1 TRENDLINES AND MOVING AVERAGES TRENDLINES MOVING AVERAGES.

1

TRENDLINES AND MOVING AVERAGES

TRENDLINES

MOVING AVERAGES

2

TRENDLINES

• Technical analysis is built on the assumption that prices trend.

• TLs are an important tool in technical analysis for both trend identification and confirmation.

• A TL is a straight line connects two or more price points.

• And then extends into the future to act as a line of support or resistance.

• Many of the principles applicable to support and resistance levels can be applied to TL’s as well.

• An uptrend line has a positive slope and is formed by connecting two or more low points.

• The second low must be higher than the first for the line to have a positive slope.

• Up TL act as support and indicate that net-demand (demand less supply) is increasing even as the

price rises.

• A rising price combined with increasing demand is very bullish and shows a strong buyer

determination.

• As long as prices remain above the trend line, the uptrend is considered solid and intact.

• A break below the up TL indicates that net-demand has weakened and a change in trend could be

imminent.

• A downtrend line has a negative slope and is formed by connecting two or more high points.

• The second high must be lower than the first for the line to have a negative slope.

• Downtrend lines act as resistance, and indicate that net-supply (supply less demand) is increasing

despite fall

• A declining price combined with increasing supply is very bearish and shows the strong resolve of

the sellers.

• As long as prices remain below the downtrend line, the downtrend is considered solid and intact.

• A break above the down TL indicates that net-supply is decreasing and a change of trend could be

imminent.

• The more points used to draw the trend line, the more validity attached to the support or

resistance levels.

• Sometimes the lows or highs just don't match up, and it is best not to force the issue.

• Two point confirm and the third point confirms the validity.

3

TRENDLINES

• As the steepness of a trend line increases, the validity of the support or resistance level

decreases.

• A steep trend line results from a sharp advance (or decline) over a brief period of time.

• The angle of a TL created from such sharp moves is unlikely to offer a meaningful support or

resistance level.

• Trading a trendline break has been found difficult.

• Trend lines can offer great insight, but if used improperly, they can also produce false signals.

• Other items - such as horizontal support and resistance levels or peak-and-trough analysis.

• While trend lines are very popular, they are merely one tool for establishing, analyzing, and

confirming a trend.

• TL should not be the final arbiter, but should serve as a warning that a change in trend may be

imminent.

• By using TL breaks for warnings, traders can pay closer attention to other signals for a potential

change.

4

Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep2004 2005 2006

PriceRON

8000

12000

14000

16000

18000

22000

24000

26000

28000

32000

34000

36000

38000

42000

44000

46000

48000

52000

10000

20000

30000

40000

50000

Q.BETFI, Last Trade, HiLoCl Bar

TOOLS AND INDICATORSTRENDLINES

20 27 03 10 17 24 31 07 14 21 28Jul 06 Aug 06 Sep 06

PriceRON

41000

42000

43000

44000

45000

46000

47000

48000

40000


15 18 19 20 21 22 25 26 27Sep 06

PriceRON

45500

46500

47500

48500

45000

46000

47000

48000


5

04 05 06 07 08 11 12 13 14 15 18 19Sep 06

PriceRON

45400

45600

45800

46200

46400

46600

46800

47200

47400

46000

47000

8 DAYS - 3% SPOT- 12% DERIVATIVES-136% SPOT ANNUALISED-547% DERIVATIVES ANNUALISED

08:15 08:45 09:15 09:45 10:15 10:45September 05 2006

PriceRON

47350

47450

47550

47300

47400

47500

47600

6

07 21 05 19 02 16 30 15 12 26 09 23Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Feb 07

PriceRONLog

33

36

39

42

22

24

26

28

32

30

TEL. INTERMEDIATE AND MINOR CHANNEL

7

8

9

10

BETFI

11

1292 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07

PriceUSDBblLog

30

40

50

60

12

14

16

18

22

24

26

10

20

OIL. PRIMARY CHANNELS

Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr2004 2005 2006 2007

PriceUSDBbl

27

33

36

39

42

45

48

51

54

57

63

66

69

72

30

60

13

97 98 99 2000 01 02 03 04 05 06 07

PriceUSDOzsLog

450

480

510

540

570

630

660

260

280

320

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360

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420

600

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GOLD. CYCLE AND PRIMARY CHANNELS

84 86 88 90 92 94 96 98 2000 02 04 06 08

PriceUSDOzsLog

450

480

510

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570

630

660

260

280

320

340

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14

GOLD. CYCLE AND PRIMARY CHANNELS

84 86 88 90 92 94 96 98 2000 02 04 06 08

PriceUSDOzsLog

450

480

510

540

570

630

660

260

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320

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84 86 88 90 92 94 96 98 2000 02 04 06 08

PriceUSDTLog

1600

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1000

COCOA. CYCLE AND PRIMARY CHANNELS

15

96 97 98 99 2000 01 02 03 04 05 06 07 08 09

PriceUSDBsh

2.4

2.7

3.3

3.6

3.9

4.2

4.5

4.8

5.1

5.4

5.7

6.3

6.6

6.9

7.2

3

6

(a)

(b)

a

b

i

ii

iii

c

1c=1.618*a

iii=2.618*i

WHEAT. CYCLE AND PRIMARY CHANNELS

16

01 02 03 04 05 06 07

PriceUSDTLog

1600

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COFFEE. CYCLE AND PRIMARY CHANNELS

Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan2002 2003 2004 2005 2006 2007

PriceUScLbsLog

60

80

120

24

28

32

36

44

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52

56

100

40

c(IV)

I

II

1

2

3

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COCOA. CYCLE AND PRIMARY CHANNELS

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Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb2004 2005 2006 2007

PriceUSDLog

1500

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1120

1160

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WATER INDEX

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TRENDLINE

SIGNIFICANCE.

LONGER TIME. VOLUME VALIDATION. RECENT PRICE ACTION

EVIDENCE OF A TREND P/I/M. 2 REACTION LOWWS - 3 TOUCH VALIDATES

UP TLINE. SUPPORT USED AS DIPS TO LONG

DOWN TLINE. RESISTANCE USED AS DIPS TO SHORT

BREAK OF TLINE EARLY WARNING. ALL PRICE ACTION SHOULD BE ENCOMPASSED

PENETRATIONS – MEANS PROPER CLOSE NOT A SPIKE.

FILTER TIME 2 DAYS

FILTER PRICE - 3%/1% - DEPENDING ON STRATEGY

ROLE REVERSAL – CHANGING FROM A SUPPORT TO RESISTANCE

HOW TO UNDERSTAND THE STEEPNESS OF A TLINE

BEHAVIOUR AT RETURN LINE IS A WARNING

ROUND NUMBERS/ AVOID PLACING ORDERS NEAR ROUND NUMBERS 3/900

19

MOVING AVERAGE

• Moving averages are one of the most popular and easy to use tools available.

• They offer a trade off between sensitivity and reliability. The less

• Shorter moving averages will be more sensitive and generate more signals.

• There will also be an increase in the number of false signals and whipsaws.

• Longer moving averages will move slower and generate fewer

• signals. These signals will likely prove more reliable, but they also may come late.

• Each trader should experiment with different moving average lengths and types to examine the

trade-off

• Moving averages smooth out a data series and make it easier to identify the direction of the trend.

• Because past price data is used to form MA, they are considered lagging, or trend following,

indicators.

• Moving averages will not predict a change in trend, but rather follow behind the current trend.

• Therefore, they are best suited for trend identification and trend following purposes, not for

prediction.

• Because moving averages follow the trend, they work best when a security is trending and not

sideways.

• Hence first identify securities that display some trending characteristics before attempting to use

MA’s.

• An uptrend is established when a security forms a series of higher highs and higher lows.

• A downtrend is established when a security forms a series of lower lows and lower highs.

• Or an uptrend is started when the upper boundary of the range is broken and vice versa.

20

USES

• There are many uses for moving averages, mainly Trend identification/confirmation

• Support and Resistance level identification/confirmation

• Trading Systems

• Trend Identification/Confirmation

• Disadvantages of using moving averages need to be weighed against the disadvantages.

• Moving averages are trend following, or lagging, indicators that will always be a step behind.

• This is not necessarily a bad thing though. After all, the trend is your friend and it is best to trade

• Markets, stocks and securities spend a great deal of time in trading ranges, which render moving

averages ineffective.

• Once in a trend, moving averages will keep you in, but also give late signals.

• Don't expect to get out at the top and in at the bottom using moving averages.

• As with most tools of technical analysis, moving averages should not be used on their own, but in

conjunction

• Using moving averages to confirm other indicators and analysis can greatly enhance technical analysis.

21

TOOLS AND INDICATORSMOVING AVERAGES

Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun2001 2002 2003 2004 2005 2006

PriceRON

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30000Jul Sep Nov Jan Mar May Jul Sep Nov

2005 2006

PriceRON

33000

36000

39000

42000

45000

48000

51000

30000

26 03 10 17 24 31 07 14 21 28 04 11 18 25 02Jun 06 Jul 06 Aug 06 Sep 06

PriceRON

34000

36000

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TOOLS AND INDICATORSMOVING AVERAGES CASE

CONSTRUCTION

INTERPRETATION

SIGNALS

WHIPSAWS AND COMPLEMENTING WITH OTHER TOOLS

TIME FRAME REDUCTION. ADVANTAGES AND DISADVANTAGES

NO OF SIGNALS AND QUALITY OF SIGNALS

CROSSOVER. WHAT IS A CROSSOVER? WHY TO USE A CROSSOVER?

INTERPRETATION

SIGNALS

23

SUMMARY

TREND FOLLOWING

MECHANICAL SYSTEM

CHOICE OF TOOL FOR AN INVESTOR

NOT TO SAY EXTREMELY VALUABLE FOR A TRADER

UNEQUIVOCAL. CLEAR SIGNAL.

TIME LAG

TREND FOLLOWING

WHEN TREND CHANGES PRICE START MOVING SIDEWAYS AND THEN

SYSTEM STARTS WHIPSAWING

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Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec2002 2003 2004 2005 2006

PriceRONLog

0.2

0.4

0.06

0.09

0.12

SNP MONTHLY - WHIPSAW

25

May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr2006 2007

PriceRONLog

0.54

0.56

0.58

0.44

0.46

0.48

0.52

0.6

0.5

SNP WEEKLY - WHIPSAW

26

30 06 13 20 27 05 12 19 09 16 23 30 06 13 20 27Nov 06 Dec 06 Jan 07 Feb 07

PriceRON

0.54

0.55

0.56

0.57

0.58

0.59

0.61

0.62

0.6

SNP DAILY – PRICE BELOW MA

27

2000 01 02 03 04 05 06 07

PriceRONLog

0.1

0.2

SIF5 MONTHLY – MA CROSSOVER POSITIVE

28

Jan Mar May Jul Sep Nov Jan Mar2006 2007

PriceRONLog

2.4

2.7

3.3

1.6

1.8

2.2

3

2

SIF5 WEEKLY – MA CROSSOVER WHIPSAWS FOR 2 WEEKS BUT REMAINS POSITIVE

29

01 15 29 14 11 25 08 22 08Oct 06 Nov 06 Dec 06 Jan 07 Feb 07 Mar 07

PriceRON

3.1

3.2

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SIF5 DAILY – PRICES BELOW MA

30

11 18 25 01 08 15 22Jan 07 Feb 07

PriceRON

3.35

3.45

3.55

3.65

3.75

3.3

3.4

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3.6

3.7

SIF5 60 MIN – PRICE ABOVE MA

31

Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May2003 2004 2005 2006 2007

PriceUSDBbl

27

33

36

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45

48

51

54

57

63

66

69

72

75

30

60

OIL – BRENT – 50 PERIOD MA

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BET AND BETFI

33

BETFI

34

IMPACT AND BROKER

35

ATB AND SNP

36

TLV

37

TLV

38

BRD

39

RRC

40

SNP

41

SNP

42

SIF 5 MAR

43

SIF 2

44

RRC

45

TEL

46

ERSTE

47

BETC

48

BETC

49

SIF 1

50

IMPACT (INVERTED)

51

EURRON

52

EURRON

53

EURRON

54

EURRON

55

EURRON 30 MIN

56

EURO DOLLAR 60 MIN

57

EURO DOLLAR WEEKLY

58

RON DOLLAR

59

ARTROM WEEKLY ARMATURA WEEKLY APCAROM WEEKLY

COMPA WEEKLY COMI WEEKLY SOCEP WEEKLY

60

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