

In Figure 13, the price chart of Apple shows the High Probability Entry on 7 August 2019 at USD192.75; the price had broken above the cloud somewhere around the last week of June and before coming back to retest it.

Sometimes when the trend strength is too strong, the price might not come back all the way to the top of the cloud to retest and thereby give the High Probability Buy signal or the sign to go long. In such cases the next High Probability Entry is when price retraces to the Turning Line.

Step 4: Identifying When to Add to a Position Once we have got our entry right, the next logical question that follows is when to add to our existing position. For this, we need to understand the Overbought and Oversold Conditions.

The oversold condition Take a look now at Figure 14. In an uptrend, when the price is above the Bull Cloud (cyan) and the price doesn’t go up in a straight line, as we all know now it retraces. However, when the price retraces in an uptrend to the Standard or Base Line - or even goes little bit below it - we now have a stock that’s in an Oversold Condition. These levels give us the best position to add to our existing long position. If the strength of trend is very strong and momentum is strong, we could also use the price pivots at the Turning Line as a possible place to add too. Figure 14 shows that in 2019, Travelers was in a strong uptrend, and kept giving multiple opportunities to add to an existing profitable long position.

34

RESEARCH

Figure 14: Oversold condition signals to add to existing positions in Travelers

©RiskRewardReturn.com

Overbought condition In a strong downtrend, when the price retraces above the Standard/Base Line or to the Turning Line (if the trend is too strong), we now have an opportunity to add to our winning short positions. You can see in Figure 15 that this is what’s going on in the price chart for TripAdvisor Inc.

Figure 15: Overbought Condition - Time to add to Shorts in TripAdvisor

©RiskRewardReturn.com

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

35

Step 5: Identifying High Probability Exit When you are in a winning trade it is important to maximise your return. This means finding a High Probability Exit and ensuring that you don’t give it all back.

We have several alternatives here. We could exit on a Pattern Target or a Fibonacci level. In the case of a short position, we could exit when the price crosses above the cloud and stays above it for at least three periods. For a long position in an uptrend, we could sell when the price breaks through the cloud to the downside. Those who are less patient or use short-term options could use the Turning Line crossing over the Standard Line to exit a long position, or end short positions when the Turning line moves up through up the Standard Line.

Figure 16 is the weekly stock price of Adobe and it clearly indicated a High Probability Exit when the price broke below the cloud.

Figure 16: High Probability Exit Signal in Adobe’s Uptrend

©RiskRewardReturn.com

Putting it All Together A Case Study Using Boeing Shares I now present an example of incorporating all this new Ichi knowledge into trading, using recent stock price movements in Boeing - see Figure 17. Here is how the trade came together: the share price broke down through the cloud and retested - giving a Sell signal to open a Short position or Put Option at USD355.37. Our target is the bottom of the Cloud, which is acting as support and also confluence (Target is Price Pattern Target). For confluence, we could use the bottom of the cloud support from the past. So, the confirmed exit is then USD320, and this was hit perfectly to the tick. Note that the top of the purple bearish purple acts as a stop loss at USD357.84. This offers excellent risk reward. We would expect the price to bounce at the support zone, the Bottom of the Cloud, at USD320.

36

RESEARCH

Figure 17: Putting it all Together with Boeing Shares

ŠRiskRewardReturn.com

Summary Ichimoku is one of the most precious treasures in technical analysis, and I believe it is difficult to resist just falling in love with this methodology. Using Ichimoku you can assess not only the trend but also the strength of the trend, and forecast change by examining the cloud ascents, descents and size. Ichi not only shows you the existence of momentum but also gives the strength of that momentum, short- and medium-term inclusive. Ichi gives clear signals where we can add to an existing winning position as long as the trend exists. Its delayed line acts like a filter to avoid false breakouts.

Ichimoku gives four levels to focus on price retracement when in a trend. It also gives high probability entries and exits. It identifies support and resistance levels in the form of top and bottom of clouds. Also, Ichi gives the bull inversion support and bear inversion resistance levels. Ichi is a priceless treasure.

Sankar Sharma, MBA, MSTA, Market Strategist, Consultant, Educator and Speaker, RiskRewardReturn.com Š2019 If you have any questions regarding this article, please feel free to email me directly sankar.sharma@RiskRewardReturn.com Thank you very much.

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

37

An Introduction to the Secret Language of Bars and Volume: Using the Teachings of Wyckoff Introduction This study we will cover and use various tools within our methodology. These include Effort vs Result, supply and demand imbalances, no-supply tests, comparative and relative analysis, structure, the importance of holding higher levels of support and its interpretation, a spring play, bar by bar volume analysis, basic price action, logical thinking, our thought processes and – importantly - the importance of structure.

Structure is extremely important for our strategies as 95% of our plays originate at structure. Not only is it the road map for price, we lean against structure as it acts as a support mechanism for our plays (either bullish or bearish) and for this very reason we are experts at applying and interpreting structure, it is an extremely integral part of our process, often underused, misinterpreted or used incorrectly.

William Reardon

CEO and founder of Feibel Trading Ltd William Reardon is CEO and founder of Feibel Trading Ltd and the creator of Logical Price Action. He specialises in exploiting the supply/demand imbalance by using the lost art of bars and volume and is internationally recognized as one of the world’s leading authoritarians on the subject.

Wyckoff Volume Spread Analysis of the E-mini S&P 500 For this study we use the E-mini S&P (ES) on a five-minute timeframe. To avoid confusion, the term ‘spread’ is used to define the bar length. This was coined by a modern branch of Wyckoff, known as Volume Spread Analysis, or VSA. In essence we compare the individual bar’s length and volume to other bars to help decrypt any supply/demand imbalances that may be apparent. For those not familiar with bar/volume analysis, I have tried to break down the chart into simple, logical, palatable chunks.

Figure 1: A downtrend channel shortly after open

38

RESEARCH

Our main focal point here is the downtrend channel and the bars within. The US opens (2:30pm GMT) volume increases, drives up, then reacts. What can we note? What can we observe about this reaction? Well, all the high volume bars are buying related (illustrated by the Bs) if we discount the original drive. We can see that, every time the market tries to gain traction to the downside, it is checked with buying; the 2nd, 3rd, 4th buying bars all halt downside progress from the previous bar. Price dips under the previous bar to reverse and close firm with a pop in volume. What does this action mean? Clearly someone is buying into this reaction, to the astute trader this is clear as day. I repeat: someone is BUYING into this reaction.

If we look at this reaction from a macro perspective (zoom out a little) one can instantly recognise that the selling is of poor quality. It’s a very choppy down move. We’re not coming down with any alacrity, not producing widespread down bars with spikes in volume.

Nothing to do here, just observing the price action. As I said, it’s clear to see that buying is present and the selling is poor in comparison and our mini trend channel has contained price. NOTE how the price tries to break the channel towards the end, yet is contained; ergo we know it will take effort to break...

We’re going to dig a little deeper into this reaction with some bar by bar analysis.

Figure 2: A transference between the buyers and sellers

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

1. Widespread, average volume, makes the lowest low and close. Closes off the lows, hence a little buying is present,

however one would expect further downside progress.

2. An interesting bar, we have one our universal laws in play; a bullish case of Effort vs Result; in simple terms, hidden

buying. Let’s say for all intents and purposes that Bars 1 and 2 have the same volume, yet the spread via 2 is a good third smaller. With the same force (volume) the markets prints a smaller spread and we’re trying to gain traction to the downside. Ask yourselves logically: what is the only force that can prevent Bar 2 from printing the same size as 1? The answer is BUYING! It has to be buying, because that’s the only force that can prevent Bar 2 from producing a wider spread, which we have seen via Bar 1 with the same force. Very interesting behaviour, then boom Bar 3 confirms our analysis.

3. Bar 3 dips under the lows of 2 to reverse and close firm with similar volume, yet the spread is 30%, 35% larger. This we call ease of movement. We’re getting good flow to the upside and with similar volume we print a wide spread. This we

interpret as a lack of selling pressure.

Bars 1 to 3 show a transference between the buyers and the sellers. They are changing hands here. This is the critical juncture on the chart, and as you become familiar with bar/volume reading it all becomes second nature. There is another tool we use, again logic based. What does the bar in question achieve? Bar 3 engulfs the previous bar and closes deep into Bar 1, showing further positive attributes.

As is stands, with no further context, there is nothing to do here. Granted there is a textbook two-bar reversal via Bars 2 and 3 with excellent volume characteristics. However it’s a very difficult play to initiate.

BUT we do have a clear story of strength emerging: someone was buying into the choppy down-move, bullish Effort vs Result via 2, and ease of movement via 3. Which, by the way, is the best buying bar on the chart at this time, much better than our original drive via the US open, more twice the volume of 3, yet the spread is only a third larger… ergo no ease of movement, there is a great deal of selling in this bar. It’s important to recognize that Bar 3 is INDEED the best buying since the US open; this is very important data.

Bars 4 and 5 – what can we note about them? They’re down-bars and they close off the lows, which indicates buying. Importantly they have low volume, in fact the lowest volume bars since the US open, and we’re trying to move lower but we can’t; there is NO selling force. Where is the selling we have seen previously at Bars 1 and 2? RIGHT HERE is our demand/supply imbalance. There is no supply, ergo we can buy Bar 5 confidently.

Let’s recap our story of strength: buying in the reaction, bullish Effort vs Result, we get ease of movement by Bar 3, few bars later NO supply; through disconfirming supply we get the confirmation of demand. By using logic and understanding our background conditions, Bar 6 here confirms the lack of selling pressure. This is the perfect response and should occur and does occur 80-90% of the time after no supply imbalances. Incredibly powerful trading; when you can read the shift and understand price/volume action, the charts will literally open up.

This study is for the advanced trader, no question. It doesn’t get much more difficult. However, if one is new or hasn’t achieved the level of chart reading or confidence to pull the trigger, we can still take this chart further. If, for whatever reason we don’t trade Bar 5, (which is OK - after all, one is buying near the supply line) we want to sell at resistance and buy at support. The chart does provide other opportunities.

39

40

RESEARCH

Figure 3: Further opportunities – confirmation of demand is revealed

Bar 6 is strength. We can see clear demand entering the market right after the market showed its hands with the no supply tests.

Volume is excellent, closes firm and achieves a great deal; breaks the supply line from the channel and the local level of resistance via A. In the next 30 minutes, we push higher, round over, odds favour a pullback, then boom Bars 7 and 8 print! It’s just beautiful.

We can buy these bars with confidence and it’s an extremely high odds play. Why? Well, at this point we have context. All of this analysis via the downtrend is strength, a clean break at Bar 6 proves demand, buyers are now in control, and then as we try to react we have two down-bars with low volume, the lowest volume for the day. THIS HERE is our supply/demand imbalance. There is NO SUPPLY, we’re holding gains, we don’t even react. In addition, B is a higher level of support, the market’s natural area to find buyers/test support is A. The fact we hold a higher level of local support is additional strength.

By piecing this together, it’s clear that we have no supply at support but we do have strength directly behind us; ergo one would expect higher prices. Think logically one last time about the price action. There is no volume on Bars 7 & 8; if sellers were in the market they would be defending their positions as they did in a previous area of supply (the original highs and turning point before the reaction). Through disconfirming supply we get the confirmation of demand.

There is another high-odds continuation play in the form of a Spring, which you can see at E, the most popular bullish trade within our methodology. Think of a Spring as a bullish form of price rejection.

The Society of Technical Analysts: www.sta-org.uk

RESEARCH

Figure 3: Further opportunities – confirmation of demand is revealed

The play is high odds for many reasons. Firstly, we are trading with the trend – always a plus. Secondly, and importantly, it’s the BUYERS that are in CONTROL, making higher prices, while the sellers need to prove themselves.

Finally, we can refer to price action with a little bar-by-bar analysis.

Take a look at Bar D, another case of Bullish Effort vs Result. We have three times the volume as C, yet the spread is only 50% wider and we close off the lows (indicates buying) and hold onto this local level of support. So with all that extra volume, we only make minimal progress to the downside. Note how little we gain in downside progress from close to close. All that extra force being volume yet we are not rewarded, ergo we know that this bar is full of hidden buying. It has to be.

Moving on. Bar E dips under the lows of D, finds no further selling, reverses to close firm and engulfs bar C and does so with equal volume. We now have a wider spread with the same volume, which of course we know to be ease of movement, and good flow to the upside. One could buy this bar on the close or, for the advanced trader, as we break the highs of D. For those interested, this market continues north to 2795 give or take, for the US close.

There is more to this chart that will increase the odds of success for our plays and this comes in the form of additional context from structure.

41

42

RESEARCH

Figure 5: Seeking to increase the odds of success

Bar 1 is yesterday’s high, an important level for traders, especially intraday traders, and the red channel is our reaction - the area we have studied.

From 1 (yesterday’s high), it clearly acted as resistance. And after a few attempts to break, we managed to push through and drive into new highs. As we start to react from the highs and approach this level, it should now act as support - a perfect example of the phenomenon that is support and resistance.

Bar A is our ease of movement bar, after our first case of Effort vs Result (bullish price action). By adding structure here this action, in terms of price, becomes a Spring. Moreover, it’s a high-odds Spring as price is oversold in our channel at support, which of course is a demand confluence (demand line via channel and horizontal support). Having added context in the form of structure, one can now comfortably buy the close of this bar, whereas we didn’t have this option at the beginning where we first started (Bar 3).

The purple highlight is the supply/demand imbalance at B. We previously made the argument that one should not initiate a play due to the trend channel, the supply line. NOW is the time to use logic; due to the additional context, A is a Spring with B being a test. There is NO SUPPLY at a good level of intraday support. Does this volume at B after the spring suggest that the market now has enough strength/force to break this level of support? No, of course not! Now ask yourselves this: what level holds more value?

Is it the supply line, which has lasted a couple of hours, or a mini demand zone, a support level that has held strong for a day and an half? When we break the market down into palatable chunks and use logic, we can often overcome potential obstacles very simply. There is no reason that one should not buy the demand/supply imbalance at B. If you have any questions regarding this article, please feel free to email me directly will@feibeltrading.com Thank you very much.

The TheSociety Societyof ofTechnical TechnicalAnalysts: Analysts: www.sta-org.uk

43

Did you know?

Did you know that eminent authors, John J Murphy, Robert Prechter and David Charters are Fellows of the Society of Technical Analysts. Click here to see the full list of Fellows.

www.sta-org.uk

44

ANALYST FOCUS

Head and Shoulders above: Tony Plummer FSTA The discipline that is currently known as ‘technical analysis’ faces a cultural problem. It assumes non-linear behaviour, which is at odds with the more conventional linear models that are used in economics. The main criterion of technical (or chart) analysis is profitability, not the niceness of its theoretical constructs; so it readily accepts phenomena such as cyclical behaviour, corrections within trends, and sudden reversals. This aligns it with the world of reality, but it also leaves a gap in understanding that has still not been fully bridged. Many new adherents to the discipline - let alone those of 50 or more years ago - have to suspend their disbelief if they want to use methodologies other than ‘fundamental’ analysis. One result has been subjectively to separate ‘short-term’ trading from ‘long-term’ investment.

Tony Plummer FSTA Tony has worked in financial markets for more than 40 years, and currently researches group behaviour in financial markets and economic activity. He is also on the investment advisory committee of the Osiris Property Fund, and is a trustee of two pension funds.

"In my view, markets and economies were both nonrational and non-linear.

They were energised by collective behaviour and were consequently subject to corrective downswings, were prone to excesses, and were sensitive to external cycles."

I came face to face with this problem in spring 1979. At the time, many traders in the London market for government bonds (gilts) were running ‘short’ positions, on the correct understanding that inflation was soaring, government borrowing was excessive, and interest rates had to rise. The political situation - as reflected in the 1978/79 ‘Winter of Discontent’ - was worse than appalling.

In March 1979, however, it became apparent that Mrs Thatcher - with her anti-inflation credentials - might become Prime Minister. At the time, the Bank of England was offering a new gilt, but applications had to be received in the Watling Street office by 10.00am. The queue to submit applications was immense and, in what subsequently became known as ‘The Battle of Watling Street’, people literally fought to get their application forms into the office on time. Some even threw their forms over the top of the counter windows; many, of course, failed completely and had to suffer the consequences.

I was working for a well-known Merchant Bank at the time and, fortunately, we were successful with our applications. Gilt prices continued to advance, driven by an excess of demand over supply. However once Mrs Thatcher became PM, and suitable anti-inflation remedies were applied, gilt prices began a long fall. All this

was understandable in retrospect but, at the time, it seemed chaotic. First, fear had spread quickly through an apparently rational community. And, second, gilt prices rose by a serious amount simply because investors didn’t have enough. Nothing that I’d learnt at university had prepared me for this: the gilt market had been invaded by ‘crowd’ psychology.

That was 40 years ago, and it took me some time to understand what had happened.

Then, in 1987, a major equity crash occurred.

This provided an information shock to the whole community and, in 1989, Kogan Page very bravely published my first book (Forecasting Financial Markets). It was far from perfect, but it was sufficiently popular to go into six editions. One of the arguments in the book was that conventional economic theory generated incorrect conclusions where it assumed rational behaviour by independent individuals.

Those conclusions were linear. In my view, markets and economies were both non-rational and non-linear. They were energised by collective behaviour and were consequently subject to corrective downswings, were prone to excesses, and were sensitive to

The Society of Technical Analysts: www.sta-org.uk

ANALYST FOCUS

external cycles.

It is difficult, even now, to appreciate the institutional hostility towards chart analysis that prevailed in the 1980s. It not only lay outside the limits of university teaching, it also lay outside of many investors’ experience.

Consequently, the conventional view was that collective behaviour was - except in rare cases such as the 1987 equity crash - highly unlikely.

So I had to keep my own reliance on charts very quiet. Using a pencil and squared paper (plus, of course, an eraser!), I constructed my own hourly chart history of the gilt market - and the process of getting the information probably drove certain brokers mad.

But the frustration was that I then had to ‘justify’ any conclusions on the basis of conventional fundamentals.

Nevertheless, having seen the influence of crowd behaviour, I saw my primary task as being to move beyond short-term considerations, and determine when a top or bottom pattern was turning into a trend. I had already found that a financial market would attempt to retain 61.8% of its trend. This meant that the Golden Ratio (38.2:61.8) defined the boundary between a correction within a trend and a reversal in the trend itself.

However, it was also obvious that markets (and economies) evolved through time. In pursuit, therefore, of

45

deeper understandings, I started to look into some of the findings of the great financial market trader William D. Gann.

The result was the writing of two further books, both published by Harriman House.

The first (The Law of Vibration, 2013) revealed the fact that Mr Gann actually hid the true pattern of collective behaviour in his book, The Tunnel Thru The Air. Moreover, this great secret was concealed in a number of other texts.

One of these was at least 2,000 years old.

The second book (The Life Cycle Hypothesis, 2018), built on this idea.

It demonstrated that all life is energised by new information, and that this new information created a very precise ‘life cycle’ pattern. Sometimes the new information was an accumulation of data; sometimes it arrived suddenly.

In either case, it impacted as a ‘shock’.

The result was a series of profound

insights into the nature of evolution.

Initially, a system can only react to the shock, but eventually it has to adjust its inner workings in order to absorb that shock. This adjustment is organised in the form of three cycles, each of which has a similar time elapse and each of which is characterised by an intra-cycle downswing. The major finding is that evolution is punctuated by discontinuities.

The resulting pattern allows for shortterm divergences, but its non-random element applies to phenomena as diverse as a human life and collective behaviour. It should be no surprise therefore to find that the pattern is clearly reflected in economic and financial indices: it indicates when a correction can be expected; it shows when a trend is likely to develop; and it reveals when a trend reversal can be anticipated. Because of its flexibility, the life cycle pattern has to be used as a general indication rather than as a technique for making precisely timed investment/trading decisions.

Nevertheless, the life cycle pattern is almost certainly the true reason why technical analysis ‘works’ over all time periods.

46

ANALYST FOCUS

Interview with former STA Chairman and IFTA President, Adam Sorab - by Nicole Elliott Our Editor talks technicals with one of the industry’s most influential names The adage about asking a busy person when you want something done is so true.

As part of the STA’s social media programme we’ve started running a series of interviews with technical analysis worthies, now published in the Market Technician online magazine. I’d forgotten to sort someone out for our upcoming issue, so had to do things in a hurry - right in the middle of the Christmas rush. Collaring him at the Fellows STA lunch on Friday, 30 November, and an error on my part emailing the questions on Saturday morning and resending them Monday lunchtime was clearly no problem at all for Adam Sorab. He was back like a flash with his answers first thing Tuesday morning. They were so good and well written; all I’ve had to do is copy and paste his text. Result!

Aadm Sorab Fellow and past STA Chairman Adam Sorab was STA Chairman from 1998 to 2008 and was President of IFTA from 2010 to 2013. He holds a BSc (Hons) in Economics from the London School of Economics, an STA Diploma and a CFTe. Adam has been working in financial markets since 1984 and he is currently a Partner at Aptior Capital LLP in London, a hedge fund management company.

His career was, and is, stellar, and today he is a Partner at Aptior Capital LLP, a long/ short investment manager specialising in stressed and distressed debt. Spending nearly 13 years before that at global hedge fund giant CQS (founded by Sir Michael Hintze), he’s worked at Deutsche Asset Management, was an independent member of BUPA’s pension fund investment committee, Chairman of the STA for a decade and President of IFTA. I wasn’t exaggerating, was I? So, to the questions.

1 Who/what introduced you to technical analysis?

I was introduced to Technical Analysis in 1986 by Glyn Bradney, my Chief Dealer. As a foreign exchange trader, I was consistently bad at making money in the markets; my degree in Economics from the LSE was virtually useless when making day-today FX decisions. Glyn encouraged me to learn about TA and in particular how to use point and figure charts to understand the importance of particular price levels.

This was just before electronic charting systems emerged, and so in those days we had to draw our own charts by hand. The introduction to TA was a revelation, and one that significantly improved my ability to understand and calibrate the competing forces at play in the markets. While it didn’t turn me into a trading genius, it materially improved my overall trading performance and, as importantly, made my trading decisions far less emotional and much more systematic.

2 Where and how did you study technical analysis?

I studied on the STA Diploma Course, where I was taught by Bronwyn Wood and Anne Whitby among others. I also read several books on the STA reading list before sitting the Diploma exam.

3 Who is your hero? What are your essential methods?

I don’t have a single hero in TA as there are so many great thinkers in the field and it’s impossible to rank one over the other. Certainly, I admire the pioneers like Homma, Gann and Dow for their cutting edge work done at times when there was little awareness, let alone acceptance, of TA. In a similar way, I’m also a big fan of Peter Steidlmayer who wrote many years later, but was still able to challenge traditional thinking and create a completely new perspective on markets and

The Society of Technical Analysts: www.sta-org.uk

ANALYST FOCUS

47

“I’ve worked in financial markets since 1984 and seen the most amazing changes within the industry. I’ve travelled the world and made friends everywhere because of my work.” participants’ behaviour. Another hero of mine is J. Wells Wilder, who has done so much to grow our knowledge and the use of mathematical trading signals. Many know he developed both the ADX and RSI indicators, but few people realise he created so many other useful tools and techniques.

His book New Concepts in Technical Analysis was published in 1978 just as personal computers were becoming an affordable reality; that book, combined with the emergence of PCs, led to a wealth of new trading system developments and methods that paved the way for much of the algorithmic trading systems that dominate many financial markets today.

4 What are the best/worst aspects of this work?

I believe the best aspect of working with TA is that it can reduce the subjectivity of one’s trading decisions. Unlike the perfect markets analysed by classical economists, real financial markets are dynamic and vibrant entities that rely on the irrational behaviour of participants (fear, greed, doubt and jubilation) - and the imperfect distribution of new information. What’s more, as we’ve learnt from behavioural finance, human beings are not naturally built to be great traders, many common human traits being manifestly counterproductive when investing. Thus, removing subjectivity is key to maintaining a rational trading plan, and TA does the job. The worst aspect of the work is the fact that it’s not perfect and even the best research can still get undermined by new news or even the market’s propensity for periodically chaotic behaviour. The truth of the matter is that no trading system is ever fool proof and technicians, like all wise participants, need to accept the limitations of their ability to predict the future.

5 Do you regret your career choice? Did you have a Plan B? No not at all, in fact I feel tremendously lucky. I’ve worked in financial markets since 1984 and seen the most amazing changes within the industry. I’ve travelled the world and made friends everywhere because of my work. It’s also allowed me to witness first-hand the most amazing developments in global politics, technology and the world economy from a unique vantage point. On reflection, I can’t think of any other industry, apart from finance, that spans so comprehensively the entire gamut of human adventure. I would gladly recommend it as a career choice to any aspiring student, regardless of their political persuasion.

6 What’s the best piece of advice you were given and

what advice would you give to someone starting on a career in technical analysis today?

The best advice I was ever given was to remember that the market will always reopen. I say this as, very often, it’s the losing trades that sap one’s emotional energy most and at those times its very easy to feel isolated and in retreat. The

reality of course is very different and the key to success is learning to accept and control trading losses. So long as you don’t lose too much money and the market is open, there’s still a route to access peace of mind and investment success. If I were giving advice to someone today, I think I would encourage them to also learn the old techniques and methods, rather than relying entirely on the plethora of computerised trading systems etc. While the brute force of super computers and high-frequency data can sound compelling, there is also the vitally important “known, un-known” to consider in the mix; that of the behaviour of the human crowd. As many of the older techniques were unable to rely on computers, they have the benefit of a natural robustness that is less evident in modern mechanical methods and as a result they can allow the student to gain a broader perspective on the markets they seek to understand.

7 What areas of further research are you interested in, or might you suggest?

I would like to see more empirical testing of technical analysis techniques. While this is quite hard to do in practice, due to the almost infinite number of input variables, it is none-the-less a very worthy and important endeavour.

While TA has now become mainstream within our industry, it remains an outsider amongst academics and I feel that situation now needs to be addressed.

8 Which are your two favourite books?

There have been so many good (and bad) books written on TA, it’s hard to select any individual titles. The book I probably re-read most often is my TA bible, John Murphy’s Technical Analysis of the Futures Market. The other book I would almost insist on any new trader reading is Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance by James Montier.

9 Please comment about things we have missed so far, and general feelings about the subject.

When I started in the City, technical analysis was just emerging from the shadows, having been an industry secret before that. Since then, thanks to institutions like the STA and IFTA, TA has become a mainstream technique that’s widely deployed by many professional and private market participants. The problem is that we’ve settled with acceptance but still lack the acknowledgement I feel our discipline rightfully deserves. It’s for that reason I feel there’s still much to be done and I hope that organisations like the STA will continue to lead the charge through further research and continuing education.

Thank you Adam, and I’m sure all our readers will find your answers very helpful.

48

ANALYST FOCUS

Music, Nature, Stock Charts and a Technical Analyst I am neither a musician nor can I read or write music. As a child, I had no choice but to embrace nature and play outdoors or shut myself indoors listening to world music on the radio during the tropical Indian rain. Later, it was Top of the Pop’s on the black-and-white telly, which was bestowed upon us in the late 80s. I am taking the example of music because of my profound love for it that allowed me to appreciate the art.

Sanchaita Sharma MSTA CFTe

Former television presenter/entrepreneur, Sanchiata is owner of Enajuri Capital and represented on as: www.forexdiva.co.uk Email: support@forexdiva.co.uk

“Most musicians make music based on their surrounding and nature. News and fundamentals are also taken into account with technical analysis. A song has an opening and closing paragraph and a high and low note in it just like candlestick or a bar chart does.”

Sanchaita Sharma, MSTA CFTe

Technical analysis is more of an art than science or perhaps a bit of both.

It requires you to be observant and track for clues in the price charts.

Musicians, actors, artist, filmmakers are observant people. An actor observes their surroundings and reads the characteristics of the person he or she need to play.

A secret agent is trained to walk into a room full of people, observe and get the required information and walk out unnoticed. Technical analysts are trained to have an eye for the detail on the chart, a skill that comes with experience. Of course, a bit more exposure to the profession doesn’t hurt.

Most musical notes have four tones.

Some have five. Shakespeare wrote his sonnets in five tones or iambs. Dadadada-didi-dada-dada! Shall I - compare - thee to - a sum - mer’s day?

And an Elliot Wave needs five points to validate itself. When I first saw the charts, I was intrigued. Look left and you will witness history and how certain levels are repeated over the years. This is one of the three premises technical analysis is based on: history repeats itself.

Most musicians make music based on their surrounding and nature. News and fundamentals are also taken into account with technical analysis.

A song has an opening and closing paragraph and a high and low note in it just like candlestick or a bar chart does.

The Society of Technical Analysts: www.sta-org.uk

ANALYST FOCUS

49

On a walk by the ocean, one cannot fail to observe the waves. They follow a pattern (thanks to gravity of course).

A trend line, like a wave, goes up and down in its direction. The market was first identified in waves in Dow Theory.

A trend has three parts: primary; secondary and minor just like the tide, the waves and the ripples of the waves.

An afternoon walk in the woods behind my house validates in me how vast nature is, yet the silence has gravitas and power, the ground being its support, the sky its resistance levels.

Nature is a silent yet powerful force like the market. Play by its rules and it will love you back; go against it and it will slaughter you, just like the markets.

You cannot help but admire and have respect for it both. Understanding price action and rules, and finding patterns therein, is technical analysis.

It’s incredible that a silent chart has the power to say so much and teach those who are willing to listen, observe and learn from it. A single person cannot control nature nor can it control the primary trend of the market. Globally, everyone sees the same charts, just as we see the sun and the moon. You have the choice to take a walk at the park or stroll by the sea. Pick any asset class you like to trade.

Fibonacci, for some of my trader friends is MAGIC; some say it’s voodoo.

Nevertheless, just like good music (in any language) appeals to a wider

audience, price action almost falls back on Fib levels. It’s fascinating how a chart can reach a 61.8% level and then turns around, irrespective of its asset class. Fibonacci is like good music and it appeals to a wide range of technicians over the world.

When I look at a chart at length, I feel inertia. As if a sense of adventure unfolds in front of me. Long-, mediumand short-term adventure. One can glance at a chart and it tells you a story, its history and what might unfold thereafter. That kicks my adrenalin high. Technical analysis can help you cut out the noise (news) and focus on the price action, which is the real indicator.

The moon calmly moves at its own pace, agnostic of any wolf or dog barking at it. Yet, it causes ocean tides that change land masses. The market moves like the moon, in spite of us

cursing or loving it. It discounts what people have to say. The averages discount everything. Yet the market is there because of the people, their trades and their trading patterns (ok, some trades are run by algos, developed by people) and people have behavioural patterns, be it the Gamblers Fallacy or the Conformation Bias that are reflected on the charts.

It’s an infinite journey. For me, music is a drug that grounds me after a busy day. It lifts me up but so do the charts!

P.S: If you would like to learn technical analysis the way professionals do, then the STA Diploma Course is highly recommended.

Aka: forexdiva Bublee Twitter: @ForexProDiva Blogger at: www.forexdiva.co.uk

50

BOOK REVIEW

Trading Systems: A new approach to System Development and Portfolio Optimisation Urban Jaekle & Emilo Tomasinn (2019) Book Review by David Watts MSTA

Computer driven systems trading has been the holy grail of the capital markets every since automatic execution and of the end of the trading floors. And whilst systematic trading systems have a long history, they only became very popular after Richard Dennis and his “Turtles” published their trend-following system.

Later, popularity grew in the wake of more recent mega research projects and, even more recently, the use of high frequency trading models.

Trading Systems

The problem, as every technical analyst knows, is that markets operate within their “context” or financial environment. Whether this is a backdrop of declining interest rates or rapid inflation, oil price shocks or political uncertainty, simple algorithmic models will normally break down once that external context changes. Hence, a new systematic approach is promised in this updated edition of the classic book by Urban Jackle and Emilo Tomasinn. They have integrated everything from sentiment indicators derived from news feeds like “Twitter” to filtering with inter-market analysis to trading in micro-seconds where the context has almost no effect. Of particular interest is their new approach to trading systems design and evaluation.

The solution offered by this new edition of Trading Systems breaks down into three sections: •

•

•

Part 1 - Test Optimisation and Evaluation of a Trading System Part 2 - Trading System Development and Evaluation of a Real Case Part 3 - Systematic Portfolio Trading

Part 1: The book presents and evaluates three simple trading models, which are pretty standard and not particularly original. However the code for implementing them is also helpfully provided in the Appendix, both in Easy Language for Tradestation and Amibroker.

Following the introduction, a summary is provided of the main stages of system design and testing. While rather brief compared with the studies provided later, it covers subject areas such as “Complexity and Degrees of Freedom”, “Optimisation” and “Walk Forward” testing. For more in depth coverage of this, Robert Pardo’s book is a classic in this field.

Part 2: Chapter 3 covers the “Luxor System” (a moving average system). It presents the step-by-step development of this system and is a comprehensive guide. Chapter 4 begins the real task of the evaluation and rectification of a Trading System. Here, a further two systems are introduced, namely a volatility breakout system based around Bollinger Bands, and a timebased “Best of Month” system.

Monte Carlo analysis of the systems is also introduced, as is something

The Society of Technical Analysts: www.sta-org.uk

EDUCATION CHANNEL

51

new: timescale analysis. This explores determining the best timeframe for the chosen system. I liked the step-bystep process and 3D equity surfaces and the added steps of improvements - such as adding a filter. But more importantly the systematic evaluation of each model is presented following the “scientific appraisal model” where the reader is guided through the evaluation and testing process. Whilst the trading models themselves are not complex, the complete evaluation process is presented, and this process is key before implementing any trading system. So often this step is not adequately addressed which often results in a large drawdown and a system abort.

Finally, the implementation of a “Portfolio of Trading Systems” is presented. This smooths the equity curves to an impressive level and is no doubt why “Amibroker” is used in the second edition of this book. Portfolio theory is well developed and, as set out here, can impressively improve an equity curve. The Portfolio approach has much to recommend it but does require a larger account size.

If you are new to developing systems then Trading Systems provides an up to date comprehensive guide to the subject area. For those with some experience, the chapters on evaluation and portfolio management of trading systems will be of most interest.

Recommended Reading: Design, Testing, and Optimization of Trading Systems Robert Pardo (1992). See his strategies at: www.pardocapital.com/strategies.php5 Intermarket Trading Strategies Markos Katsanos (2010, Wiley) Capturing Profit with Technical Analysis Sylvain Vervoort (2009) Marketplace Books

Bronwen Wood Memorial Prize 2019

Andrew Whatton MSTA

The winner of the 2019 Bronwen Memorial Prize is Andrew Whatton MSTA. Andrew is a Senior Financial Trader at Anglo American. On receiving the news that he had won the award, he said: “It’s a great honour to receive the award, and very unexpected when I think of how I posthumously dissected my answers in my head after leaving the hall last month!

I really enjoyed the Diploma Part 2 course. The practical element has really helped me to refine my own approach to TA and incorporate some new techniques into my analysis.”

Created in the memory of Bronwen Wood, the award is given to the best STA Diploma Part examination paper written each year if a score of 90% or above has been achieved. Bronwen Wood was one of the founder Board members of the modern STA and died suddenly in late December 2002. Bronwen was instrumental in developing both the STA Diploma Examination and the courses leading to the examination.

To see past winners, click here

Balance professional development and your personal life with the STA Home Study Course

©

WHY PURCHASE THE HOME STUDY COURSE? The world-class e-learning Home Study Course (HSC)© is written by leading industry practitioners, making it one of the best online products available on the technical analysis market. Whether this is your first introduction to technical analysis, you want to refresh your existing knowledge, or you wish to become a qualified technical analyst, the STA offers a tailored Home Study Course as part of our portfolio of world respected courses preparing students for our internationally accredited STA Diploma qualification.

You can learn from the comfort of your home at times that best suit you. Although website based, it is fully downloadable and may be used online or offline via PC, Mac, iPad or Android machines.

WHAT WILL IT COVER? • The syllabi for both STA Diploma Part 1 & Part 2 examinations • 15 in-depth subject teaching units • Exercises to self-test progress • Exam preparation module & video • Advice on report writing.

...find out more here

Since the HSC is International Federation of Technical Analysts (IFTA) syllabus compliant it can also be used to prepare candidates for both the IFTA CFTe I and II examinations.

WHO IS THE COURSE FOR? The course is intended for individuals who want to use technical analysis in a professional manner or who want to become a qualified technical analyst and advance their career. Enrol and start studying now!

For more details click here or contact the STA office on +44 (0) 207 125 0038 or info@sta-uk.org WHEN WOULD YOU LIKE TO START? Learn at your own pace rather than in a classroom - the HSC course is designed for those who need a truly parttime study option with maximum flexibility!

Buy now: £1,195.00

The Society of Technical Analysts: www.sta-org.uk

THE SOCIETY OF TECHNICAL ANALYSTS

53

Benefits of STA membership

The STA holds 11 monthly meetings in the City of London, including a summer and Christmas party where canapés and refreshments are served.

As a service to our members, many of whom are unable to attend all our monthly meetings, we have been making videos of meeting presentations for several years.

Key benefits • Chance to hear talks by leading practitioners.

• Networking.

• CPD (Continuous Professional Development).

Key benefits • Never miss the latest meeting.

• Browse our extensive video archive of previous meetings.

The STA has been running educational courses on technical analysis for 25 years.

Student members have access to an education forum which is available in the member’s area of the website.

Key benefits • Courses are taught by leading authorities in their field such as authors, highly regarded professionals and Fellows.

• The STA also offers a Home Study Course for self-study.

The STA ”Market Technician” journal is published online twice a year.

Key benefits Members receive the latest issue of the “Market Technician” via e-mail.

They are also able to access an archive of past editions in the member’s area of the website. Technical analysts from all over the world contribute to the STA journal.

Key benefits Members can ask questions on technical analysis in the Technical Analysis Forum which a course lecturer, author or Fellow will answer.

The STA has an extensive library of classic technical analysis texts. There are over 1000 books in the collection. It is held at the Barbican Library with a smaller selection available at the City Library, a reference library in London. As a member you can now browse which titles are available on-line.

Key benefits Members are encouraged to suggest new titles for the STA book collection and, where possible, these are acquired for the library. The complete listing of books held can be downloaded in Excel format from within the member’s area.

The Society of Technical Analysts and the Chartered Institute for Securities & Investment (CISI) have formed a partnership to work together on areas of mutual interest for our respective memberships.

Key benefits CISI examination exemptions for STA Diploma Part 1 and 2 holders. MSTAs with three+ years’ experience can become full members (MCSI).

Endorsed by the Chartered Institute for Securities & Investment (CISI), members of the STA are entitled to receive continuing professional development points (CPD for their attendance on the taught course lectures.

Key benefits • Remain compliant.

• Be informed of all new industry developments.

STA members benefit from significant discounts on technical analysis books, magazines and software.

Key benefits STA members currently enjoy discounts from: • Your Trading Edge.

• The Technical Analyst Magazine.

• MT Predictor.

• CQG. • Tradermade and the Global Investor bookshop.

54

THE SOCIETY OF TECHNICAL ANALYSTS

STA Calendar 2020

Tuesday 10 March 6.30pm One Moorgate Place David Linton MSTA, Updata

Tuesday 12 May 6.30pm One Moorgate Place. Charles Morris MSTA, Atlantic House Fund Management

More information about the STA events can be found here

Tuesday 14 April 6.30pm One Moorgate Place. Sankar Sharma MSTA, RiskRewardReturn.com

Tuesday 9 June 6.30pm One Moorgate Place

Thursday 23 April 1.00pm London School of Economics STA Diploma Part 2 Exam

Monday 6 July 10.00am Stay Ahead Training Centre STA Diploma Part 1 Exam

See pg.5 for more info

Tuesday 7 July 6.30pm One Moorgate Place STA Summer Party

Tuesday 13 October 6.30pm One Moorgate Place

Tuesday 8 September 6.30pm One Moorgate Place

Tuesday 10 November 6.30pm One Moorgate Place

Wednesday 23 September 7.00pm Annual Dinner National Liberal Club

Tuesday 8 December 6.30pm Christmas Party One Moorgate Place

The Society of Technical Analysts: www.sta-org.uk

THE SOCIETY OF TECHNICAL ANALYSTS

55

STA Education: the LSE courses, and the Diploma in Technical Analysis The Education Channel - Monthly meetings videos are available to members here.

February 2020

Robin Griffiths

Review of the past 50 Years and outlook for the future

January 2020

2020 Outlook

Panel debate with ACI UK

November 2019

Andy Dodd

Price matters but process more so

October 2019

William Reardon

Logical Price Action: Utilising Wyckoffian Principles in Modern Times

September 2019

Tim Parker

The role of subjectivity in technical analysis

July 2019

Murray Gunn

Technical Analysis: Trading tool or social science?

June 2019

Robert Carver

In conversation with Tom Hicks

May 2019

Kevin Bull

Price does not align to time

April 2019

Connie Brown

Global Cash Flow

March 2019

Steven Goldstein

10 things I’ve learned coaching traders and investment professionals

STA Library STA members are eligible to join the library as standard adult library members. They need to attend in person to the library to join - bringing with them proof of name (STA membership card, bank card, staff pass etc) and proof of address (driving licence, recent bank statement, utility bill etc). The library address is Barbican Library, Silk Street, London, EC2Y 8DS. For full details on address and opening times, visit www.sta-uk.org/library

56

Congratulations to the latest STA Diploma MSTAs Distinction Andrew Whatton John Phang Cheng Lek Zahida Laljee

Pass Ahmad Shawzi Bin Hamim Andreas Nisiotis Asma Binti Nasarudin Asyraf Bin Arsad Azhar bin Muhammad Azri bin Azam Charalambos Agapiou Constantinos Loizou Giannos Ioannou Ila Nabila Jonathan Sale Khairul Akmal bin Ab Khadir Kristle Sreik Hanna Krzysztof Kruk

Lucy Jones Maria Evripidou Mohammad Azman Bin Abdul Subhan Mohamad Nizam Bin Kasim Muhammad Affan bin Ahmad Nadzri Muhammad Fakhruddin Bin Mohd Fazil Mukhriz Mangsor Munzir Bin Abdullah Sani Nur Azzam Zakaria Rafiq Mhd Rafiq Bin Jajuli Rumi Mirza Mansukh Jahani Saud Faisal AlZaid Wei Ken Khor Yoke Kim Wong

The Society of Technical Analysts: www.sta-org.uk

THE SOCIETY OF TECHNICAL ANALYSTS

57

The STA Executive Committee

Richard Adcock MSTA Vice Chairman & Co Secretary

Jeff Boccaccio MSTA Director

Patricia Elbaz BA (Comb hons) MSTA Director

Mark Tennyson d’Eyncourt FSTA Programmes

Tom Hicks MEng MSTA MSCI Chairman of the STA

Karen Jones BSc FSTA Treasurer

Clive Lambert MSTA MCSI Vice Chairman

Charles Newsome MSTA FCSI Director

Eddie Tofpik MSTA, ACI-UK, ACSI Head of Marketing

David Watts BSc (Hons) CEng MICE MIWEM MSTA Systems and Website Specialist

Daniel Wynne BA (Hons) MSTA Chartered FCSI Director

Please keep the articles coming in!

The success of the Journal depends on its authors, and we would like to thank all those who have supported us with their high standard of work. The aim is to make the Journal a valuable showcase for members’ research - as well as to inform and entertain readers.

Keep up to date with the conversation by joining us on:

58

STA Advertising Rates 2020 The Society of Technical Analysts Journal “The Market Technician” is a bi-annual publication, published in pdf format only. The STA will accept advertisements in this publication if the advertising does not interfere with its objectives.

The appearance of advertising in the Market Technician is neither a guarantee nor an endorsement by the STA.

Position

Price

Specification

Inside Cover

£500.00

A4 Portrait, 210mm (w) x297mm (h), plus 3mm bleed

Full Page

£500.00

A4 Portrait, 210mm (w) x297mm (h), plus 3mm bleed

Half Page

£300.00

Landscape, 198mm (w) x 139.5mm (h)

Quarter Page

£200.00

96mm (w) x 139.5mm (h)

Circulation The Market Technician has a circulation of approximately 1500. Readership includes technical analysts, traders, brokers, dealers, fund managers, portfolio managers, market analysts, other investment professionals, and private investors.

Contact Contact Katie Abberton, Society of Technical Analysts on info@sta-uk.org or +44 (0) 207 125 0038 for more information.

Advertising policy Advertising is subject to approval by the STA Journal Committee. All advertisements must be non-discriminatory and comply with all applicable laws and regulations.

The STA reserves the right to decline, withdraw and/or edit at their discretion.

The Society is not responsible for any material published in The Market Technician and publication of any material or expression of opinions does not necessarily imply that the Society agrees with them. The Society is not authorised to conduct investment business and does not provide investment advice or recommendations. Articles are published without responsibility on the part of the Society, the editor or authors for loss occasioned by any person acting or refraining from action as a result of any view expressed therein.

Society of Technical Analysts Dean House Vernham Dean Andover Hampshire SP11 0JZ tel: +44 (0) 20 7125 0038 info@sta-uk.org www.@sta-uk.org

The Society of Technical Analysts (STA) is recognised worldwide as one of the largest and most widely respected not-forprofit organisations which trains and accredits members of the investment community, from industry professionals to private individuals, interested in the study of technical analysis. We have been setting the standards in technical analysis for nearly 50 years and have been teaching at several UK universities such as LSE, King’s College, Queen Mary etc. for nearly 25 years.

www.sta-uk.org www.@sta-uk.org