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DIVERGENCE & FORMATIONS

ven

KEY

http://forex2tradeindia.weebly.com/

Email : - forex2tradeindia@yahoo.com

Your Success Story Begins from HERE

TECHNICAL

Analysis

Logical Thinking towards Price Action

Dynamic Subject

From the desk ofvenKEY…………………….Hyderabad-APINDIA

Trading

FriendTrend Advisor

Trade with

<CHARTS>

forex2tradeindia

Vol.6

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Symptoms (on CHART)

Support & Resistance (MA)Moving AveragesBollinger Bonds

Parabolic SARPivot Points

Fibonacci

Regular ConfirmationRSIStochastic

MACDCCI, ADLAdvanced Confirmations. Divergence : Price Vs.Osc.

. Formations -Stochastic.Patterns in – RSIADX

Considerations :Demand-SupplyPatterns formationNews in Force

Type of MarketsTraders Emotion

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Finding Price Action

& Confirmation

Technical Analysis -

INDICATORS

Divergence

Formation & Divergence

Vol.6

Believe in Charts

venKEY

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Oscillators & Divergence

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DIVERGENCE

ven

KEY

NOTE Oscillators are suppose to be known as an advance indicator. Apart from defineOVER BOUGT and OVER SOLD conditions. it also creates Divergence with the price line.

Oscillator also helps trader to catch the momentum WITH IN THE TREND. BULLISH Divergence

BEARISH Divergence

TYPE - 1

Price line make Lower Tops & Lower Bottoms

Oscillators make Higher Top and Higher Bottom

after some rally

TYPE - 2Price line make Lower Tops & Lower BottomsOscillators make Double Bottomafter some rally

Price

Line vs. Oscillators

TYPE - 1

Price line make Higher Tops& Higher BottomsOscillators make Lower Top and Higher Topafter some rally

TYPE - 2Price line make Higher Tops & Higher BottomsOscillators make Double Topafter some rally

DIVERGENCE -

Alexander Wale

Class - A

This occurs when a Price Line reach to new high,

but oscillator reach a lower high..

then it did on a previous rally

Class - B

Price line making double top or double bottom

,

but Oscillator makes lower tops or higher bottoms.

Negativity of the running trend

Class - C

Price line reach a new high, oscillator will not move..

(

rare… if it found… like

Class-A trade comes)… which has

not much importance according to Alexander elder also.

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venKEY

Formations-Stochastic

DIVERGENCE

BULLISH

BEARISH

CLASS - A

BULLISH

BEARISH

CLASS - B

CLASS - C

It has no Technical Importance (which are similar to CLASS-A) just comes after struggling with same pattern

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DIVERGENCE VIDEO

http://offer.iticsoftware.com/divergence-indicatorsSlide5

STOCHASTICS

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CALCULATION :

Fast Stochastic :

Fast %K: [(Close - Low) / (High - Low)] x 100] Fast %D: Simple moving average of Fast K (usually 3-period moving average) Slow Stochastic :Slow %K: Equal to Fast %D (i.e. 3-period MA of Fast %K)Slow %D: A MA(again, usually 3-period) of Slow %K Stochastic Slow is similar in calculation and interpretation to Stochastic Fast.

C lose= Closing Price of today Low = Lowest Price for the N=5 days High = Highest Price for the N=5 days.

George Lane STOCHASTIC made up of 2 lines.

1) % K is a SOLID (Stochastic line)2) %D is a DOTTED line (Signal Line)Relative Position of this 2 lines deliver “BUY / SELL” Signals as the case may beStochastic is plotted on a vertical scale where

Below 20 – Over Sold zoneAbove 80 - Over Bought zone

BUY/ SELL signals: %K and %D only above20 - Bullish signal%K and %D only below 80 – Bearish signal.

In a perfect Bullish Momentum K% will be greater than %D TOPICsStochastics Fast & Slow Stochastic Buy & Sell Signals

Stochastic Price DivergencesFAST stochastic

Stochastic Fast plots the location of the current price in relation to the range of a certain number of prior bars (dependent upon user-input, usually 14-periods)Formations-Stochastic

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STOCHASTICS (Formations)

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Formations-Stochastic

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STOCHASTICS (Formations)

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Formations-Stochastic

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STOCHASTICS (Formations)

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Formations-Stochastic

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RSI

(Trading Methods)

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RSI - Trade Methods

Wales

Walder

(1974)

RSI plotted on vertical scale with

0-30 is Over Sold

30-70 is Neutral Zone50 Range : Support / Resistance70-100 is over Bought

Trend line Application: Trader can apply Trend line in RSI. Only this Oscillator where one can draw\Trend Line to analyze the strength of the existing trend.

It is an amazing features of the RSI that it deliver Prior/Advance Signal than the price line. RSI used to penetrates or violate trend line before 2-3 trading sessions than the price line.

Alert us to :

- Exit your holding/current position- Wait for break of trend line in price - As it is a prior indication- close positions and wait for trend-break

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1. TRENDLINE applicationPATTERN identification

DIVERGENCEFailure SWINGRSI-50 Support

Advance BREAK OUT/DOWN

X-days preferred by trader

Walder

suggested 14 days )

X= 7 days new days works well as present day market movement become higher.Slide10

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RSI

(Trading Methods)

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RSI - Trade Methods

Pattern Identification:

Trader can identify some patterns which appears in the Price chart and which give advance/prior indication of breakage of trend lines.

Mostly we can find

Head and Shoulders/

Inverted Head & shoulder.

It is used to deliver prior signal than the price line. Trader have just confirm VOLUME action before entering into trade.

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Divergence:It is made up of 3 tops and 3 bottoms.See…following chartSlide11

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RSI

(Trading Methods)

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RSI - Trade Methods

Failure Swing :

It has described as 2 types

Top failure swing (Bearish):

1

st

top is placed above 70 and 2nd top is placed below 70 ( if appears on the top of the chart after a prolonged rally indicates that the Rally is over.Bottom Failure Swing (Bullish)1st Bottom placed before 30 and 2nd top placed above 30 (if appears on bottom of the chart after prolonged down trend indicates bottom-out)

RSI @ 50 Levels:It should look-out at 14 and above days(follow strictly).This is the acts as Strong Supports and resistance of a rally as the case may me.

It is to be checked after a long rally for advance information. indicates bottom-out)Advance Break-out/downIN case of the advance breakout price unable to cross its last established higher tops but RSI able to cross its Last established Tops. Before going long Trader should examine the liquidity of the said underline. In advance break-down is reverse to the above and Where liquidity has no importance

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ADX – Direction

Index

Direction System

1)

A

dvance trend following indicator

2) Measures the

maturity level of the existing trend

.

3) Based on BAR-CHART.

Wales Walder (1974)

Why ADX is

Powerful

ADX calculation Stages

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ADX – Direction

Index

Direction System

ADX Trading IDEAS

ADX

ADX

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DIVERGENCE

ADX Shows Trend StrengthThe first concept to remember is that the direction that the ADX moves doesn't depend upon the direction of the underlying stock. All the ADX shows is the trend strength.Strong upward trend

 of stock = Increasing ADX and Strong downward trend = Increasing ADX (can be identified on the above chart) When the e-mini futures contract moved into a non-directional consolidation phase, the ADX decreased.

The ADX is so popular because determining whether a stock, commodity, or currency market is trending or not trending can help a trader avoid the pitfalls of some indicators.Moving AveragesMoving averages

 and their variants are effective during trending markets; however, during consolidation periods when prices go up and down, but in no direction, moving average indicators have a tendency to give numerous false buy and sell signals that add up to trading losses. During trending markets, use moving averages, trendlines, and other trend following technical indicators.

OscillatorsOscillators are extremely effective in non-trending markets. Buying low and selling high is accomplished quite readily with oscillators. Unfortunately, during trending markets, oscillators perform quite poorly, often selling short during a bull market run or buying during a bear market downtrend, adding up to large losses. For periods of non-trending, use oscillators like Stochastic Fast & Slow,RSI, or 

Williams %R and other range-bound indicators like Bollinger Bands or Moving Average Envelopes.

Average Directional Index(ADX)-1To identify TREND (great compliment to other Indicators)

ADX Average Directional IndexThe Average Directional Movement Index (ADX) technical analysis indicator describes when a market is trending or not trending. When combined with the DMI+ plus and DMI- minus (see: DMI) the ADX can generate buy and sell signals.However, the main purpose of the ADX is to determine whether a stock, future, or currency pair is trending or is in a trading range

. Determining which mode a market is in is helpful because it can guide a trader to which other technical analysis indicators to use.

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DIVERGENCE

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DIVERGENCE

Accumulation Distribution uses volume to confirm price trends or warn of weak movements that could result in a price reversal.Accumulation: Volume is considered to be accumulated when the day's close is higher than the previous day's closing price. Thus the term "accumulation day"Distribution:

Volume is distributed when the day's close is lower than the previous day's closing price. Many traders use the term "distribution day"Therefore, when a day is an accumulation day, the day's volume is added to the previous day's Accumulation Distribution Line. Similarly, when a day is a distribution day, the day's volume is subtracted from the previous day's Accumulation Distribution Line.

The main use of the Accumulation Distribution Line is to detect divergences between the price movement and volume movement.

Accumulation & Distribution

Detect Divergence between Price & Volume movement

Volume Interpretation must:Increasing and decreasing prices are confirmed by increasing volume.Increasing and decreasing prices are not confirmed and warn of future trouble when volume is decreasing.

Finally, Accumulation Distribution Line is a very effective tool to confirm price action and show warnings of potential price reversals. It is important to incorporate volume into price analysis, and the Accumulation Distribution Line is one of many indicators to do just this. Other indicators that include price and volume analysis and could be considered more accurate than the Accumulation Distribution Line include the Chaikin Oscillator Money Flow Index ,Price Volume Trend indicator

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DIVERGENCE

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DIVERGENCE

Accumulative Swing Index as a Confirmation ToolAccumulative Swing Index confirmed Gold's downtrend. Subsequently, when Gold broke the downward trend-line, the Accumulative Swing Index confirmed the trend-line break as well.Similarly, the upward move in the Gold futures contract was confirmed by the Accumulative Swing Index and the upward trendline break was confirmed too.

Accumulative Swing Index(ASI)

Divergence Confirming Tool –(Welles Wilder)

Can be used for buy and sell signals as well. It was designed to be used for futures trading, but can be used for stock trading and currency trading too.

The Accumulative Swing Index is a running total of the Swing Index (see: Swing Index).

Buy Signal - Accumulative Swing IndexBuy when Accumulative Swing Index breaks above a downward

trendline or, in a price consolidation period, above resistance.Sell Signal - Accumulative Swing IndexSell when the Accumulative Swing Index breaks below an upward trendline or, in a price consolidation period, below support.

In summary, the Accumulative Swing Index is best used as a confirmation tool with other technical indicators and charting patterns (see: 

Support & Resistance).

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KEY

DIVERGENCE16Slide17

DIVERGENCE

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The Advance Decline Line is used primarily to

 confirm price movement

 and detect divergences. The calculation of the Advance Decline Line is quite simple:The calculated number is then added to the previous day's Advance Decline Line. To illustrate, say that todays advancing issues ($ADV or $NYADV) is 1,692 stocks. That is 1,692 stocks closed the day with an increase in their share price. The declining issues ($DECL or $NYDEC) is 1,311. At the NYSE, 1,311 closed the day with a decrease in their share price.

1,692 - 1,311 = +381For the day, 381 more stocks closed the day higher than closed the day lower. This is a bullish sign. To continue the example, yesterday's Advance Decline Line totaled 45,874. Today's reading of +381 would be added to the total of yesterday. This would result in an updated total of 46,255.Whether the total is positive or negative is irrelevant; what is relevant is the direction or the trend of the Advance Decline Line. An increasing Advance Decline Line is bullish because more stocks at the NYSE are closing the day with gains; whereas a decreasing Advance Decline Line is bearish because more stocks are closing the day with losses.

The Advance Decline Line is a powerful confirmation tool and divergence warning tool. The chart of the mini-Dow future contract of the Dow Jones Industrial Average or Dow 30 represents these confirmation and divergence signals:

Advance – Decline Line (ADL)To identify the INDEX trading point of viewHigh #1 to High #2The mini-Dow future contract made a higher high at High #2; however, the Advance Decline Line failed to make a newer high, in fact it made a lower low. At High #2, less stocks were participating in the rally; thus, there was less strength behind the rally in the Dow Jones Industrial Average. This failure of the Advance Decline Line signaled a strong bearish divergence.

High #2 to High #3This is an example of the Advance Decline Line confirming the trend in price of the mini-Dow future. The mini-Dow future made lower highs and likewise, the Advance Decline Ratio made lower highs.Low #1 to Low #2

Yet another bearish divergence occured from Low #1 to Low #2. The mini-Dow futures contract made a higher low, an acknowledged bullish sign. However, the Advance Decline Line did not confirm the mini-Dow future's ascent. In fact, during the entire rally of the mini-Dow from Low #1 to Low #2, the Advance Decline Line was making lower lows. This bearish divergence signaled that stock investors and index futures traders should be wary of the recent increases; the market as a whole is not behind the recent move higher.In conclusion, the Advance Decline Line is a very effective tool to confirm price action in stocks and stock indexes as well as

 signaling potential reversals or weak price moves. Another similar indicator is the Arms Index

DIVERGENCE

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Important

How To Choose Correct Trading Style:If there is one important wisdom about trading, it is that you must choose the correct trading style that suits you. Choosing the wrong type of trading is one of the reasons why people lose money. As mentioned in the previous article, there are 6 types of trading styles. They are:Scalping

Day TradingGuerrilla TradingSwing Trading

Momentum Trading

Position TradingThe first 2 involves you being in the market one day. You will not hold any positions overnight. The other 4 requires you to hold stocks for more than a day.Time constraints

One of the factors to help you determine which trading style is suitable for you is Time Constraints. Do you have a job? Or are you your own boss?If you are working for someone, you obviously cannot do scalping and day trading. These two types of trading requires full concentration throughout the trading period. You will start your day an hour before the markets open.Then you will need to find opportunities and once you are in, you will need to monitor them second by second and minutes by minutes.

Guerrilla Trading is also not suitable for someone having a job because you need to look at some intraday charts as well. You will buy the stock today and perhaps sell it tomorrow morning. You will need to be in front of your computer at times.The best type of trading for those who have a job is swing trading, momentum trading and position trading. These type of trades hold position more than 2 days.You don't need to make intraday decisions. You will work primarily from daily and weekly charts. You can make your decisions after the market closes. Once you have identified a trade, you can input a buy order and leave it with your broker.

Once, the buy setup is triggered, your broker will automatically purchase the stocks for you. The same thing goes for selling and setting stop losses.Your personalityThe next important thing to consider when deciding which trading styles to choose is your own personality. Are you someone who can't pay long attention to the computer all day? Are you someone who don't like to wait too long to find trading opportunities?If you are someone who don't have the discipline and concentration to sit in front of the computer for long periods of time, then day trading is not for you.If you are someone who wants lots of action and can't wait to get into the market, then position trading which covers weeks and months is not for you.

Choosing the right style will mean success or failureYou can't force yourself to be something that you can't be. Trading is the same. You need to find something that suits you. For me, I cannot do day trading. I'm not really good at it. I will only take day trades occasionally. I prefer swing, momentum and position trades.I like to make decisions slowly. Think through it. I also like the freedom to be away from the computer for a day or two without constantly needing to check my computer screen. That way, I can go on a holiday for a week or two and still make money. All I need is 5 min to check on my trades now and then to change my stops or take partial or full profits.

You need to find a trading style that can fit into your time and that is comfortable to your personality.You are at Foundation Level of the Stephen Loke Trading Course and have finished "How To Choose The Correct Trading Style".

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DIVERGENCE

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Popular Words in Tech. Analysis

A

Adaptive Moving AverageAverage Directional Movement Index (ADX)

Andrews PitchforkArms Index (TRIN)Aroon Indicator and OscillatorB

Bollinger BandsC

Chaikin OscillatorCommodity Channel Index (CCI)Commodity Select IndexDDetrended

Price OscillatorDirectional Movement Index (DMI)E

Ease of MovementElliott WaveExponential Moving Average (EMA)

Exponential RibbonsFFibonacci Retracements

Fibonacci ArcsFibonacci Fans

Fibonacci Time ExtensionsGGann TheoryH

Herrick Payoff IndexKKeltner Channel

LLinear Regression ChannelLinear Regression Curve

Linear Regression LineMMoving Average Convergence Divergence (MACD)Moving AveragesMarket Thrust

Mass IndexMcClellan Oscillator

MomentumMoney Flow Index (MFI)

Moving Average EnvelopesOOn Balance Volume (OBV)Open InterestPParabolic SARPoint and Figure Charting

Price Channels

Price OscillatorPrice Volume Trend

RRate of Change

Relative Strength Index (RSI)

S

Simple Moving Average

Standard Error Bands

Stochastic RSI

Stochastics

Fast and Slow

Swing Index

T

Time Series Forecast

Triangular Moving Average

Triple Exponential Average (TRIX)

Typical Price (Pivot Point) Moving Average

U

Ulcer Index

Ultimate Oscillator

V

VIX & VXN Volatility Index

Volatility Indicator

Volume

Volume Accumulation

Volume Oscillator

Volume Rate of Change

W

Weighted Moving Average

Williams %R

Z

Zig

Zag

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Calculators

Fibonacci Calculator

http://www.babypips.com/tools/forex-calculators/

Pip Value Calculatorhttp://www.babypips.com/tools/forex-calculators/pipvalue.php

Pivot Point Calculatorhttp://www.babypips.com/tools/forex-calculators/pivotpoint.php

Positiona Size Calculator : http://www.babypips.com/tools/forex-calculators/positionsize.php

Risk: Rewqrd Calculator :http://www.babypips.com/tools/forex-calculators/riskreward.php hp

Currency Converter :http://www.babypips.com/tools/currency-converter/

Compare Forex

Brokers :http://www.babypips.com/tools/forex-brokers-guide/compare.php

Forex Calender :http://www.babypips.com/tools/forex-calendar/Slide21

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" TIME -N-SMILE "

ARE THE TWO CRUCIAL THINGS IN OUR LIFE . " SOME TIMES, TIME MAKES US FORGET SMILE

AND

SOME TIMES SOME ONES SMILE MAKE US FORGET TIME"

Relevant Other Information

Entry, Tgt. & Sl. Fixing

Various BUY/SELL indicators & OscillatorsTrading StrategiesTrade Vs. Capital ManagementInvestment Types & Decision Points

INDEX

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INDEX

22

Human & Relations vs. Technical Analysis

Human Life

Activity

Technical Analysis

Activity

Myself/

Spouse/Children

Physical StrengthGender specificationHabits Present Mood / Mood @ time

CandlestickIdentificationColor

Strengthening/WeakDivision of StrengthParentsHeredity

EducationHealthChartsHistoryPrice ActionHealth of the stockFriends

Well wishersHelps when in needTrends

Helps for ProfitHelps in DecisionFiguresAttracts but not give a Good Look at us.If they have brother ?

Trading withNos

Nos. looks attractiveWe don’t know its relative informationRelatives

Often visit to usThey bring GiftsPatternsOften ComeGive Good ProfitsGurus / Advisors

1) Advice way to LiveDivergence

Show the differenceDoctor

Health CareStability

Moving Averages

Strength of the Stock

venKEYs

point of view