Transcript
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ABSTRACT
A PROJECT ON TECHNICAL AND FIUNDAMENTAL ANALYSIS ABOUT
BULLION MARKETS
The main stream of the organization is share, commodity and FOREX trading and
Research. Their priority is to make people transform from ignorant to expertise in the chosen
field. Everyone should be aware of investment opportunities in capital markets. Still it is an
untapped and an overflowing market, they create opportunities for clients and they teach clients
how to make a raw chance into an earning opportunities
The main objective of the study is about to find out the technical and fundamental impact
of bullion market which includes the price range of GOLD AND SILVER both in national and
international market. We are going to take the data of Gold and Silver for seven years to analyze
about the fundamental and technical tools involved in the market.
In case of fundamental analysis we are going to use Inflation, Gold Reserve Ratio,
Interest rate, Global indices, and local indices in to consideration.
For technical analysis we going to take Indicators, Oscillators, and some technical tools
in to consideration. In indicators we are going to use methods like
Parabolic SAR
Moving average
Bollinger band
Oscillators
Relative strength Index
Stochastics
MACD
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Tools
Andrews pitch fork
Trend line
Fibonacci retracement levels
From the findings we are going to analyze about the future price variations in bullions
market and will suggest about that to the company.
PRIMARY OBJECTIVE
To find out the technical and fundamental impact of bullion market
To analyze about the impact of gold with global economy
SECONDARY OBJECTIVE
To suggest the clients about the technical move in the market in future period of
time.
SCOPE OF THE STUDY
The study is conducted in a way to calculate the risk and return of bullion market for past ten
years. This will help the investors viz, individuals and the clients of the company to yield them
higher return with lesser risk.
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METHODOLOGY
RESEARCH DESIGN
The type of research design is undertaken in descriptive design since the pricing movements
of bullion markets are analyzed.
SAMPLE DESIGN
For the purpose of this study the daily closing prices of Gold and silver are included
from Multi Commodity Exchange were taken and their price movements are computed and
studied. We will be analyzing the following prices
Global Gold and Silver prices
Dollar index
USDINR prices
Indian Gold price with reference to MCX
SOURCES OF DATA
Secondary source
International Gold prices from MT4 platform
Dollar charts from Windsor brokers
USDINR prices from Indian forex market
Indian gold prices from MCX
Fundamental datas from www.forexfactory.com
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TOOLS USED FOR ANALYSIS
FUNDAMENTAL TOOLS
Inflation
Unemployment claims
Datas related to dollar index
Datas released by IMF
TECHNICAL TOOLS
Candle stick patterns
Line chart patterns
Trend line patterns
Tools with mathematical calculations
Oscillators
Indicators
Andrews pitch fork
Fibonacci retracement levels
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Description for tools used for study
Inflation
The term "inflation" originally referred to increases in the amount of money in
circulation, and some economists still use the word in this way. However, most economists today
use the term "inflation" to refer to a rise in the price level. An increase in the money supply may
be called monetary inflation, to distinguish it from rising prices, which may also for clarity be
called 'price inflation'.
In economics, inflation is a rise in the general level of prices of goods and services in an
economy over a period of time. When the general price level rises, each unit of currency buys
fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing
power of money a loss of real value in the internal medium of exchange and unit of account in
the economy. A chief measure of price inflation is the inflation rate, the annualized percentage
change in a general price index (normally the Consumer Price Index) over time.
Inflation's effects on an economy are various and can be simultaneously positive and
negative. Negative effects of inflation include a decrease in the real value of money and other
monetary items over time, uncertainty over future inflation may discourage investment and
savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of
concern that prices will increase in the future. Positive effects include ensuring central banks can
adjust nominal interest rates (intended to mitigate recessions), and encouraging investment in
non-monetary capital projects.
Economists generally agree that high rates of inflation and hyperinflation are caused by an
excessive growth of the money supply. Views on which factors determine low to moderate rates
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of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real
demand for goods and services, or changes in available supplies such as during scarcities, as well
as to growth in the money supply. However, the consensus view is that a long sustained period of
inflation is caused by money supply growing faster than the rate of economic growth.
Today, most economists favor a low, steady rate of inflation. Low (as opposed to zero or
negative) inflation reduces the severity of economic recessions by enabling the labor market to
adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary
policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is
usually given to monetary authorities. Generally, these monetary authorities are the central banks
that control monetary policy through the setting of interest rates, through open market
operations, and through the setting of banking reserve requirements.
Other widely used price indices for calculating price inflation include the following:
Producer price indices
(PPIs) which measures average changes in prices received by domestic producers for
their output. This differs from the CPI in that price subsidization, profits, and taxes may cause
the amount received by the producer to differ from what the consumer paid. There is also
typically a delay between an increase in the PPI and any eventual increase in the CPI. Producer
price index measures the pressure being put on producers by the costs of their raw materials.
This could be "passed on" to consumers, or it could be absorbed by profits, or offset by
increasing productivity. In India and the United States, an earlier version of the PPI was called
the Wholesale Price Index.
Commodity price indices:
It measure the price of a selection of commodities. In the present commodity price
indices are weighted by the relative importance of the components to the "all in" cost of an
employee.
Core price indices:
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Because food and oil prices can change quickly due to changes in supply and demand
conditions in the food and oil markets, it can be difficult to detect the long run trend in price
levels when those prices are included. Therefore most statistical agencies also report a measure
of 'core inflation', which removes the most volatile components (such as food and oil) from a
broad price index like the CPI. Because core inflation is less affected by short run supply and
demand conditions in specific markets, central banks rely on it to better measure the inflationary
impact of current monetary policy.
UNEMPLOYMENT CLAIMS
The employment situation is extremely important for a macroeconomic analysis, so the financial
markets track employment indicators, although this is a low impact indicator compared with the
monthly BLS's "Employment Report". This report tracks how many new people have filed for
unemployment benefits in the previous week. For instance, when more people file for
unemployment benefits, fewer people have jobs, and vice versa. Investors can use this report to
gather pertinent information about the economy, but it's a very volatile data, so the four week
average of jobless claims is monitored.
TECHNICAL TOOLS
CANDLESTICK PATTERNS
Introduction to Candlesticks
History
The Japanese began using technical analysis to trade rice in the 17th century. While this early
version of technical analysis was different from the US version initiated by Charles Dow around
1900, many of the guiding principles were very similar:
The "what" (price action) is more important than the "why" (news, earnings, and so on). All known information is reflected in the price. Buyers and sellers move markets based on expectations and emotions (fear and greed). Markets fluctuate. The actual price may not reflect the underlying value.
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Candlestick charting first appeared sometime after 1850. Much of the credit for candlestick
development and charting goes to a legendary rice trader named Homma from the town of
Sakata. It is likely that his original ideas were modified and refined over many years of trading
eventually resulting in the system of candlestick charting that we use today.
Formation
In order to create a candlestick chart, you must have a data set that contains open, high, low and
close values for each time period you want to display. The hollow or filled portion of the
candlestick is called "the body" (also referred to as "the real body"). The long thin lines above
and below the body represent the high/low range and are called "shadows" (also referred to as
"wicks" and "tails"). The high is marked by the top of the upper shadow and the low by the
bottom of the lower shadow. If the stock closes higher than its opening price, a hollowcandlestick is drawn with the bottom of the body representing the opening price and the top of
the body representing the closing price. If the stock closes lower than its opening price, a filled
candlestick is drawn with the top of the body representing the opening price and the bottom of
the body representing the closing price.
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Compared to traditional bar charts, many traders consider candlestick charts more visually
appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price
action. Immediately a trader can see compare the relationship between the open and close as well
as the high and low. The relationship between the open and close is considered vital information
and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the
open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate
selling pressure.
Long Versus Short Bodies
Generally speaking, the longer the body is, the more intense the buying or selling pressure.
Conversely, short candlesticks indicate little price movement and represent consolidation.
Long white candlesticks show strong buying pressure. The longer the white candlestick is, the
further the close is above the open. This indicates that prices advanced significantly from open to
close and buyers were aggressive. While long white candlesticks are generally bullish, much
depends on their position within the broader technical picture. After extended declines, long
white candlesticks can mark a potential turning point orsupport level. If buying gets too
aggressive after a long advance, it can lead to excessive bullishness.
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Long black candlesticks show strong selling pressure. The longer the black candlestick is, the
further the close is below the open. This indicates that prices declined significantly from the open
and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a
turning point or mark a future resistancelevel. After a long decline a long black candlestick can
indicate panic or capitulation.
Even more potent long candlesticks are the Marubozu brothers, Black and White. Marubozu do
not have upper or lower shadows and the high and low are represented by the open or close. A
White Marubozu forms when the open equals the low and the close equals the high. This
indicates that buyers controlled the price action from the first trade to the last trade. Black
Marubozu form when the open equals the high and the close equals the low. This indicates that
sellers controlled the price action from the first trade to the last trade.
Long versus Short Shadows
The upper and lower shadows on candlesticks can provide valuable information about the trading
session. Upper shadows represent the session high and lower shadows the session low.
Candlesticks with short shadows indicate that most of the trading action was confined near the
open and close. Candlestick with long shadows show that traded extended well past the open and
close.
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Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated
during the session, and bid prices higher. However, sellers later forced prices down from their
highs, and the weak close created a long upper shadow. Conversely, candlesticks with long lower
shadows and short upper shadows indicate that sellers dominated during the session and drove
prices lower. However, buyers later resurfaced to bid prices higher by the end of the session and
the strong close created a long lower shadow.
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Candlesticks with a long upper shadow, long lower shadow and small real body are called
spinning tops. One long shadow represents a reversal of sorts; spinning tops represent indecision.
The small real body (whether hollow or filled) shows little movement from open to close, and
the shadows indicate that both bulls and bears were active during the session. Even though the
session opened and closed with little change, prices moved significantly higher and lower in the
meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff.
After a long advance or long white candlestick, a spinning top indicates weakness among the
bulls and a potential change or interruption in trend. After a long decline or long black
candlestick, a spinning top indicates weakness among the bears and a potential change or
interruption in trend.
Doji
Doji are important candlesticks that provide information on their own and as components of in a
number of important patterns. Doji form when a security's open and close are virtually equal.
The length of the upper and lower shadows can vary and the resulting candlestick looks like a
cross, inverted cross or plus sign. Alone, doji are neutral patterns. Any bullish or bearish bias is
based on preceding price action and future confirmation. The word "Doji" refers to both the
singular and plural form.
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Ideally, but not necessarily, the open and close should be equal. While a doji with an equal open
and close would be considered more robust, it is more important to capture the essence of the
candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices
move above and below the opening level during the session, but close at or near the opening
level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning
point could be developing.
Different securities have different criteria for determining the robustness of a doji. A $20 stock
could form a doji with a 1/8 point difference between open and close, while a $200 stock might
form one with a 1 1/4 point difference. Determining the robustness of the doji will depend on the
price, recent volatility, and previous candlesticks. Relative to previous candlesticks, the doji
should have a very small body that appears as a thin line. Steven Nison notes that a doji that
forms among other candlesticks with small real bodies would not be considered important.
However, a doji that forms among candlesticks with long real bodies would be deemed
significant.
Doji and Trend
The relevance of a doji depends on the preceding trend or preceding candlesticks. After an
advance, or long white candlestick, a doji signals that the buying pressure is starting to weaken.
After a decline, or long black candlestick, a doji signals that selling pressure is starting to
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diminish. Doji indicate that the forces of supply and demand are becoming more evenly matched
and a change in trend may be near. Doji alone are not enough to mark a reversal and further
confirmation may be warranted.
After an advance or long white candlestick, a doji signals that buying pressure may be
diminishing and the uptrend could be nearing an end. Whereas a security can decline simply
from a lack of buyers, continued buying pressure is required to sustain an uptrend. Therefore, a
doji may be more significant after an uptrend or long white candlestick. Even after the doji
forms, further downside is required for bearish confirmation. This may come as a gap down, long
black candlestick, or decline below the long white candlestick's open. After a long white
candlestick and doji, traders should be on the alert for a potential evening doji star.
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After a decline or long black candlestick, a doji indicates that selling pressure may be
diminishing and the downtrend could be nearing an end. Even though the bears are starting to
lose control of the decline, further strength is required to confirm any reversal. Bullish
confirmation could come from a gap up, long white candlestick or advance above the long black
candlestick's open. After a long black candlestick and doji, traders should be on the alert for a
potential morning doji star.
Long-Legged Doji
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Long-legged doji have long upper and lower shadows that are almost equal in length. These doji
reflect a great amount of indecision in the market. Long-legged doji indicate that prices traded
well above and below the session's opening level, but closed virtually even with the open. After a
whole lot of yelling and screaming, the end result showed little change from the initial open.
LINE CHART PATTERNS
Implication
An Ascending Continuation Triangle is considered a bullish signal. It indicates a possible
continuation of the current uptrend.
Description
An Ascending Continuation Triangle shows two converging trend lines. The lower trend line is
rising and the upper trend line is horizontal. This pattern occurs because the lows are moving
increasingly higher but the highs are maintaining a constant price level. The pattern will have
two highs and two lows, all touching the trend lines. This pattern is confirmed when the price
breaks out of the triangle formation to close above the upper trend line.
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Important Characteristics
Following are important characteristics about this pattern.
Occurrence of a Breakout
Technical analysts pay close attention to how long the Triangle takes to develop to its apex. The
general rule is that prices should break out - clearly penetrate one of the trendlines - somewhere
between three-quarters and two-thirds of the horizontal width of the formation. The break out, in
other words, should occur well before the pattern reaches the apex of the Triangle. The closer the
breakout occurs to the apex the less reliable the formation.
Duration of the Triangle
The Triangle is a relatively short-term pattern. It may take between one and three months to
form.
Shape of Triangle
The horizontal top trendline need not be completely horizontal but it should be close to
horizontal.
Bottom Triangle - Bottom Wedge
Classic Pattern
Implication
Bottom Triangles and Bottom Wedges are considered to be bullish signals that mark a possible
reversal of the current downtrend.
Description
Bottom Triangles and Bottom Wedges make up a group of patterns which have the same general
shape as Symmetrical Triangles, Wedges, Ascending Triangles and Descending Triangles. The
difference is that these particular formations are reversal and not continuation patterns. These
patterns have two converging trend lines. The pattern willdisplay two highs touching the upper
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trend line and two lows touching the lower trend line. Contrary to Triangle formations, Wedges
are characterized by their boundary trend lines both moving in the same direction.
This pattern is confirmed when the price breaks upward out of the Bottom Triangle or Bottom
Wedge formation to close above the upper trend line.
Double Bottom
Implication
A Double Bottom is considered a bullish signal, indicating a possible reversal of the currentdowntrend to a new uptrend.
Description
Double Bottoms are considered to be among the most common of the patterns. Since, they seemto be so easy to identify, the Double Bottom should be approached with caution by the investor.
The Double Bottom is a reversal pattern of a downward trend in a stock's price. The DoubleBottom marks a downtrend in the process of becoming an uptrend.
A Double Bottom occurs when prices form two distinct lows on a chart. A Double Bottom isonly complete, however, when prices rise above the high end of the point that formed the secondlow.
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The two lows will be distinct. The pattern is complete when prices rise above the highest high inthe formation. The highest high is called the "confirmation point".
Flag (Bullish)
Implication
A Flag (Bullish) is considered a bullish signal, indicating that the current uptrend may continue.
Description
A Flag (Bullish) follows a steep or nearly vertical rise in price, and consists of two parallel
trendlines that form a rectangular flag shape. The Flag can be horizontal (as though the wind is
blowing it), although it often has a slight downtrend.
The vertical uptrend, that precedes a Flag, may occur because of buyers' reactions to a favorable
company earnings announcement, or a new product launch. The sharp price increase is
sometimes referred to as the "flagpole" or "mast".
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Head and Shoulders Bottom
Implication
A Head and Shoulders Bottom is considered a bullish signal. It indicates a possible reversal ofthe current downtrend into a new uptrend.
Description
The Head and Shoulders bottom is a popular pattern with investors. This pattern marks a reversalof a downward trend in a financial instrument's price.
Volume is absolutely crucial to a Head and Shoulders Bottom. An investor will be looking forincreasing volumes at the point of breakout. This increased volume definitively marks the end ofthe pattern and the reversal of a downward trend in the price of a stock.
A perfect example of the Head and Shoulders Bottom has three sharp low points created by threesuccessive reactions in the price of the financial instrument. It is essential that this pattern form
following a major downtrend in the financial instrument's price.
The first point - the left shoulder - occurs as the price of the financial instrument in a fallingmarket hits a new low and then rises in a minor recovery. The second point - the head happenswhen prices fall from the high of the left shoulder to an even lower level and then rise again. Thethird point - the right shoulder - occurs when prices fall again but don't hit the low of the head.Prices then rise again once they have hit the low of the right shoulder. The lows of the shoulders
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are definitely higher than that of the head and, in a classic formation, are often roughly equal toone another.
The neckline is a key element of this pattern. The neckline is formed by drawing a lineconnecting the two high price points of the formation. The first high point occurs at the end of
the left shoulder and beginning of the downtrend to the head. The second marks the end of thehead and the beginning of the downturn to the right shoulder. The neckline usually points downin a Head and Shoulders Bottom, but on rare occasions can slope up.
The pattern is complete when the resistance marked by the neckline is "broken". This occurswhen the price of the stock, rising from the low point of the right shoulder moves up through theneckline. Many technical analysts only consider the neckline "broken" if the stock closes abovethe neckline.
Rounded Bottom
Implication
A Rounded Bottom is considered a bullish signal, indicating a possible reversal of the currentdowntrend to a new uptrend.
Description
Rounded Bottoms are elongated and U-shaped, and are sometimes referred to as rounding turns,bowls or saucers. The pattern is confirmed when the price breaks out above its moving average.
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Important Characteristics
Following are important characteristic to look for in a Rounded Bottom.
Shape
The price pattern forms a gradual bowl shape. There should be an obvious bottom to the bowl.Price can fluctuate or be linear; however, the overall curve should be smooth and regular,without obvious spikes. For example, a V-shaped turn would not be considered a roundedbottom.
TREND LINE PATTERNS
A trend line is formed when you can draw a diagonal line between two or more price pivot
points. They are commonly used to judge entry and exit investment timing when trading
securities. It can also be referred to a Dutch line as it was first used in Holland.
A trend line is a bounding line for the price movement of a security. A support trend line
is formed when a securities price decreases and then rebounds at a pivot point that aligns with at
least two previous support pivot points. Similarly a resistance trend line is formed when a
securities price increases and then rebounds at a pivot point that aligns with at least two previous
resistance pivot points.
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Trend lines on a price chart.
Trend lines are a simple and widely used technical analysis approach to judging entry and
exit investment timing. To establish a trend line historical data, typically presented in the format
of a chart such as the above price chart, is required. Historically, trend lines have been drawn by
hand on paper charts, but it is now more common to use charting software that enables trend
lines to be drawn on computer based charts. There are some charting software that will
automatically generate trend lines, however most traders prefer to draw their own trend lines.
When establishing trend lines it is important to choose a chart based on a price interval
period that aligns with your trading strategy. Short term traders tend to use charts based on
interval periods, such as 1 minute (i.e. the price of the security is plotted on the chart every 1
minute), with longer term traders using price charts based on hourly, daily, weekly and monthly
interval periods.
However, time periods can also be viewed in terms of years. For example, below is a chart of the
S&P 500 since the earliest data point until April 2008. Please note that while the Oracle example
above uses a linear scale of price changes, long term data is more often viewed as logarithmic:
e.g. the changes are really an attempt to approximate percentage changes than pure numerical
value. Previous chart from 1950 to about 1990, showing how linear scale obscures details bycompressing the data.Trend lines are typically used with price charts, however they can also be
used with a range of technical analysis charts such as MACD and RSI. Trend lines can be used to
identify positive and negative trending charts, whereby a positive trending chart forms an
upsloping line when the support and the resistance pivots points are aligned, and a negative
trending chart forms a downsloping line when the support and resistance pivot points are aligned.
Trend lines are used in many ways by traders. If a stock price is moving between support
and resistance trend lines, then a basic investment strategy commonly used by traders, is to buy a
stock at support and sell at resistance, then short at resistance and cover the short at support. The
logic behind this, is that when the price returns to an existing principal trend line it may be an
opportunity to open new positions in the direction of the trend, in the belief that the trend line
will hold and the trend will continue further. A second way is that when price action breaks
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through the principal trend line of an existing trend, it is evidence that the trend may be going to
fail, and a trader may consider trading in the opposite direction to the existing trend, or exiting
positions in the direction of the trend.
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OSCILLATORS
THE RELATIVE STRENGTH INDEX (RSI)
The Relative Strength Index (RSI) is a technical indicator used in the technical analysis offinancial markets. It is intended to chart the current and historical strength or weakness of a stock
or market based on the closing prices of a recent trading period. The indicator should not be
confused with relative strength.
The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of
directional price movements. Momentum is the rate of the rise or fall in price. The RSI computesmomentum as the ratio of higher closes to lower closes: stocks which have had more or stronger
positive changes have a higher RSI than stocks which have had more or stronger negative
changes.
The RSI is most typically used on a 14 day timeframe, measured on a scale from 0 to 100, with
high and low levels marked at 70 and 30, respectively. Shorter or longer timeframes are used foralternately shorter or longer outlooks. More extreme high and low levels80 and 20, or 90 and
10occur less frequently but indicate stronger momentum.
The Relative Strength Index was developed by J. Welles Wilder and published in a 1978 book,
New Concepts in Technical Trading Systems, and in Commodities magazine (now Futures
magazine) in the June 1978 issue. It has become one of the most popular oscillator indices.
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INDICATORS
MOVING AVERAGE
In statistics, a moving average, also called rolling average, rolling mean or running
average, is a type of finite impulse response filter used to analyze a set of data points by creating
a series of averages of different subsets of the full data set. Given a series of numbers and a fixed
subset size, the first element of the moving average is obtained by taking the average of the
initial fixed subset of the number series. Then the subset is modified by "shifting forward", that
is excluding the first number of the series and including the next number following the original
subset in the series. This creates a new subset of numbers, which is averaged. This process is
repeated over the entire data series. The plot line connecting all the (fixed) averages is the
moving average. A moving average is a set of numbers, each of which is the average of the
corresponding subset of a larger set of data points. A moving average may also use unequal
weights for each data value in the subset to emphasize particular values in the subset.
A moving average is commonly used with time series data to smooth out short-term
fluctuations and highlight longer-term trends or cycles. The threshold between short-term and
long-term depends on the application, and the parameters of the moving average will be set
accordingly. For example, it is often used in technical analysis of financial data, like stock prices,
returns or trading volumes. It is also used in economics to examine gross domestic product,
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employment or other macroeconomic time series. Mathematically, a moving average is a type of
convolution and so it can be viewed as an example of a low-pass filter used in signal processing.
When used with non-time series data, a moving average filters higher frequency components
without any specific connection to time, although typically some kind of ordering is implied.
Viewed simplistically it can be regarded as smoothing the data.
Andrews' Pitchfork
Introduction
Developed by Alan Andrews, Andrews' Pitchfork is a trend channel tool consisting of
three lines. There is a median trendline in the center with two parallel equidistant trendlines on
either side. These lines are drawn by selecting three points, usually based on reaction highs or
lows moving from left to right on the chart. As with normal trendlines and channels, the outside
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trendlines mark potential support and resistance areas. A trend remains in place as long as the
Pitchfork channel holds. Reversals occur when prices break out of a Pitchfork channel.
Picking Three Points
The first step to using Andrews Pitchfork is selecting three points for drawing. These
points are usually based on reaction highs or reaction lows, also referred to as pivot points. Chart
1 shows McKesson (MCK) with Andrews' Pitchfork extending up from the June low. The first
point selected marks the start of the median line. Points 2 and 3 define the width of the Pitchfork
channel. The median line is based on two points: point one and the midpoint between points 2
and 3. As such, the median line starts a point 1 and bisects points 2 and 3. This controls the slope
(steepness) of the median line. The outside trendlines are then extended parallel to the median
line. The red Andrews' Pitchfork shows an alternative median line based on the July low forpoint 1. Notice that the red median line still bisects the line between points 2 and 3, but it is
steeper than the blue median line. Pitchfork slope depends on the placement of point 1.
Chart 2 shows a downward sloping Andrews' Pitchfork with Accenture (ACN). The blue median
line starts at point 1 and bisects the line between points 2 and 3. The outside trend lines are
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parallel and equidistant from the median line. For slope reference, the red Pitchfork uses the
August low as point 1, which makes the median line steeper.
Fibonacci Retracements
Introduction
Fibonacci Retracements are ratios used to identify potential reversal levels. These ratios arefound in the Fibonacci sequence. The most popular Fibonacci Retracements are 61.8% and38.2%. Note that 38.2% is often rounded to 38% and 61.8 is rounded to 62%. After an advance,chartists apply Fibonacci ratios to define retracement levels and forecast the extent of acorrection or pullback. Fibonacci Retracements can also be applied after a decline to forecast thelength of a counter trend bounce. These retracements can be combined with other indicatorsandprice patternsto create an overall strategy.
The Sequence and Ratios
This article is not designed to delve too deep into the mathematical properties behind theFibonacci sequence and Golden Ratio. There are plenty of other sources for this detail. A fewbasics, however, will provide the necessary background for the most popular numbers. LeonardoPisano Bogollo (1170-1250), an Italian mathematician from Pisa, is credited with introducing theFibonacci sequence to the West. It is as follows:
http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patternshttp://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patternshttp://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patternshttp://stockcharts.com/h-sc/ui?s=ACN&p=D&st=2007-06-01&en=2008-04-06&id=p80882451495&listNum=30&a=193055060http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns8/2/2019 ABSTRACT for Bullions 1
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0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610
The sequence extends to infinity and contains many unique mathematical properties.
After 0 and 1, each number is the sum of the two prior numbers (1+2=3, 2+3=5, 5+8=13
8+13=21 etc). A number divided by the previous number approximates 1.618 (21/13=1.6153,
34/21=1.6190, 55/34=1.6176, 89/55=1.6181). The approximation nears 1.6180 as the
numbers increase.
A number divided by the next highest number approximates .6180 (13/21=.6190,
21/34=.6176, 34/55=.6181, 55/89=.6179 etc.). The approximation nears .6180 as the
numbers increase. This is the basis for the 61.8% retracement.
A number divided by another two places higher approximates .3820 (13/34=.382,
21/55=.3818, 34/89=.3820, 55/=144=3819 etc.). The approximation nears .3820 as the
numbers increase. This is the basis for the 38.2% retracement. Also, note that 1 - .618 = .
382
A number divided by another three places higher approximates .2360 (13/55=.2363,
21/89=.2359, 34/144=.2361, 55/233=.2361 etc.). The approximation nears .2360 as the
numbers increase. This is the basis for the 23.6% retracement.
Alert Zones
Retracement levels alert traders or investors of a potential trend reversal, resistance area orsupport area. Retracements are based on the prior move. A bounce is expected to retrace aportion of the prior decline, while a correction is expected to retrace a portion of the prior
advance. Once a pullback starts, chartists can identify specific Fibonacci retracement levels formonitoring. As the correction approaches these retracements, chartists should become more alertfor a potential bullish reversal. Chart 1 shows Home Depot retracing around 50% of its prioradvance.
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http://stockcharts.com/h-sc/ui?s=HD&p=D&st=2009-02-02&en=2009-07-07&id=p68073561283&listNum=30&a=192814105
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