Market Technician No 85 - September 2018

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Market Technician Issue 85 - September 2018

The Journal of the Society of Technical Analysts



Further Analytical Methods using Median Line Analysis

A Simple Model for Gauging Emerging Market Currency Risk

AKA Andrews Pitchfork (Part 2) by Timothy Brackett and Kyle Crystal

Gerry Celaya, director of Redtower Asset Management and former STA board member

Contents Foreword Fabulous at 50! - Nicole Elliott News • STA Poker Night - Raj Dhall • Photographs: 50th Anniversary Party • Photographs: JP Morgan Challenge • Unintended Consequences of Regulation Makes Chart Analysis Even More Important... - Gerry Celaya • Update on MiFiD II - Tom Hicks Research • Further Analytical Methods using Median Line Analysis - Timothy Brackett and Kyle Crystal • A Students Pilot’s Guide to Technical Analysis - David Keller • A Simple Model for Gauging Emerging Market Currency Risk - Gerry Celaya • Candlestick Patterns: reality or just a myth? - David Pieper • Did you know?

08 11 12 14 16 17 20 30 36 46 49

Analyst Focus • Head and Shoulders Above: Anne Whitby


Book Review • The Life Cycle Hypothesis by Tony Plummer - John Cameron • Bytes and Pieces - David Watts

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The Society of Technical Analysts • Benefits of STA Membership • STA Calendar 2018/19 • STA Education, STA Library • The Education Channel • Home Study Course© • The latest STA Diploma MSTAs • The STA Executive Committee • STA Advertising Rates 2018/19

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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.

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Editor's Letter How time flies! I now realise that the Market Technician magazine is more than two decades old. As I pen this letter for our fourth electronic-only issue, it reminds me that only too recently I was writing to you in March 2018 - the coldest UK winter in 30 years. I’m penning this now after the hottest June in the country for 40 years, and worried about our team running the JP Morgan Challenge at Battersea Park on 5 July. Nicole Elliott Technical Analyst, Private Investor, E-journalist for the STA

Plus, our Society of Technical Analysts turned 50, to boot! For the many of our 1,400 members who couldn’t make the birthday party at City Hall, I will try to give you a flavour of what was another very successful event.

More photos on page 14

Kong dollar peg is under pressure. Do look out for Gerry’s posts on the STA Group LinkedIn discussion forum. In case you’d forgotten, members can watch videos of previous speakers at our monthly meetings, and also view (in pdf format) back issues of the Market Technician. Hours and hours of stimulating entertainment - and maybe time to recycle/donate all the past print issues lurking in the loft.

September in the UK is a time of new beginnings, yet also one of looking towards endings. We’re halfway through the tax year and at the start of the new academic year, where we welcome students at the London School of Economics who are studying for the STA Diploma Course; I’m sure they’ll enjoy it. Don’t forget that some of our most successful candidates have benefited from our Home Study Course, which will fit around every individual’s timetable. It’s time to plan ahead, perhaps opting into the annual IFTA conference in October, this year in Kuala Lumpur, while British shops will be getting ready for Christmas. But I’m running ahead of myself. This might well be a tendency inherent in those interested in technical analysis; we’re always ‘looking forward’. Nothing to do with the ghastly expression ‘going forward’, nor anything linked

to optimists, or those who eagerly anticipate everything and anything. It’s just that trying to predict what might happen next, rather than dwelling on the past, is what we do best. But maybe we should view our profession as having traits akin to the Roman god Janus, he of the two faces, guardian of beginnings, doorways, duality, endings, gates, passages, time and transitions. Certainly the study and practice of technical analysis has catapulted many to new heights and surprising depths of investigation. Luckily we have, as always, timely and relevant articles submitted for this magazine. Especially au courant is long-standing FX veteran Gerry Celaya’s analysis on emerging market currencies, with financial meltdown in Argentina (again, can you believe it?) and basket case Venezuela; Turkey is not far behind, and even the Hong

Rounding off this year I am sad to say that, after a very successful tenure, STA Chairman Axel Rudolph has decided it’s time to step down. While he’ll be sorely missed, he hands the baton to Executive Committee member Tom Hicks, who many of you will know from the speakers he organises and introduces at our monthly meetings. I wish Tom well and look forward to our continued co-operation. We also wave goodbye to the STA’s able head of marketing, Karen Jones, who’s done a sterling job over a whopping 12 years. Partner in crime to Axel at Commerzbank, I’m assuming the two will now have more time to dedicate to their ‘real jobs’. Thank you both. Do please keep writing in with comments and suggestions.



Fabulous at In case you couldn’t make it, your editor Nicole teases you with a taste of what the evening was like...

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

For a small professional society, albeit the oldest of its kind, turning 50 is an important milestone and one it had planned to celebrate in style. Not that these technical analysts don’t know how to do things big, hosting annual IFTA conferences no less than three times: 1989 (the second ever after Tokyo’s first in 1988), 2002 and 2014. An exciting new venue was chosen, the Norman Foster-designed City Hall, AKA London’s Living Room, which has an unusual lopsided circular shape with a conference and banqueting suite on the top (ninth) floor. After battling with airporttype security - not entirely unexpected at such an iconic building with its stunning location on the south side of Tower Bridge - the crescent-shaped room came into its own with 200 or so guests mingling happily. Surrounded by a walkway with views to die for, you felt you could practically reach out and pluck HMS Belfast from the Thames or touch the Shard’s point. We ogled at the City’s many skyscrapers and spotted Chrystal Palace’s tower to the south.

More photos on page 12

Knowing I’d have to report on the event, your print and social media scribe (in sensible shoes) flew into full social-butterfly mode with spiral notepad and pen to hand; I had planned a campaign tactic, though, not a route plan.

The catering team were great, smartly dressed with de rigueur black shirts, offering champagne on arrival, an infinite quantity of smart nibbles and elegantly presented canapés, plus a selection of drinks at a well-stocked bar. A magician was on hand to entertain us and the string quartet played on while Chairman Axel and his delightful family had their portraits drawn by the resident caricaturist. Knowing I’d have to report on the event, your print and social media scribe (in sensible shoes) flew into full social-butterfly mode with spiral notepad and pen to hand; I had planned a campaign tactic, though, not a route plan. The idea was to cajole, corner and con a wide variety of party goers to tell me why they had joined the STA and how it had changed over the last 50 years - if they were in a position to

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For further information about the STA visit

comment. Here I found I was not alone, as Nick Batsford and Richard Gorman of Core Finance TV had been asked to film members’ views on the occasion. So I started at the top: Philip Gray, FSTA, who had flown in with his charming wife from Hong Kong, where they are based. I think both had been looking forward to the event, which was maybe another high point in Philip’s long and successful career. Some may not be aware, but he was the first STA chairman, and established the first technical analysis exam. Philip told me: “Technical analysis has emerged from the wacko, dirty raincoats to a solid profession underwritten by increasingly sound academic principles once used to rubbish the practice. The concept of rational economic man has been all-but destroyed since 2008, and oldschool academics have had to come to grips with a new reality. Technical analysis is a young persons’ game and it has adapted to the new reality.” Next I cornered Adam Sorab, also an FSTA, chairman of our society between 1998 and 2008 and president of IFTA from 2010 to 2013, previously at hedge fund CQS and now a partner at Lodbrok Capital LLP. A consummate professional, he gave great sound

bite-sized, quotable answers to my questions. He reckons that technical analysis has barely changed over the last 50 years, though technology has definitely improved: “The core principles remain steadfast but granularity is better. Attitudes have changed yet have not, as yet, been universally adopted; technical analysis is no longer skulking in the shadows.” On my way to grab a quick drink I spotted a pair of young chaps I didn’t recognise (I’m good at faces and appalling at names). As luck would have it, this was the first STA event they had ever attended. Para Joshi, an economics graduate from Birmingham University, and Gabriel Guidarelli, a business administration graduate from Tuscia University in Viterbo, Italy, had met while studying on the STA Diploma course. Both were drawn to what they see as a niche subject because of their interest in trading financial markets, the latter prepared to move to London in order to learn. I know of two other young French STA members who have done the same. Also at the party were Dina Moussa and Edward Rushton, who I again interviewed together. Their backgrounds are very different but both felt that the STA Diploma Course

gave them “something I had been looking for over a long time. This course has really added to my life” (Dina), or which “had formalised what I’ve been doing with my qualifications” (Edward) - who passed the Part 2 paper (via the Home Study Course while working in Myanmar) with flying colours! My next targets were STA Committee members and their partners. Victoria Kennedy, long-legged wife of equally tall Nick Kennedy MSTA (our systems and website specialist and senior economist at Independent Strategy Ltd) said of the monthly meetings: “It’s lovely not having him around the house for an hour or two. I believe I’ve subliminally taken in aspects of technical analysis and when he says ‘I told you this’ I answer ‘yes, I’ve heard it twice’.” Harley Street dentist Jan Mondsee, partner to Leona Gomez-Lopez MSTA (Treasurer), had another take on her work for the society: “She enjoys it far too much.” His own corporate dos and courses are, he said, to be avoided as they are far too “seriously serious”. He adds: “Leona likes it because markets are very difficult; and difficulty equals opportunity.”



Brazilian Patricia Hicks, wife of incoming STA Chairman Tom Hicks, had only been to one previous STA event, but has followed his interest in the society from when she was his girlfriend and he had joined the committee (currently head of programmes). She believes that linking his expertise as an engineer and his ideas on innovation guides his thinking. Tom’s speech, later in the evening, confirmed that he aims to build on the success of the society and grow a younger membership. Now to the long-standing professional members’ views. Nick Glydon admitted this was his first STA event in five years because he’s been living and working in Dorset for quite some time. A partner at Redburn Partners for the last 15 years, and before that equities analyst at a number of international houses, he admits there is a problem being a technical analyst: “My way is the way I do it. I’m glad the STA exists to teach people about technical analysis and to make it respectable, but I wish long-only hedge fund managers would use it more.” Independent research provider and stockbroker, Tim Parker believes technical analysis is useful for an independent view because its framework “de-emotionalises behaviour and is a slightly contrarian discipline, often providing signals that can be quite uncomfortable”. He’s very positive about his firm’s prospects in relation to Mifid II, independent research and his input on compliance. Finally, I must cover our chairman Axel Rudolph FSTA’s speech, where the big surprise was that he plans to step down at the end of this year after such a successful tenure. I have to admit that by this time, tired, I’d chosen to sit at the back of the room; I found myself next to Alice James (copy editor of this magazine) who was also frantically taking notes. Axel, Chairman since 2013 and full-time technical analyst at Commerzbank, welcomed all of us, especially those who had come from far away - three from Japan’s NTAA, France, Germany, Switzerland and Nigeria. Thanking the many individuals

who had contributed to the party and to the society over many years especially Katie Abberton and Shirley Kimber of STA administrative services (hear, hear, say I!) - he awarded a Fellowship (FSTA) to Dr Ronald Giles, former lecturer at the South Bank University and Queen Mary University of London - who many will know from monthly meetings. As I’m scribbling all of the above in my notepad I hear something about the second edition of my Ichimoku Charts book out recently. Then Axel tells me I’ve also got an FSTA. Well blow me down! Never in a month of Sundays had I expected that. I’m sure you’ll believe me when I say that both Ron and I are happy for the recognition.

To those of you who kindly gave me their time and views but are not included here, I apologise sincerely; I’ve simply run out of space. Keep an eye on my blogs though. And not forgetting the STA Executive Committee who so generously give of their time, for 50 years. Thank you!

Ron Giles receiving STA Certificate of Fellowship

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STA Poker Night Raj Dhall


The STA social functions are an important part of the society as they help members get to know one another and speak outside the realm of technical analysis.

The STA poker night is usually the stuff of legends. Tom Hicks MSTA, board member and organiser, and shortly to take over as STA Chair, had much to live up to after the last event near Cannon Street. The stage on this occasion was Devonshire Square, in the heart of the city, and the players arrived with high hopes of winning the tournament and the first prize, which was a bottle of champagne (probably more the champagne). After pleasantries and a brief introduction, the excellent poker dealers gave the less familiar members a quick introduction to the game Texas Hold’em. As much as it was about odds, attributes like money management and bluffing proved to be just as important as poker skill! Once the cards had been dealt you could feel the tension building amongst the players, who included the best and brightest the STA had to offer. It was the perfect mix of the old guard (who probably once did their technical analysis on graph paper) and the young, one of whom actually worked at an online gaming company. Soon enough we were down to the final three, Leona Gomez, Alistair Philip and class of 2018 student Andrew Black. Andrew is a methodical gentleman, carefully risk managing and solving complex odds calculations in a fraction of a second. Leona was the joker in the pack; with her partner in crime Clive Lambert, they had carefully formulated tactics to disrupt the thought process of the other players with peer pressure and tactful mind games. Alistair was obviously a student of the game; keen on martial arts, he seemed to use all his composure and emotional balance to great effect during play. In an epic final battle, unfortunately there could only be one winner and

on this occasion it was the youthful Alistair Philip who took the crown. He is pictured proudly displaying the

trophy and first prize with his winning hand (which was a complete fluke) of Jack and nine suited. Andrew came a close second and Leona pocketed third place with a valiant display, but the night belonged to Alistair. As did the champagne. The STA social functions are an important part of the society as they help members get to know one another and speak outside the realm of technical analysis. It’s a chance for new members to get to know senior more established technical analysts and even if you don’t know how to play poker (Clive Lambert) the evening was a good laugh.



Photographs from the 50th Anniversary Party on Thursday 7 June 2018 at the London’s Living Room - City Hall.

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Our team were involved in running the JP Morgan Corporate Challenge at Battersea Park on 5 July.

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Unintended Consequences of Regulation Makes Chart Analysis Even More Important... A recent fund management article in the Financial Times indicated that there may be another unanticipated side effect of the European MiFID II research payments regulation.

Gerry Celaya Gerry Celaya, MSTA is a former board member of the STA and is a director of Redtower Asset Management. Gerry has previously worked at various US banks in London providing research and proprietary trading services and ran the European technical analysis team for one of the largest provider of real time research to professional dealers. Gerry holds economics degrees from UCSD (BA) and CSUSF (MA).

The article, entitled Corporate access: death of the go-between?, suggests that asset managers are reaching out to corporations directly in order to have ‘access’ to them. This is of course, both good and bad. It’s good as asset managers who are investing in companies should know details about where they are putting client money to work. However, it could be bad if material information is consequently kept out of the general investment community by corporations and asset managers having ‘one-on-one’ conversations. In the ‘pre-MiFID II’ days, one would have thought that a broker/analyst sitting at a meeting between a fund manager and a corporate representative (or on the phone or acting as an intermediary etc.) would have disseminated any relevant information to a slightly bigger audience. Indeed, eventually it would most probably have spread out to the wider investment community through broker research notes and the broker/ analyst telling other asset managers

about the meeting etc. It would seem that the potential unintended consequence of the research payments regulation is that material information may not be widely disseminated at all. This, of course, harkens back to the granddaddy of chart analysis books “Technical Analysis of Stock Trends” by Edwards and Magee where many of the chart patterns are discussed as distribution or accumulation of shares potentially led by ‘insiders’ who know more about the inner workings and future prospects of the corporation than other investors do. This suggests that another unintended consequence of MiFID II regulations is that chart analysis is becoming even more important for investors if they are to understand what is going on in a share by looking at the chart patterns, as the fund manager who has the one-on-one meeting with the corporate will make their actions (if any) clear in the share price activity. Spread the word?

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MiFID II - Research Unbundling Given such a diverse interpretation of research unbundling across the industry, how long will the regulator wait before attempting to standardise the approach?

Tom Hicks Tom Hicks, MSTA, is a partner at Dantom Consulting. He has more than 15 years’ experience in the finance and banking sector and has a track record of delivering complex regulatory change projects. He has a detailed understanding of products and front to back process flow, having worked as trader and setting up an algorithmic hedge fund. Tom has delivered numerous regulatory change projects, including EMIR, MAR/MAD and MiFID II, translating regulatory requirements into compliant business solutions. He holds a master degree from Warwick University. At the end of 2018, he will take up the post of STA Chair.

As the dust settles after the MiFID II go-live on 3 January 2018, the industry is still in the dark as to how the regulator wants research unbundling to be interpreted. Approaches from the sell-side are fragmented with little consistency. Buy-side clients are in some cases are paying different prices for the same piece of research. The interpretation has been diverse, with a wide range of pricing models and charging structures. Table 1 gives an illustration to just how diverse this charging has been between some of the large sell-side banks, prices ranging from USD10,000 up to GBP350,000. TABLE 1: A DIVERSE AND FRAGMENTED CHARGING STRUCTURE* Research Provider

Price (per Annum)

Research Service

Bank of America

Up to USD80,000 (per user)

Full package of services

UBS Group


Equity research



Read-only European research

JP Morgan Chase


Read-only access to portal

Bernstein Research


Equity reports

*Source Bloomberg news / Citywire (CISI Review Q2 2018)

The FCA has commented on the fragmented approach in the industry and is keeping a close eye on the impact of forcing asset managers to pay for research separately from other broker services. Andrew Bailey, chief executive of the FCA (Financial Conduct Authority), was quoted as saying: “The reform had an effect on the market for research and the market is still adjusting as the price discovery unfolds. We are going to keep this under very close scrutiny”. So, what exactly have the changes been and why is the industry adopting such different interpretations when trying to implement research unbundling? Transparency and clamping down on inducements have been key aims for the ESMA and the FCA. The latter extends to research because the regulator views ‘free’ research as an inducement to trade. Research was previously seen as a non-forprofit activity, and one that supported the overall selling strategy of a sell-side firm. The changes mean that unless research is made ‘publicly available’ and free to all (one would question the value of it in such a case) then the asset manager is required to either pay for it or is not entitled to receive it at all. Figure 1 illustrates the changes to how a sell-side research department must now be compensated. Model A shows the previous pre-MiFID II arrangement for sell-side research departments. Model B shows how post-MiFID II research now needs to be paid for by the asset manager separately from execution costs.




A Execution

Research Sell-side Research Desk

Execution Costs (CSA) Asset Manager

Execution Desk

B Research


Research Fee

Execution Fee

Sell-side Research Desk

Asset Manager

ESMA has suggested that asset managers should have a RPA (research payment account). This can effectively be a pot, funded by profit from the asset manager, which can then be spent on research. This model has enhanced controls and would replace the previous commission sharing agreements, or CSAs, which tended to be discretionary without any monitoring. Asset managers will be expected to produce research budgets and justify their spending. The challenge comes when trying to price what research is worth as this task is extremely subjective. Asset managers clearly need to be able to justify their investment decisions to their investors and a certain amount of research is required. The question is how much they are willing to pay for it and should they pay for certain parts only. This has led to four main pricing models, though no doubt there are others and variations. • • • •

A platform-only solution: users pay a subscription fee for access. Rate Card model: fee agreed with an incremental fee agreed upfront; total payment determined by usage. Variable advisory model: large fee for full service and top-up fee depending on usage. Vote model: nominal fee paid upfront. Voting by asset manager to determine the pieces of research they found most valuable in making investment decisions. (Source: Vicky Sanders, RSRCHXchange.)

Execution Desk

Trying to implement a model even when one has been selected has proven to be a challenge. Client data needs to be brought up to scratch to be able to identify clients, particularly when they are classified by legal entity identifiers, or LEIs. Moreover, an asset manager’s fund could have many sub-funds, each with its own individual LEI. Luckily ‘trial-periods’ have afforded banks some grace to ensure their models are operational. However once this trial has been taken up in one entity in a group it cannot be extended to a different entity. This big shakeup in the research industry, which is supposed to make the market more of a level playing field, has had some unintended consequences and the playing field may take a long time to become anything near level. The turbulence risks a ‘race to the bottom’ where sell-side firms may offer predatory pricing (since there are no guide-lines on what to charge) to gain market share and then raise prices once competitors are put out of business. Whilst this may be considered a big threat for the smaller independent research providers (IRPs), they have already been competing against free research for many years and manage to survive because they offer specialised wellwritten research. They are also nimble and can quickly focus on new sectors and asset classes, such as cryptocurrencies. The new regulation has clearly had a big effect in the industry, and led to job losses in sell-side research as banks

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try to justify their research departments and turn them into profit centres. This has undoubtedly benefitted the IRPs and led to more specialist research being created, benefitting technical research analysts. Technical research has typically been quite niche in sell-side banks and perhaps with this industry change the balance between technical and fundamental/economic research pieces may be addressed to some extent. Clive Lambert from FuturesTechs comments: “MiFiD II was ‘in theory’ going to be a good thing for independent providers, but with the ‘predatory pricing’ Tom mentioned it’s not been an easy start, and I for one still often hear ‘we get free research’ from prospective clients, which is all rather frustrating. IRPs have an opportunity to flourish, but only once it becomes generally accepted that research is something that needs to be budgeted for and paid for, much like data is now. Unfortunately, six months on from MiFiD II this still hasn’t really happened.” The STA held a MiFID II research panel last year on 14 November 2017, shortly before the go-live for the regulation. What was clear from the speakers was that, despite this representing a major upheaval in the industry, it did present an opportunity to IRPs and for the industry to offer more specialised research to asset managers. The overall quality of research should in time go up, as asset managers will not pay for bad research. Whilst the regulation has generated a lot of upheaval in the industry, companies that differentiate themselves by writing quality research will prevail.

A follow-up MiFID II research panel will be held on the 13 November 2018 at 20 Fenchurch Street (the Walkie Talkie building) with the STA/CISI. See for details and to register.

Did you know? Did you know that we run an education forum? This is to help people pass the STA exam. It is run by Rajan Dhall. Below is some of the feedback we have been getting:

“Hi Raj, thought I’d let you know I passed the exam. I was sure I would be resitting it but somehow managed to get 82%. Thanks for looking over the reports I emailed you, it really helped knowing I was on the right path. Thanks for all your help.” Sam Bloxham, private investor.



Further Analytical Methods using Median Line Analysis, AKA Andrews Pitchfork (Part 2) Introduction Price action creates a mathematical grid which, when brought to light, can be used to identify targets, as well as support and resistance levels. The grid becomes visible through independent analysis of three axes: horizontal (price), vertical (time) and diagonal (price and time). The goal of this article is to discuss a few of the techniques found to be invaluable in analysing the diagonal axis. The other individual axes, vertical and horizontal, will not be discussed. Timothy Brackett Timothy Brackett, MSTA, CFTe, is a technical analyst with 35 years’ financial markets experience both on the sell and buy side. He is currently working with a portfolio management team monitoring portfolio positions and searching for investment ideas at Marketfield Asset Management LLC. His focus includes, but is not limited to, median line analysis, Elliott Wave Principle and multiple time frame price momentum work in concert with candlestick studies. He has coauthored The Weekly Speculator since 2004 and can be reached at

Kyle Crystal Kyle Crystal, CMT, CFTe, is a Principal of Crystal Capital Advisors, LLC and Lakeshore Technical Analysis, LLC. He has more than 10 years of investment experience managing long/short, long only, global macro and commodity strategies. He specialises in multiple time frame analysis, market geometry (including median line analysis), Elliott Wave Principle, momentum analysis and cycles. You can reach him at

Analysing the diagonal axis is traditionally accomplished with trend lines. Two points of contact are the minimum requirement needed to draw a valid trend line. Pitchforks are unique in that they require three. The importance of this fact cannot be overstated. Three points of contact allows a pitchfork to triangulate the price/ time grid unlike any other tool. And for those technicians who have ventured into the Gann ‘rabbit hole’, there are no discussions of hidden factors or scaling charts. FIGURE 1: CONSTRUCTION OF THE THREE PITCHFORK VARIATIONS

As shown above, the three variations of pitchforks are determined by the placement of the start of the pitchfork. When drawing a standard pitchfork the point of origin is the initial pivot (PO). The Schiff begins at the halfway point in price between PO and the next price pivot (P1) but still starts at the same point in time. A Schiff Modified Pitchfork begins halfway in price and time between PO and P1. In the chart above the Schiff Pitchfork would be used in analysis of the S&P E-Mini Active Future above. Note that in this variation price has more dutifully respected the upper and lower parallel lines of the pitchfork, suggesting that this is the ‘key’ angle. A Few Points Before we continue we would like mention three points. Firstly, median line analysis can be used in all time frames. The monthly chart of the S&P Metals and Mining ETF (XME) and the hourly chart of the Dow Jones Industrial Average (INDU) serve well as examples.

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Secondly, minor violations of support do not reduce the veracity of the indicator, whether they be on an intra-period or a closing basis (note chart of the NASDAQ 100 E-Mini Future in Figure 3 below). Only when price runs past with conviction, and/or ‘lingers’ in a state of violation, does it suggest that there has been a technical change of the angle, or frequency, in the price/time grid. FIGURE 3: MINOR VIOLATIONS DO NOT SIGNAL A TECHNICAL CHANGE

Thirdly, and most importantly, in most cases median line/pitchfork analysis is a superior analytical tool when compared with traditional trend line methods as it gives the chartist far more technical data points to consider during his or her analysis. FIGURE 4: MORE TECHNICAL DATA POINTS CREATE A SUPERIOR ANALYTICAL TOOL

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RESEARCH Combination Pitchforks The first example of the authors’ analytical method of diagonal discovery is to use what we refer to as ‘combination pitchforks’. In the left panel below we have applied a Schiff adjusted pitchfork (labelled “a”) to the daily chart of the Aerospace & Defence ETF (ITA) using three pivots; the low at POa, to the high at P1a, and higher low at P2a. The panel to the right adds a second Schiff adjusted pitchfork (labelled “b”) utilising the three pivots that follow; drawn once again from a low at POb, to the high at P1b, and then to the low at P2b. Dashed warning lines are then added outside pitchfork “b”. The reversal at the upper warning line of the second pitchfork at R1 and reversal two and a half weeks later at the upper parallel at R2 indicate that we have identified the correct price/time grid. Now, observe that both pitchforks, drawn from different pivots, are forming the exact same angle. This is confirmation that we have discovered the dominant frequency within this market’s price/time grid. Going forward, an analyst can continue to utilise this frequency. How so? Read on. FIGURE 5: USING COMBINATION PITCHFORKS TO ITENTIFY THE DOMINANT FREQUENCY

Duelling Pitchforks Upon confirmation of a market’s dominant frequencies, a technician can take his or her analysis one step further by employing what we refer to as ‘duelling Pitchforks’. This technique utilises two pitchforks (one bearish, one bullish) to form the price/time grid. In the panel below left we have drawn a Schiff adjusted pitchfork on an hourly NASDAQ 100 Index chart from the high at PO, to the low at P1, then to the lower high at P2. We then have added multiple warning lines. Note these warning lines have been respected by price. On the panel to the right we have added a standard pitchfork to the same chart starting from the low at PO, to the high at P1, then to the higher low pivot point P2, and similarly, have added multiple warning lines. These two pitchforks, working from a bear and bull perspective, work to reveal the price/time grid acting as diagonal resistance and support.





Figure 7 opposite of Daily E-Mini Active Contract serves as another example of duelling Pitchforks, but utilizes three of them to create the price/time grid. The first pitchfork is a bearish Schiff modified drawn from the late February high at PO, down to the April low P1 and up to the lower high at P2. The second originates at the same April swing low at PO and is drawn up to the swing high at P1, and terminates at P2. This is also Schiff modified, and for clarity purposes we have colour coded it blue. The third is a standard pitchfork (in red) drawn from the next swing low PO, to a higher high P1 and then down to a higher low P2. This completes the grid. Recent price action suggests that the price/time grid is beginning to change. This is revealed in the following data points: price has violated support at the upper warning line, UWL1, and support at the lower parallel LP1 has flipped to resistance. Both of these developments suggest that the ‘price unit’ or leg up since PO may have reached its terminus. What would be the appropriate next step in this analysis given the violation? Add warning lines to the standard pitchfork in red.

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Confluence and Multiple Time Frame Momentum The idea of confluence is fundamental to technical analysis. Confluence can be defined as a zone composed of more than one level of support, resistance or targets that work to strengthen a specific point on the price/time grid. An excellent example of median line confluence is found in the monthly chart of the Nikkei 225 presented in Figure 8 next page. Two standard pitchforks, labelled a and b, have been drawn from consecutive pivots. Observe that the price developed a significant swing high at a confluence of resistance composed of both median lines (the blue circle).





How could an analyst have had even more confidence that price would react to this confluence zone? The answer lies in multiple time frame momentum analysis. Examine the next series of charts. To the left of Figure 9, opposite, is the previous monthly chart of the Nikkei225 with the addition of a 14-period relative strength index (RSI). To the right is the exact same chart transferred to a weekly timeframe. A vertical line has been drawn on each chart to identify the momentum oscillator signal developing at the point where the median lines cross. Study the monthly chart. The oscillator is producing a tight bearish divergence sell signal at the all-time maximum horizontal displacement level. For those who need a refresher, a bearish divergence occurs when a momentum oscillator creates a lower high as price coincidently makes a higher high. Now examine the weekly chart. Note that weekly momentum is also printing a series of bearish divergences as price tests both median lines. Sell signals developing in multiple time frames as price test median line confluence resistance is a high confidence signal for a reactionary pullback.

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The Devil is in the Details - Real-Time Walkthrough The next two examples of pitchfork analysis will be walked through in detail as if the analysis were taking place in real-time. At times the discourse may seem tedious, but for the sake of analytical explanation we ask for our readers’ patience. Shifts within the Range of a Single Pitchfork Figure 10 next page is a daily chart of the SPDR Energy Select Sector ETF (XLE) displaying a Schiff-adjusted pitchfork drawn from P0, P1 and P2. A quick look tells us that the XLE is in a downtrend, but a more detailed examination provides insight into the underlying supply/demand dynamics of the market. Our consideration of the progression of price as it tracks lower within the confines of the pitchfork’s warning lines is yet another example of how utilising pitchforks in place of simple trend lines offers a more complete picture.





The pivots at point 1 and 2 are confined by the lower and upper parallel lines and help to confirm the Schiff adjusted pitchfork is displaying the dominant frequency. Next, hints of an accelerated decline are revealed with a repeated intraday violation of the lower parallel in the days leading up to pivot 3, which finds support and bounces at the lower warning line. XLE is once again unable to trade above the upper parallel at pivot 4, indicating the downtrend remains in force. Repeated touches of the lower warning line at 5, 6, and 7 reinforce the bottom of the channel and reaffirm the downtrend. Pivot 8 is a subtle clue that the power of the decline is diminishing as prices reach the upper warning line for the first time. At pivot 9, prices hold the lower parallel of the pitchfork at the close and, for several days leading to pivot 10, prices fail to reach the lower parallel line (two more signs of waning selling pressure). XLE closes above the upper parallel for the first time at pivot 11, and once again at pivot 12, it fails to reach the lower parallel line. In review, pivots 1 through 7 travel between the upper parallel and the lower warning line. Pivots 8 through 12 move between the upper warning line and the lower parallel. This subtle, but hugely important, shift within the pitchfork hints that the multi-month downtrend is probably in the early stages of a reversal. Once again, median line analysis provides the analyst with a level of depth that is not available through traditional trend line methodologies. Slope of the Median Line The next example provides another valuable perspective on the additional details available to pitchfork users. Figure 11 opposite is a 240-minute chart of the Russell 2000. There are five standard pitchforks marked with additional codification of a though e. There are a number of technical observations that are offered on close inspection of this chart. The first is when prices accelerate through the upper parallel of pitchfork a (noted by the first green circle). A conviction breakout of the pitchfork significantly raises the odds that the three-wave leg lower is complete and the price is due for a rally. The next insight comes to light when we apply the second pitchfork at the pivot low at POb. Note that the swing line (the dotted red line between P1 and P2) of pitchfork b is at the same diagonal angle as the upper parallel of pitchfork a. This denotes the first confirmation of diagonal discovery of the price/time grid. Moving forward, price fails to reach the upper parallel of the second pitchfork at POc. The swiftness of the reversal, the piercing of the median line and the inability of the price to retake the ground above are all clues that a three-wave rally has run its course. The price then begins to creep along the lower parallel of pitchfork c (second green circle) and begins to violate support. The re-test of the lower parallel from below at pivot P2c and subsequent acceleration lower necessitates the drawing of the third pitchfork, labelled c. Note how pitchfork c follows the same angle, or frequency, as pitchfork a, further confirming that the price/

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time grid is correct. The price fails to reach the lower parallel and then reverses higher above the median line and resistance at the upper parallel (third green circle). Note the breakout of pitchfork c significantly raises the odds of a completed three-wave decline. The price then pulls back and finds support at the upper parallel of pitchfork c. We then draw the fourth pitchfork labelled d. Note that pitchfork d has a median line with a steeper slope than pitchfork b. This is a subtle, but significant, clue that the market is getting stronger. Also, note that the two penetrations of the upper parallel (unlike the three previous pitchforks) further hint that underlying weakness is waning. Upon violation of the lower parallel (fourth green circle), price does not accelerate lower but stabilises. Pitchfork e is drawn when the price begins to move outside the confines of pitchfork d. It’s telling that the slope of the median line of pitchfork e is not as steep as those of pitchforks a and c. This is further evidence of growing strength within this market. In review, the slope of multiple pitchforks work to: 1) confirm the price/time grid; and 2) qualitatively measure the internal strength or weakness within a market. FIGURE 11: THE USE OF MULTIPLE PITCHFORKS CAN TEASE ADDITIONAL DETAILS FROM THE DATA

In conclusion, the Andrews’ Median Line, or pitchfork, is a powerful tool that works to reveal the diagonal axis functioning within all freely traded markets. We argue that pitchforks are superior to traditional trend line methodologies and should be a coveted tool within every technician’s toolbox. As discussed previously, combination pitchforks can be used to confirm the dominant frequency within a market. Once confirmed, this frequency can be employed in many ways to help forecast future points of support and resistance. One method is to employ duelling pitchforks, which highlight the price/time grid from multiple directions. Other techniques, such as median line confluence, can be used to identify strong points of support or resistance. When used in concert with multiple time frame momentum, the analyst can act with conviction due to non-correlated signals. Finally, the authors believe that the subtle details and shifts within the range of a pitchfork, as well as the slope of median lines reveal underlying supply/demand dynamics better than other price trend discovery tool.




A Student Pilot’s Guide to Technical Analysis “Norwood Tower, Cessna Niner-Niner-Zero-Five-Foxtrot, holding short runway Two-Eight. We’ll stay in the pattern. I’m a student pilot on my first solo.”

David Keller David Keller, CMT is President of Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He is a former president of the Chartered Market Technicians Association and most recently served as a Subject Matter Expert for Behavioral Finance. David was formerly a Managing Director of Research at Fidelity Investments in Boston as well as a technical analysis specialist for Bloomberg in New York. You can follow his thinking at

Cleared for take-off, I eased out onto the runway, took a deep breath, and throttled up. Once the plane reached the necessary speed I pulled back on the yoke and felt the wheels ease off the runway. I smiled as I watched the ground falling farther and farther away. My first solo flight had begun. Six years later, I can still remember every single moment of that flight. I particularly recall the feeling of anxious anticipation as opposed to any sort of panic or negative emotions. I had studied hard and practiced often to prepare myself for that first attempt at putting a plane in the air completely by myself. During my flight training experience, I discovered innumerable parallels between flying and investing. You’ll likely recognise many of these flight terms, which are often used to describe market activity: stall speed, take-off, crash, glide path, etc. The disciplined way that you prepare for and conduct a flight feels so similar to the way a trader would develop and execute a trading plan. Unfortunately, just as most airplane accidents are due to human error, many investor missteps are due to poor decision making. By learning from the mistakes of those that have come before you, you can help to minimise destructive decisions in flying as well as in your portfolio. Presenting the “Three Be’s” of Technical Analysis As I reflected on my time as a student pilot, I came up with three lessons that can help any investor or trader to improve their investment process. I call these the “Three Be’s” and intentionally kept them each concise and to the point. When you learn to fly, you have a flight

instructor in the passenger seat who is often repeating the same instructions over and over to help you internalise them. For example, when throttling up on the runway, he would say “right rudder”. Even when he was no longer in the cockpit, I could still hear him saying “right rudder” every time I prepared for take-off. I would encourage you to consider how well you currently incorporate these concepts into your daily routine and decide where you may be able to apply these lessons to minimise the impact of behavioural biases in your decisions. 1. Be Prepared At the beginning of this article, I shared the moments just before take-off on my first solo. Before a pilot gets anywhere near the runway, there is an exhaustive process of preparation that puts them in the position of be able to enjoy a successful flight. All my flights actually began in the office, where my instructor and I would review where we were headed, discuss the training exercises we would be conducting and examine weather patterns in the region. We would then proceed outside, where I would conduct a thorough examination of the airplane using a pre-flight checklist. This process included checking fuel levels, verifying that all flaps and the rudder had the correct range of motion, and that all openings were clear of any obstructions. Climbing into the cockpit, the checklist process would continue as I checked battery power, tested controls and ensured the radio and instruments were functioning properly. Most importantly, all the above steps were

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conducted using a printed checklist so I could visually verify that each had been completed. I have found that when people are learning technical analysis, a checklist can be a fantastic way to learn how different technical indicators fit into a thorough chart review. Without a clear and consistent process for reviewing a chart, an investor opens themselves up to all sorts of behavioural biases such as confirmation bias (where you look for evidence to confirm your pre-existing beliefs) and endowment bias (an emotional attachment to your existing holdings gives them greater value than they potentially deserve). For example, the first item on my technical checklist is Dow Theory. Is the stock in question in an uptrend or a downtrend? With all the advanced tools in a technician’s toolkit, it becomes very easy to ignore the most basic and fundamental chart question: is this price going up or down? When I taught a course in technical analysis at Brandeis University, I would have students stand in front of their peers and literally answer each question on the technical checklist. Only then were they allowed to give a


bullish or bearish recommendation. Besides helping the students develop a routine for analysing a chart, it forced them to acknowledge when some evidence was contrary to their investment outlook. Even if you have been trading for years, and feel you have a thorough mental process for reviewing a chart, it can be quite illuminating to write down your own checklist. You may find that there are certain tools that deserve to be higher or lower on your checklist, or even some techniques that don’t belong there at all. 2. Be Aware At the beginning My research firm is named Sierra Alpha Research to recognise the concept of ‘situational awareness’ using the International Phonetic Alphabet. Basically, you need to be aware of your surroundings and always look for new information that may affect your situation. You get in the habit of checking your instruments to confirm altitude and airspeed, reviewing your position on the map to ensure that you are in the right place, and scanning the horizon for any other traffic. Working at a large buy side institution,


I was surrounded by fundamental analysts who knew a group of about 20-30 stocks exceptionally well. They could discuss the business models, growth prospects and management challenges and could defend an investment thesis for each of their names. The issue is that their toolkit was not well designed to compare those 2030 stocks to the thousands of other names in the investable universe. This is where technical analysis serves a vital purpose in a portfolio manager’s process. Charts allow us to easily compare stocks across sectors, styles, and regions on an apples-to-apples basis. For example, ratio analysis allows an informed investor to evaluate one stock or group relative to many others. Relative strength analysis can help a portfolio manager to understand how a currency’s strength or weakness could impact their returns on a specific holding. In Figure 1, we see SAP AG with moving averages and a relative strength line showing the performance of SAP relative to the S&P 500. The price of the stock is denominated in euros, so Source: Optuma, Bloomberg



you’re observing the price in the same way as a ‘local’. The relative strength line at the bottom is adjusted to the US dollar. Using this chart, a US-based portfolio manager with an S&P 500 benchmark will better understand how this stock has impacted the portfolio returns. Instead of treating the currency impact separately from the stock analysis, the investor is able to understand the effect of the exchange rate directly on the chart. While the energy, defence and health care industries have been pioneers in data visualisation, the growth in the ‘FinTech’ space has provided traders a large and growing suite of tools designed to answer the question: What chart should I be looking at? For years, I have looked at tabula data on which stocks are up and down on the day and which names have seen unusual volume. A simple graphical representation can provide an easy way to identify the outliers in any universe. Figure 2 is an example of a scatterplot showing the S&P 100 index members with one-day percentage change on the y-axis and relative volume (today’s volume relative to an average volume reading) on the x-axis. FIGURE 2: PRICE CHANGE VS VOLUME


Which stocks are down the most on unusually heavy volume? Which stocks are moving on lighter volume? Is today’s volume heavier or lighter than usual for this group of stocks? All these questions can easily be answered with a glance at this scatterplot. I’ve worked with many fundamentally-orientated portfolio managers who are caught off guard when they realise certain stocks have been a drag on their performance. As many of you will likely agree, the technicals tend to lead the fundamentals. To put another way, the reasons for a large move in price are often understood well after the move has occurred. By surrounding yourself with a dashboard of proper market visualisations, you should be aware of your market surroundings and recognise opportunities earlier in the cycle. 3. Be Ready Pilots have often said: “It’s better to be on the ground wishing you were in the air, than in the air wishing you were on the ground.” As you progress through flight training, your attention is devoted more and more to emergency preparedness. If you’re driving your car and the engine cuts out, you simply pull over to the side of the road and wait for help to arrive. But if you’re cruising at 8,000 feet when your engine cuts out, you have a serious problem on your hands. Part of the pre-flight discussion is to review alternate airports where you can make a quick landing. As you’re navigating through airspace, you are always looking out the window to find a suitable place to land in case you need to quickly get on the ground. One of my least favourite memories of flight training was when my instructor randomly yanked out the throttle one afternoon. As our nose pitched down and our speed increased, he looked at me and calmly stated, “OK, you just lost your engine. What do you do?” By training for this sort of incident, the result is that in the case of an actual emergency you immediately follow the steps that you have practiced. Instead of getting caught up in the emotion of the moment, you peacefully go through the mental checklist

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to find a way to safely land the airplane. It’s amazing how often investors fail to have a good emergency plan for their portfolios. As a result, when the market moves against their positions, they tend to react based on their emotional response (“Oh no what do I do now?!?”) instead of a calm and disciplined response (“Time to cut losses and move on.”) In working with portfolio managers to manage downside risk, I have found new lows in price and relative strength to be an ideal signal that it’s time to revisit a position. Sometimes the result of the analysis is to reaffirm your commitment to a holding, perhaps deciding on a “point of no return” price level at which you will absolutely exit the position. However, oftentimes the result is to begin to unwind the position, selling perhaps 50% now and deciding on a price level at which you would sell the remaining 50%. Regardless of the specific outcome of the analysis, the purpose here is to force yourself to revisit your justification for owning the stock. We would often ask: “If you had new money today, would you buy that stock?” If the answer is “no” then why should you continue to hold it in your portfolio? The reason is usually endowment bias, where - as I mentioned - we attribute greater value to something just because we own it. As an example, Figure 3 shows China Mobile (CHL:US) in early 2016. FIGURE 3: CHINA MOBILE - THIS STOCK IS NOW A DRAG ON PERFORMANCE

Source: Optuma, Bloomberg

Notice how the price broke down through support, confirming a head and shoulders top pattern. At this point, the price is below two downward sloping moving averages. Most importantly, the relative strength line has broken through support, illustrating how this stock is now a drag on your fund’s performance.




Source: Optuma, Bloomberg

In Figure 4, we extend the chart through May 2018. The breakdown in price and relative strength was indeed an early indication that China Mobile would underperform going forward. By recognising the warning signs early in the move, we could identify a stock where we should wind down a long position and move on to greener pastures. The challenge is finding stocks as they are breaking down, and not well after the damage has already begun. Screening tools can help automate the process, generating a list of names at new 13- or 52-week lows. Ideally you can run this screen on your portfolios of interest to make sure you identify any names that are beginning to show weakness. Some of the technical analysts I greatly respect rely more on visual analysis with a routine that involves looking at hundreds if not thousands of charts every week. For example, Figure 5 shows part of my process for reviewing the largest stocks in the US to identify outliers and focus on stocks that are showing signs of weakness.

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35 Source:

By focusing on the potential downside in your portfolio, you ensure that you eliminate the weakest holdings and focus on positions of strength. A Disciplined Approach to Technical Analysis The one word that came up often during flight training was ‘discipline’. Whether I was preparing for a flight using maps and weather forecasts, scanning the horizon for other planes, or evaluating potential landing sites for an emergency, there was a disciplined process for completing each task. As traders and investors, it is so easy to get caught up in the ‘flickering ticks’ of the financial markets. By applying the lessons of flight training to your investment process, you can minimise the impact of emotions and approach the markets with a sense of calm and confidence.



A Simple Model for Gauging Emerging Market Currency Risk

Gerry Celaya Gerry Celaya, MSTA is a former board member of the STA and is a director of Redtower Asset Management. Gerry has previously worked at various US banks in London providing research and proprietary trading services and ran the European technical analysis team for one of the largest provider of real time research to professional dealers. Gerry holds economics degrees from UCSD (BA) and CSUSF (MA).

Introduction Currency markets offer many ways to make (and lose) money but one that can offer decent rewards is holding a high yielding emerging market currency, funding this by borrowing in a lower yielding currency and trying to beat the ‘unbiased forward rate’. This is ‘money for old rope’ at times, but can also be fraught with risk. A simple model that can signal if a trade is currently making money or not can be helpful when trying to manage risk in these positions. FX Market Background Foreign exchange market practitioners are a diverse lot as retail and professional end users, speculators and risk managers interact with banks and currency exchange specialists to execute trades and fill orders at all times of the day and night around the world. The art of money changing has been around since Biblical times (although receiving bad press for being done at the wrong place), and while cryptocurrencies may prove to be the ending of this business, at the moment that seems unlikely. The currency market is big, at around USD5.1 trillion per day according to the Bank for International Settlements (the ‘central bank for central banks’) in its 2016 survey, and has plenty of instruments for users to trade with - spot, forwards, FX swaps, currency swaps and options to name the usual suspects. i Technical analysis has long been used in the FX market to spot chart levels, patterns and trends and there are many studies that suggest that it can work. ii Economists play an important role in explaining events in FX markets and pointing out on the one hand clear opportunities and on the other hand some of the potential pitfalls ahead. However, they struggle to forecast

FX rates with any real consistent positive results. This led to the famous comments from Fed Chairman Greenspan in 2004: “The inability to anticipate changes in supply and demand for a currency is at the root of the statistically robust finding that forecasting exchange rates has a success rate no better than that of forecasting the outcome of a coin toss." iii The market structure is important as, while most technical studies and attempts at forecasts are done on spot rates, the ‘tail that wags the dog’ is often the forward structure of the spot (using the US dollar) or cross rates (other non-USD currency pairs). The forward rate is simply the expected currency rate given existing interest rate differentials at some time in the future (from a few days to a year or further out depending on the currency pairs). Forward rate dealers are the ‘unsung heroes’ of many dealing rooms as they make sure that the funding needs of the bank are met, whilst guessing at currency direction and interest rate trends as they put on positions in nominal amounts that would make most bank risk managers faint. The use of forward rates to either increase or manage risk is important, which is why central bank interventions often have a hefty forward component, as do positions put on by professional speculators and risk managers. Whilst economic theory used to suggest that you can’t make money by putting on a ‘carry trade’ (holding a higher yielding currency funded by selling a lower yielding currency), the fact that this is possible has led to a ‘forward rate bias’ explanation from economists. iv For those trying to manage a high

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yielding emerging market currency position or risk, though, the day-to-day reality is closer to what a colleague put to me as ‘picking up pennies in front of a steamroller’ where you know that a simple mistake can have serious consequences. Not only are you trying to beat the forward rate (which in a carry trade is like having the ‘yield differential fairy’ put gold coins in your hand while the ‘forward fairy’ punches you in the face and takes them away; ideally you end up with more gold coins every day but it can vary) but you are taking on board liquidity as well as other risks. While hedging the carry trade may appear attractive, the structure of the market and risk would ‘kill’ the potential ‘carry’ if hedged. v The attractiveness of this strategy is such that a leading ETP provider has a product that tries to deliver returns in holding emerging market FX rates, but be warned that financial market history has seen many active global macro and currency funds in this sector fall by the wayside (and high profile departures are common at fund managers in this field). vi However, from a technical analysis point of view, the problem of determining when an emerging market currency is no longer suitable for a ‘carry’ trade can be ‘tricky’ as many technical or quantitative models would say ‘avoid’ when presented with a currency rate that depreciates over time against the US dollar or euro because they can’t incorporate the ‘carry’ into their calculations. Trend following analysis is right in saying this


- our usual models only tripped a ‘buy the high yielding currency’ a few times in a 10-year study of daily data in many different rates, which is interesting but not that useful when trying to generate returns or manage risk. Using Pain as an Indicator By incorporating investor sentiment, a potential ‘heads up’ tool can be created that can filter out the usual depreciation in an emerging market carry trade from a potential ‘take this trade off’ situation. This could be illustrated by an increase in the pace of depreciation in the underlying spot or cross rate, but the real ‘rubber meets the road’ test is when the historical forward rate is exceeded by current spot or cross rate and the investor starts to feel real financial pain (seeing a loss). For example, if one bought the high yielding currency (HYC) and sold the US dollar as the low yielding currency to fund this trade on day zero at a rate of HYC 1.0000, while the three-month forward was at 1.5000, then as long as the spot rate is at 1.5000 or below (1.4999, 1.4000 etc)

three months after putting the ‘naïve carry trade’ on, then holding the HYC would have ‘made’ money. If the USD/ HYC spot rate was at 1.5001 or higher, then the idea of holding HYC funded by borrowing in dollars would probably have lost money, vii despite the hefty yield differential. An indicator that says ‘this idea is losing money’ does seem obvious (and the daily P&L sheet should tell you this) but if you compare the spot rate to a different number of forward rates then this may add some robustness to the idea. In this example we used the spot (or cross) rate against the one-month, three-month, six-month and one-year forward rate (non-deliverable forward for the Indian rupee) and created a simple ‘is this idea making money, taking the carry into account’ indicator (the RAM FWD Model©). The results in Table 1 are mixed, but ideally this is ‘food for thought’ for Market Technician readers which hopefully they can ‘carry forward’ in their own work.










Buy and Hold Spot Rate*








Average Buy & Hold + Avg. Spread








RAM FWD Model - Buy & Hold + Avg. Spread








Average O/N High Yield Rate





Average Rate Spread (3.5 yrs)





6.11% 36.12%



* Converting 1 mio USD or EUR into HYC on 06 November 2014 and then converting back 0n 15 May 2018







The currencies that were chosen for this study are ones that are ‘relatively’ liquid and can be accessed at institutional and to some extent the retail level (CFD and spread betting brokers in the UK). The rupee is an NDF currency offshore, but this should not distort the results by any significant amount. The key figures are in red. So, did using the model to cut the position when the ‘pain’ threshold was being crossed actually help deliver better results than buying and holding the currency (and earning the interest rate spread ‘carry’ whilst suffering from a potential fall in the value of the currency)? In most cases, yes, the model helped, but not against the rupee (which was more of a range-trading currency during this period). Keep in mind that the model is not optimised in any way and that using the average yields to calculate the ‘carry’ as a proxy for daily returns does distort the data - but this should ‘wash out’ during the study period. The model rules are simple (again, not optimised or changed for any currency pair) as a ‘pain free’ period is seen when the one-month moving average of the model ranking is negative (and the carry trade is held onto), while two positive closes in the one-month moving average of the model ranking would give a signal to cut the position on the third day (close). The only caveat is that the daily model ranking has to be zero or positive as well (there were only a couple of examples of the daily model ranking being negative at crossover points). The calculation for the currency loss (or gain) during this period was done by converting USD1m or EUR1m into the high yielding currency at the start of the period and then converting that amount back into dollars or euros at the spot rate at the end of the study. The average rate spread serves as the proxy for the ‘carry’ earned during this period (around 3.5 years) but does not reflect any reinvested amounts or compound interest possibilities. And now for the charts (finally). FIGURE 1: US DOLLAR AND TURKISH LIRA

Source: Reuters, Redtower Asset Management

Figure 1 above is the daily chart of USD/TRY with the three- and 12-month forward rates. The forwards are projected to the date of maturity, so if the blue line (spot) is above the orange line (three-month forward rate) that would suggest that buying the lira, funded by selling the dollar, probably didn’t work out over that period. If the blue line is below the orange line, then the ‘carry’ would have beaten the depreciation of the lira. The same holds true with the 12-month forward (grey line) and the spot rate (blue line). Figure 2 opposite is the daily chart of USD/TRY and the one-month model ranking which is the proxy for ‘pain’ as this measures whether or not holding the lira ‘beat’ the forward rate. The one-month model ranking is a 20-day moving average of the daily model ranking which measures the spot rate against the one-, three-, six- and 12-month forward rates (projected) as measures of ‘pain’. There is a lot of difference between the short dated lira rates available onshore, offshore and those given by banks; the study used the Reuters overnight reference rate.

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The daily EUR/TRY chart above illustrates that ‘beating the forward’ or earning money on a ‘carry trade’ has been very difficult during this time period. The model returned -8.60% which is bad, but this beat the ‘naïve’ return (buying and holding) of -10.71%, so the model did add a bit of value to the risk management process.





The South African rand was a different kettle of fish from Turkey’s lira over this study period. Late 2014 and most of 2015 saw rand weakness keep the model out of the ‘carry’ trade (Figure 6 below) but the rand rallied after this. The model delivered a positive return of 10.18% and (marginally) beat the ‘naïve carry trade’ by 0.78%.

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The cross rate was a lot more ‘whippy’ than the US dollar spot rate, and the returns varied as well. The negative short rates in the euro saw the ‘naïve carry trade’ deliver a hefty 17.23% return over the study period. The model improved this by 12.56% (29.79% return), which is interesting.






The Mexican peso was another currency that proved difficult for the model to generate positive returns in given the amount of time it spent in ‘pain’ (spot rate above the projected forward rates). But the model did make up some ground when the peso rallied (post-Trump, funny enough…). This saw the model give an 11.71% improvement over the ‘naïve carry trade’ of -15.46% (-3.76% model return).

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The ‘naïve carry trade’ return of 9.19% in USD/BRL was a reflection of a choppy currency and high interest rates. The model improved on this by 16.18% (25.37% return), which is also interesting. Smoothing out the model ranking (using the one-month moving average) helped to keep the ‘carry’ position in place and avoided a lot of ‘chopping and changing’.






The model return was positive at 4.51% but the ‘naïve carry trade’ offered a higher 11.14% return, using NDF data. This gave a -6.62% undershoot by the model which is interesting as it represents the only real ‘undershoot’ in this sample of emerging market currency rates.

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Conclusion Using a simple model as a ‘pain’ indicator to measure investor sentiment in the currency market makes sense for market technicians, as we attempt to use chart patterns, trend measures, momentum, volume and other market generated data to offer clues as to what may happen next. Emerging market currencies are tricky at the best of times but, with the US dollar’s rate cycle firming up, these may be more in play over the coming years. Hopefully indicators along these lines will help currency market practitioners in their decision making process. Footnotes

i. The BIS survey can be found here: ii. Some Fed studies: iii. Fed Chairman Greenspan’s 2004 speech can be found here: Economists will look at debt to GDP ratios, current account deficits, credit moves and exposure to short term funding needs and many other factors for clues but there are so many exceptions to these that it usually comes down to a judgement call. I have been lucky enough to have worked with great economists through my career and the country risk teams are very useful when trying to spot turning points in rates and currencies iv. A relatively concise explanation can be found here: v.

At BofA I was lucky enough to manage a small desk that created a basket of currencies to pick up the ‘carry’. We were long a basket of high yielding currencies and short a number of low yielding currencies and tried to balance the correlations so that USD fluctuations hit both sides of the basket in such a way as to ride out the volatility. The head of the room thought we were clever and hedging this against Asian currencies that were indeed tracking a similar basket, but this would have ‘killed’ the carry and we were just running the risk. At AEB I worked with a team running a similar basket and a new head of FX sales suggested wisely that we should be hedging our baskets with options, which would also have ‘killed’ the carry if done.

vi. Wisdom Tree has an ETF There are many other funds in this sector as well, but it seems that most are fixed income funds and generate the ‘carry’ through unhedged bond positions, which can lead to changes in the fund management team from time to time as market disruptions take a toll. vii. There is a chance that the overnight or short dated rates in the high yielding currency could have surged during the holding period and this return helps to beat the forward rate. In emerging markets though the higher rates are sometimes (often) accompanied by accelerated selling of the HYC and this becomes a double-edged sword for holders.




Candlestick Patterns: reality or just a myth? Introduction In this article, we back tested several well-known candlestick patterns on the S&P 500 to find out which are profitable and how significant the results were when compared with the overall market performance. By applying a simple trend filter, we also explored whether profitability is dependent on the current trend state.

David Pieper David Pieper lives in Germany and has 20 years of experience in the financial markets. After completing his business degree and continuing education to become a Certified International Investment Analyst, he spent several years in the investment research department of a large German federal state bank. His passion for technical analysis and trading is expressed regularly in articles of the German TRADERS magazine. For his private trading decisions he relies completely on technical analysis and systematic trading strategies that he has developed over the years. At Tradesignal Ltd., David is responsible for the consulting and training of institutional clients across the energy and financial sector. He is also a contributor at

Candlestick Pattern Overview Evening Star (short) Hammer (long) Shooting Star (short) Inverted Hammer (long) Bearish Engulfing (short) Piercing Line (long) Bearish Harami (short) Morning Star (long) Dark Cloud Cover (short) Big Black Candle (long) Bullish Engulfing (long) Bullish Harami (long) As an example, Figure 1 shows two candlestick patterns that occurred in April/May 2018. On the left chart you can see a Bullish Harami pattern. On the right chart you can see a Big Black Candle. Both patterns triggered a long entry signal the next day. Instead of relying on old books and gut feelings, our goal is to verify the effectiveness of these patterns: Can we exploit them systematically in order to make profits trading SPY, the world`s biggest ETF? Only a precise back test can give us the answers to this, so let’s jump into the test procedure. Back Test Procedure For our back test, we use Tradesignal and daily bars from March 1993 to June 2018. The simulation is processed for each pattern independently: If one of our patterns is found, the entry is executed on the next day’s open price. Each signal is traded with USD100,000. For the exit we keep it simple: all trades are closed after n days. Because candlestick patterns are a short-term timing instrument, we decide to back test all patterns with a holding time from one to 10 days. All results are displayed in percentage terms, while trading costs are not included. Back Test Results Let us take a look at the back test results now. In the first run, no trend filter is applied, so any existing pattern is traded whether the market is in an uptrend or downtrend. In order to compare the performance with the market itself, we calculated the average daily return during the back test time period - it is around +0.03% per day. Consequently, the performance of a candlestick pattern should be significantly higher than the benchmark performance. If you take a look at Figure 2, which shows the percentage results for each pattern, the following conclusions can be made: • The simple ‘Big Black Candle’ pattern delivers profitable results across all holding periods when traded long; with more than 600 trades, this pattern occurred very often. • The ‘Bullish Harami’ long pattern generates significant profits too; with nearly 200 trades it also occurred frequently. • The ‘Inverted Hammer’ has the highest average performance of all patterns tested, but it only had 54 trades during the back test period. • The ‘Piercing Line’ patterns delivers profitable results when the position is held between three and seven days, but the sample size was very small (just 19 trades). • The ‘Morning Star’ long pattern was not profitable.

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SPY im Backtestzeitraum ca. 0,03% Anstieg pro Tag in Prozent; Hervorheb. Auf Basis Return im Vgl. zum SPY markiert: alle Patterns, die mehr als 0,06 pro Tag gebracht haben! Haltedauer Pattern 0 1 2 3 4 Hammer (long) 0.04 0.14 0.15 0.13 0.19 Bullish Engulfing (long) 0.05 -0.15 -0.18 -0.15 -0.03 Bearish Engulfing (short) -0.06 -0.15 -0.21 -0.31 -0.35 Dark Cloud Cover (short) -0.26 -0.84 -0.89 -1.06 -1.18 Piercing Line (long) -0.10 -0.09 -0.15 0.51 0.06 Morning Star (long) 0.06 0.02 -0.05 -0.08 -0.08 Evening Star (short) -0.07 -0.06 -0.17 -0.19 -0.35 Inverted Hammer (long) 0.10 0.09 0.19 0.28 0.39 Shooting Star (short) 0.08 -0.32 -0.46 -0.37 -0.31 Bullish Harami (long) 0.18 0.33 0.40 0.41 0.52 Bearish Harami (short) 0.07 0.06 0.08 -0.07 0.07 Big Black Candle (long) 0.1217946 0.1863033 0.2363427 0.3043012 0.3835246


5 0.23 0.11 -0.37 -0.72 0.43 -0.09 -0.37 0.64 -0.47 0.33 0.05 0.3867746

6 0.22 0.24 -0.38 -0.67 0.55 -0.14 -0.37 0.99 -0.46 0.30 -0.14 0.4191404

7 0.19 0.18 -0.52 -1.30 0.68 -0.20 -0.41 1.15 -0.49 0.57 -0.31 0.5564545

8 0.09 0.27 -0.54 -1.14 -0.03 -0.21 -0.51 0.93 -0.52 0.54 -0.23 0.6683482

9 0.17 0.40 -0.41 -1.26 0.46 -0.22 -0.61 0.67 -0.37 0.50 -0.35 0.4211925


Big Black Candle (long) Bearish Harami (short) Bullish Harami (long) Shooting Star (short) Inverted Hammer (long) Evening Star (short) Morning Star (long) Piercing Line (long) Dark Cloud Cover (short) Bearish Engulfing (short) Bullish Engulfing (long) Hammer (long) -2.00








Figure 2: Average percentage profit for various candlestick patterns (without a trend filter). Subline: Long patterns (except ‘Morning Star’) deliver positive results, especially when held for multiple days. On the short side, no pattern seems to work at all.



In summary, all long patterns (except ‘Morning Star’) delivered positive results, especially when held for multiple days. By contrast, on the short side, no pattern seems to work at all. Due to the existing upward drift in the equity markets, short patterns should have had a hard time to generate profits in the short-term perspective - at least in theory. But what does the back test say? • Indeed, all tested short patterns generated negative results SPY im Backtestzeitraum ca. 0,03% Anstieg pro Tag • in Prozent; Hervorheb. Auf Basis Return im Vgl. zum SPY ‘Dark Cloud Cover’ short pattern was significantly unprofitable in particular, but the sample size is too small (21 trades). markiert: alle Patterns, die mehr als 0,06 pro Tag gebracht haben! 4 5 6 7 8 9 Pattern 0 1 2 3 Adding a Trend Filter - does it help? 0.38 0.42 0.29 0.35 0.21 0.40 Hammer (long) 0.08 0.30 0.39 0.33 0.32 0.63 0.43 0.02 0.15 0.23 Bullish Engulfing (long) -0.02 -0.26 -0.25 0.01 Maybe the results will improve when a trend filter-0.10 is applied? Let -0.20 us apply-0.29 a 20-day-EMA to-0.63 the back test and compare again. -0.22 -0.58 -0.48 Bearish Engulfing (short) -0.05 0.03 -0.02 -1.54 patterns -0.98 have-1.10 -1.36 -1.29 -1.63 Without the trend filter, -0.78 -1.11 AsDark Cloud Cover (short) you can see at Figure-0.16 3, the results of-0.92 the profitable long been improved in general. 0.51 0.66 1.04 1.19 0.16 0.46 Piercing Line (long) 0.11 -0.05 0.08 1.01 only the ‘Inverted Hammer’ the implementing 0.45 0.37 Now, after 0.48 0.46 0.52 a simple 0.43 trend filter, nearly four Morning Star (long) -0.32 pattern -0.58 scratched -0.29 -0.131-per cent-mark. -0.11 -0.17 -0.23 -0.34 this -0.47 Evening Star (short) -0.04 0.151-per cent 0.02 0.00 when-0.19 patterns generate profits near the mark, held for multiple days. As expected, improvement was achieved 0.46 0.42 0.79 0.87 0.37 0.13 Inverted Hammer (long) 0.21 0.32 0.34 0.50 byShooting Star (short) a reduction in the number of-0.19 unprofitable trades. -0.43 -0.57 -0.49 -0.45 -0.48 -0.38 0.14 -0.39 -0.46 Bullish Harami (long) Bearish Harami (short) Big Black Candle (long)

0.29 0.02 0.25

0.41 -0.02 0.51

0.36 0.08 0.57

0.50 0.10 0.82

0.42 0.02 0.66

0.31 0.05 0.94

0.50 -0.28 0.89

0.97 -0.40 0.82

0.96 -0.32 0.95

0.90 -0.32 0.84


Big Black Candle (long) Bearish Harami (short) Bullish Harami (long) Shooting Star (short) Inverted Hammer (long) Evening Star (short) Morning Star (long)

Figure 3: Average percentage profit for various candlestick patterns (with 20-dayEMA trend filter). Subline: After implementing a simple trend filter, the amount of trades has decreased and the profitability of all long patterns has been improved.

Piercing Line (long) Dark Cloud Cover (short) Bearish Engulfing (short) Bullish Engulfing (long) Hammer (long) -2.00








Conclusion: Test before you trade As shown by the back test, some candlestick patterns deliver over returns and can be a good starting point for creating trading strategies, at least on the long side. But there is no free lunch. The big enemy, of course, is trading costs, which eat up a big part of potential profits. So, before you decide trading candlestick patterns with real money, you should test and validate their profitability and robustness in detail. Using professional software enables you to test patterns across different time frames, portfolios and also enables implementation of stops and targets.

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Head and Shoulders above: Interview with Anne Whitby Interviewed by Nicole Elliott

Anne Whitby has a degree in Economics and Economic History from the University of York. She has spent her professional life in the City (of London) as a technical analyst, working both in research companies and an investment bank, Credit Suisse First Boston. She is a past Chairman of the Society of Technical Analysts and has considerable experience of conducting seminars, writing, and appearing on business television as a commentator on financial markets. She was a Managing Director of Chart Analysis for many years and is a well-known analyst and pundit with a thorough understanding of the currency, derivative and stock markets

Anne Whitby BA (Hons) FSTA Company Secretary

I was rather nervous approaching Anne with this project. She is someone I respect, and I therefore feared rejection something which had been the case with another potential interviewee who preferred to hide his light under a bushel. She kicked off by saying: “I’d be willing, but I don’t think my answers would be particularly useful and/or relevant for today’s younger members.” Just like her, the self-effacing techie that she is. She immediately launched into: “Bear in mind that I started in 1972” and has been a member of the society ever since, holding a handful of committee positions “and it was a whole different world.’ Yes, that is precisely one of the many reasons we invited you to talk to us! So to our questions - and her answers, which were superbly brief, witty and to the point. I later twisted her arm to pad them out a tad. Who or what introduced you to technical analysis? “An ad in the Telegraph.” How interesting that those good, innovative employment opportunities were advertised in mainstream media - this is probably not the case today. Anne then added, “to be exact, the Telegraph advert asked for ‘an extremely bright girl’ - irresistible, no? - which would be W-A-Y out of line today!” Yes, Anne, and as you hint, a change that makes today’s job market a duller place, as I’m sure many members will agree.

“I can’t remember who gave me this advice, or maybe it was distilled from various comments, but it was that I should always look at a chart objectively, and never try to fit the chart to any pet theory I’d derived from wherever. I think that will always hold true.

Where and how did you study? “I haven’t ever really ‘studied’ TA. I went to work with David Fuller at Chart Analysis on Bishopsgate where we had to draw our own charts before we could analyse them. The first thing was always updating paper charts!” Her next comment will no doubt stick in the throats of younger members: “While I don’t think people would get away with not studying TA today, I’d guess quite a lot of the ‘senior’ members of the STA didn’t do much, ie not just me. It was more a question of learning by experience of watching all the markets. Also there were very few books on TA available.” What is/are your essential methods? Who is your hero? “Very basic methods and my heroine would probably be Bronwen Wood”, she of the STA memorial award fame. Digging further, Anne tells me: “what I call

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‘basic’ is support and resistance, trends and the way the instrument is trading. Is it accelerating/losing momentum, has the consistency of a trend changed, in what way is a trading range developing and where is it in relation to other congestion areas, to assess whether it is more likely a top/ bottom or a continuation pattern? And I like to look at longer term monthly charts to see where we are in the big picture. For indicators I usually stick with RSI and slow stochastic and my main interest in these is divergence almost more than absolute levels.” What are the best/worst aspects of this work? Please give us a brief outline of a typical working day. “That requires a lot of thought, but really the best is when you get markets spot on correct, worst when you get them wrong!” Her working day has changed over the years and she was involved in different sorts of research provision: “As to my day-to-day, while some of my 4Cast work was full time, some part-time, some intraday, some two to three months plus view (which I much prefer doing), the actual structure of a day would be the same. When I was doing intraday I had to do a lot of markets in a specific order every day, (plus some rather longer term, about a month, background comments). When it was medium-term views I had a specific set of markets each month (I did them over two days, once a month), but the order of writing was my choice.” “Basically, in all cases and wherever I worked it was: look at a number of charts of a market, decide my view, write a comment, prepare electronic charts to go with the comment, put them all together in a logical sequence, and transmit. The length of time to produce each comment obviously partly depended on the time frame (medium terms were much longer comments and had more charts, intraday ‘pithy’) and significantly how long it took to decide my view! Some charts as you know just ‘speak’ and you know straight away, but others are a little more ambiguous.” Do you regret your career choice? Did you have a Plan B and what was it? “No regrets, I didn’t really choose anyway but fell into it. Plan B if it didn’t work was probably the next accident. We are talking 1970s and careers for women were generally a lot less considered.” Also let’s not forget that in 1970, only 8.4 per cent of the population went into further education - and women were an even bigger minority. What’s the best advice you were given and what would


you say to someone starting out today? “I can’t remember who gave me this advice, or maybe it was distilled from various comments, but it was that I should always look at a chart objectively, and never try to fit the chart to any pet theory I’d derived from wherever. I think that will always hold true. The other piece of advice is that when you get it wrong, (and you will sometimes), try and work out why you reached the wrong conclusion. There should be lessons to be learnt there. Markets being markets, however, and sometimes perverse, you may not be able to work out why. In that case, move on, as they say...” Which areas of further research might you be interested in or suggest others should look into? A: “This is very much not my expertise...” Q: Which two books would you recommend? “I’ve only read right through a couple of books. David Fuller didn’t encourage it: “Do it, not read about it” was his maxim. Of course there were a fewer less books about TA in the 70s anyway. Only one on point and figure that one of my father’s colleagues had to get from the US for me!” It is called Study Helps in Point & Figure Technique by Alexander Wheelan, and was first published 1947. Anne would not now recommend it except as an historical text. She then adds: “At first I was using exclusively P&F; now I look at all sorts of charts.” Please comment about things we have missed, your feelings and worries about the subject. Clever to the end, Anne says: “It was all a lot of fun - serious, but fun. I have a few worries. I feel that TA still seems to be regarded with some suspicion by many on the fundamental side. However, the ‘behavioural finance’ label seems to be much more acceptable. And where better to observe behaviour than in charts? In fact David Fuller has always described his work as behavioural technical analysis (and I analyse in a similar way), and Michael Smyrk has given lectures on market psychology for many years, possibly proving that there is nothing new under the sun... So I think we need to push that element - well the name anyway - to increase acceptance.” Here I must say I concur with her wholeheartedly about other disciplines cannibalising technical analysis, being a social psychology graduate with thirty-plus years working as a technical analyst with economists. The gloves may come off.



The Life Cycle Hypothesis Tony Plummer (2018), Harriman House Book review written by John Cameron FSTA, CFTe

The lecturer at a Gann session of the Diploma course asked this question: “How many of you have read Tunnel Thru the Air?” Three hands went up out of over the one hundred present. Would you be one of the three? If not should you do anything about it? In any case what is so special about that particular book? The lecturer, it transpired, simply wanted to know how many had seriously investigated W. D. Gann’s teaching. Anyone seeking proficiency in our field will have come across Gann. Some find his methods, or some of them, helpful but many others find them tantalising, bewildering or frustrating because they are missing an essential core or key element. Gann himself, wrote in the book’s foreword: “The Tunnel Thru the Air is mysterious and contains a valuable secret, clothed in veiled language”. Eighteen years earlier, in 1909, Richard Wyckoff had interviewed Gann. If you have not come across the published report of the meeting, I urge you to read it because it explains a lot from the stunning results of his market action to the subsequently earned reputation and massive continuous following. It features The Law of Vibration but Gann never exactly defined that law or what he meant. In fact it was his valuable secret. Tony Plummer wrote The Law of Vibration, The Revelation of William D. Gann and it was published in 2013. It rips away the veil of secrecy and elucidates a basic cyclical pattern.

It does so by examining St Mathews Gospel, the musical octave and the works of Gurdjieff. Undoubtedly some will have difficulty in accepting the arguments. I find it convincing . The pattern is supported by a demonstrably useful case study of US industrial production. The Life Cycle Hypothesis is Plummer’s latest book. In a way it starts where The Law of Vibration ends. Yet it lives up to its name: the latter dealt with decoding Gann and the interpretation of the hidden secret while the former, after two introductory chapters, develops the hypothesis and applies it in cycle analysis. (The second of those chapters has a useful mention of the learning process and limit cycles). Chapter 3 shows how the cycle pattern is constructed from the revealed code and its basic nature. There follows an examination and expansion of the pattern, which pays studying. In fact the whole book deserves studying and not just reading. It is not simply a “How to” hand book, but a closely argued work that you may find demanding but that you will find really rewarding. In the fifth chapter, “Cyclical Behaviour”, the use of momentum is introduced. Cycle behaviour is presented in terms of learning and energy, how the nature and structure of three sub cycles evolve and also, especially if you are into cycle analysis, a surprise or even a shock. Tracking a cycle using a sine wave can be inappropriate and misleading and that

is certainly so in the case of the life cycle applications. Plummer gives his reasoning; it is thought provoking. There follow examples of applying the life cycle: The Life Cycle in US Equities 1907-74, The Life Cycle in US Equities 1970-Present, 10 year US Treasury Notes, The 54-Year Kondratyev Price Cycle, The Future of The Euro and others as well. In every case each of these examples is methodically and meticulously examined and ends with a section entitled conclusion (as, indeed, does every chapter). There are helpful touches which I much appreciated: every right hand page gives the current chapter number and title, every diagram or chart is placed helpfully for reading the relevant text and not miles from it and footnotes, too, are on the same page as the text to which they refer. Bear in mind that the author holds a master’s degree from LSE in Economics and an honours degree from Kent University for the same field. The work is dedicated: “For the global community of independently minded technical analysts and economists”. There are also interesting views that are particular to economists. This excellent work should be in your personal library. However, if you are only interested in short-term trading you might not think it too compelling - the author, in fact, clearly warns that this is probable - but it is a must for longer term investors and advisers and strategists.

1 2 Here, perhaps I should declare a bias; in the 60s I had come across Gurdjieff and Ouspensky with whose ideas I was generally sympathetic. 3 See: The Life Cycle in US Equites 1907-74, Theory into practise section, Chapter 6, page 56.

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David Watts

CandleQuote Since the changes made to Yahoo finance, the availability of their worldwide EOD (end of day) data has come to an end. Programmes such as the excellent MLDownloader no longer work. Whilst online charting services such as Traderview and Pro-Realtime have replaced many standalone programmes, they have not yet been able to match many of the propriety studies or scanning capabilities of the standalone TA packages available in programmes such as Metastock, Multicharts and Omnitrader. CandleQuote is a new application that can be used to obtain free EOD data and whilst there is no guarantee that free data will be provided for much longer, it’s one way to deal with this change. It can also act as a data downloader for a number of fee based subscription services, just in case the free EOD data comes to an end. The associated programme CandleScanner™ also downloads US market data and scans for 16 candlestick patterns for a very reasonable price. products/candlequote

Gann Analysis through Excel

Metastock now works offline

Script Code Conversion: Varycode

There are very few programmes that allow advanced Gann Analysis at reasonable cost. The outstanding Optuma Gann package had taken over from the original “GannTrader” programme by Peter Pich.

Metastock by Equis set the standard for many years in terms of standalone TA packages - its interface, downloader, and scanner were nearly all “firsts” and was hence it was the best package for technical analysis. But then under Reuters, it suddenly changes its data format and could only be used online, resulting in frustration for those users who travel or those with legacy databases. Finally with Version 16, Metastock can be used offline and can again read the now older format Metastock database. Once again, it can claim to be a top quality programme.

There is an obvious need for a programming script conversion tool, like the older Quote Butler for data conversion. Better still would be one agreed universal scripting language for TA programmes. Meanwhile studies need to be converted between TA programmes. The Varycode site is new but has great promise, for allows code conversion between C, C++, Visual basic, Java, Python and Boo. Up to 512 lines of code conversion are free of charge. If you are lucky and your programming script is nearly identical to one of these languages you should be able to convert it to a high level programming language like Python, after which any script conversion should be much easier.

A new entrant into this area is the “Gann Analysis Through Excel” programme - hence “GATE” system. What I like in particular are the 24 video tutorials on how to use the software, which can be used as a tutorial into many of Gann’s price systems.



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 at monthly meetings and 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.

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STA Calendar 2018/19

Tuesday 11 September 6.30pm CISI Mathew Verdouw, Optuma

Friday 26 - Sunday 28 October Three days Kuala Lumpur Convention Centre IFTA’s 31st Annual Conference

More information about the STA events can be found here.

Thursday 11 October 6.30pm One America Square Dr Van Tharp

Tuesday 13 November 6.30pm CISI MiFID II Research Panel Update

Tuesday 11 December

Tuesday 8 January

6.30pm CISI Quiz and Christmas Party

6.30pm CISI Market Outlook Panel

Tuesday 12 February

Monday 4 March

6.30pm CISI Speaker to be confirmed


10.00am Stay Ahead Training Centre STA Diploma Part 1 Exam

Thursday 25 October 1.30pm Student Central STA Diploma Part 2 Exam

Monday 3 December 10.00am StayAhead Training Centre STA Diploma Part 1 Exam

Wednesday 16 January 6.00pm London School of Economics STA Diploma Part 2 Course commences

Tuesday 12 March 6.30pm CISI Speaker to be confirmed



STA Education: the LSE courses, and the Diploma in Technical Analysis The Education Channel - Monthly meetings videos are available to members here. July 2018

Tony Plummer

The understandings of William Gann

May 2018

Paul McLaren

Trading: it’s completely mental!

April 2018

Eddie Tofpik

Avoiding the spikes: uses and abuses of Andrews and Schiff pitchforks

March 2018

Tom Rubython

Fireside Chat

February 2018

Daniel Gramza

Behavioural Japanese candle trading clues for 2018

January 2018

Market outlook panel

Panel discussion

December 2017

AGM & Christmas party

No video recording

November 2017

Pedro Fernandes, Chris Deavin, Tom Hicks, Tim Parker

MIFID II panel discussion

October 2017

Dr Dmytro Bondar, Dr Nazri Khan

Detecting market cycles using inverse-logic spectral analysis Malaysian Society Visit

September 2017

Trevor Neil

The VIX pop trading method: defined and tested

July 2017

Summer party & awards ceremony

No video recording

STA Library The public library of the City of London at the Barbican Centre holds around 1500 books on economics, finance and investing; this includes the STA collection. UK STA members can obtain free membership of the library and are sent the relevant form in their membership pack. A UK-wide postal service is also available to members. If you do not have an application form to hand and would like to join, please contact STA Administrative Services ( and they will send you one. More information about the STA library services can be found here.

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STA education: get qualified in technical analysis Booking is well underway for the CISI and IFTA accredited STA Diploma Part 1 and Diploma Part 2 courses. The two courses have been designed to cater for newcomers and experienced professionals who are looking to challenge themselves. They will learn to develop the methodology, tools and confidence to make better informed trading and investment decisions in any asset class, anywhere in the world.



6x1 evening a week classes Exam preparation tuition Two-hour exam Qualification accredited by CISI and IFTA

12x1 evening a week classes Exam preparation tuition Three-hour exam Qualification accredited by CISI and IFTA


Wednesday 17 October 2018

Wednesday 16 January 2019


£995 if booked by 30 Sepember 2018; £1,995 thereafter.

£1995 if booked by 15 December 2018; £2,995 thereafter.


This course is designed for those with little or no previous experience and individuals looking to initiate themselves in the practice of technical analysis. The course will give you an introduction to technical analysis and provide you with the tools to progress to the Diploma Part 2 Course. The Diploma Part 1 schedule enables you to maximise your learning while complementing your work and home life. The course is accredited for Continuing Professional Development (CPD) by the Chartered Institute for Securities and Investment (CISI).

The Part 2 Course provides you with advanced professional knowledge, understanding and skills to use technical analysis as a vital investment tool or to pursue a career in technical analysis within the investment community. Basic technical analysis knowledge is a prerequisite for attending this course. During the 12 week programme you will learn from leading experts and develop both theory and practical experience in the major techniques, analytical tools and indicators to enable you to select the most advantageous portfolios, trades, hedges and much more for your clients, your employers and your own trading systems. The Diploma Part 2 Course provides you with a deeper understanding of technical analysis, added confidence and the capabilities to further develop your career. The course is accredited for Continuing Professional Development (CPD) by the Chartered Institute for Securities and Investment (CISI).

At a glance

• Introduction to technical analysis and comparison to fundamental analysis. • Construction and interpretation of Line, Bar, Point and Figure and Candlestick charts. • Introduction to Heikin- Ashi, Three-Line Break, Renko and Kagi charts. • Support and resistance, theory, identification, utilisation, breakouts. • Trend and return lines, where and how to draw them. • Fibonacci numbers and retracements. • Reversal and continuation patterns, target projection from patterns. • Moving averages, different types and how to interpret them. • Momentum, indicators/oscillators, relative strength, sentiment measures - definition, interpretation and how to use them. • Dow Theory, introduction to Elliott Wave Theory. • How to use technical analysis strategically.


• • • •

The practical application of support, resistance and price objectives by market professionals - how they build on the essential basics and add advanced techniques eg Fibonacci projections; working in different time frames. Construction and advanced applications of Candlestick and Point and Figure charts, including Point and Figure moving averages and indicators. Advanced moving average, momentum indicator and oscillator techniques; use of market breadth and sentiment measures. The practical application by market professionals of Dow, Elliott Wave and Gann Theory; Ichimoku Charts; Market Profile®; Behavioural Finance; Risk Management - and much, much more.




Balance professional development and your personal life with our new Home Study Course© In February 2018 the STA launched the new Home Study Course, HSC 2©. This is an exciting upgrade to the hugely successful HSC© which has been a number of years in development. The STA’s aim was simple - to give you the best product on the technical analysis market, not just in course content or the number of experts involved in its development, but also with the administrative and continuous student support you receive. For the past few years we have been tirelessly working on an updated HSC 2© product and all the hard work and commitment has resulted in the launch of an industryleading home study course that is already being recognised as head and shoulders above anything else available. What’s new in HSC 2? • How one encounters, engages and manages within the heightened uncertainty and ambiguity that defines risk roles. New industry experts involved in development. • More interactive. • Improved Q&A. • 40% more units created to cover increased range of topics (IFTA syllabus compliant). • Gann unit now more practical and user friendly; additional Elliott Wave theory coverage. • Interactive questions for each unit using Exam builder

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STA Diploma Part 1 exam software. New modules: Risk & Trading systems, Behavioural Finance, Ichimoku Kinko Yyo. Additional techniques taught: Renko, Kagi, Three-line break charts and much more. More revision and exam preparation.

The new HSC 2© course costs £1,195.00 and can be purchased by clicking here. This new price reflects the major enhancements as well as the additional and expanded content. The STA Home Study Course© (HSC) is perfect for students who wish to learn at their own pace rather than in a classroom, due to either time or geographical constraints. Anyone who is not able to, or does not wish to, travel to London to attend the STA Diploma Part 1 and 2 courses will find the HSC an excellent alternative. Since the HSC 2© course is IFTA syllabus compliant it can also be used to prepare candidates for both the IFTA CFTe I and II examinations. Although website based, it is fully downloadable and may be used online or offline by PC, Mac, iPad or Android machines. For more details click here or contact the STA office on +44 (0) 207 125 0038 or

Special Journal offer! We have put together a great offer for you. Book any of our courses, including the Home Study Course, before 30th October 2018 and save £50. SIMPLY CLICK HERE and enter code JNLPROMO in the coupon box to redeem your £50 discount.


Congratulations to the latest STA Diploma MSTAs Distinction Amy Wu Andrew Swinhoe Ibnu Khaldoon Zakuan Mohamad Hamid

Pass Adam Stobbs Adonis Mylonas Ahmad Mahmud Ahmad Zainudin Andreas Mintikkis Andrew Black Anthony Jonathan Riachi Antreas Themistokleous Asif Noh Azlisham Othman Azmir Abdullah CĂŠline Alsemaan Che Muhammad Zaimi Chris Mills Daisy-May Andrew Dan Sallau Yahaya David Ali-Abdurahman Ezone Constantine Faiz Ikmal Ismail Farah Suhaira Binti Salim Faraz Parekh Gabriel Guidarelli George Katsioloudes Graham Joy

Hamdi Hamzah Ho Kwong Iacopo Mancin Izrul Bin Zainal Abidin Jay Taylor Jee Kit Tan Jin Ling Tan Jom Jacob Kamarul Muhammad Leonidas Neophytou Loukia Tomouzou Mohamad Faidzal Kamaruddin Mohamad Shawari Bakar Mohammed Faisal Bin Mohd Shokri Mohd Omar Mohd Ahmed Mohd Saahari Mohd Azhar Basri Ami Mohd Hasan Manan Mohd Hilmee Kassim Mohd Ruzaidi Sadikin Moncef Bousba Muhammad Izzat Asri Bin Azmi Muhammad Katiman

Muhammad Zailani Muhammad Yahya Shafee Munifah Sianid Nor Roslan Nora Haslezan Binti Samsi Norfazrul Onn Norhaisinah Asmoni Paul Ridd Rahian Binti Binti Rahim Rosmera Ismail Shueh Ting Wong Snehdeep Pabla Stefan Majewski Stephane Arnaud Syakur Bin Mohd Suhaimi Tim Heijn Wan Saiful Azmy Ween Yhin Lim William Broad Yap Seng Yeong Chien Lim Zainal Abidin Bin Abdul Jabbar Zulraidi Bin Ali



The STA Executive Committee

Axel Rudolph BSc (Hons) MSc FSTA MCSI Chairman of the STA

Charles Newsome MSTA FCSI Vice Chairman

Karen Jones BSc (Hons) FSTA Marketing

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

Guido Riolo BSc MBA MSTA Marketing / Journal

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

Anne Whitby BA (Hons) FSTA Company Secretary

Clive Lambert MSTA MCSI Marketing

Leona Gomez-Lopez MBA ACCA MSTA Treasurer

Tom Hicks MEng MSTA MSCI Head of Programmes

Richard Adcock MSTA Journal

Nick Kennedy BA (Hons) MSTA Systems and Website Specialist

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. Mark Tennyson d’Eyncourt FSTA Programmes

Ben Tyler BA (Econ) FCA MSTA ACSI Finance

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STA Advertising Rates 2018/19 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.




Inside Cover


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

Full Page


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

Half Page


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

Quarter Page


96mm (w) x 139.5mm (h).

Circulation The Market Technician has a circulation of approximately 1300. 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 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

The Society of Technical Analysts (STA) is recognised worldwide as one of the largest and most widely respected not-for-profit 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.