EMA
Hello everyone and welcome back to another technical analysis video. In previous videos we learned about candlestick charts and support and resistance levels. Today we are going to learn about technical indicators that are key to every trader.
Slide 3 read only the RISK DISCLAIMER.
SLIDE 10-Indicators slide
Technical indicators are tools with mathematical equations added on the historic price movement in order to plot lines. The purpose is to simplify what price is doing and help traders decide what the price is likely to do next.
There are hundreds of indicators however in this video we will discuss two of the most used indicators.
Moving average slide (show for 2-3 secs no voice over)
Video MA
The first one is the moving average.It is a technical analysis tool that analysts and traders use to determine the price direction of a trend. It takes into consideration the average of data points by dividing the data points for a specific period of time by the total data points. The MA is calculated constantly in order to include the latest data points.
Note: By data points, we mean the prices of a security.
Moreover, the MA is referred to as the lagging indicator because it marks the price movement of an underlying asset to produce a signal or show the direction of a given trend.
The reason it is important to traders is that it can identify the potential direction that the price will move.
There are two types of moving averages. Simple moving average is the most straightforward and is taking into account the recent data of price and divides them by the total data prices of an asset to find the average. Traders use it to identify potential entries or exits in the market.
The SMA helps to identify resistance and support levels or buy or sell signals in the market.
The other one is Exponential Moving Average (EMA)
The EMA takes into consideration the same data with more weight to the most relevant prices which are the recent prices. EMA tends to be more responsive to recent price data than the SMA which applies equal weight in the data prices.
The question is always which MA to use when trading. One of the differences, as has been said, is that the EMA gives weight to recent prices. The EMA is moving faster it On the other hand, the SMA will need more time to recognize the changing trend.
However, this means that the EMA will be more outspoken in giving the wrong signals that may occur. It will show them too early, and the possibility of error occurs much faster. Thus, while the EMA immediately follows the reversal of the trend, the SMA moves more slowly. It means that the SMA lasts longer in the game, and this is significant, especially when there is a short-term unpredictable price movement.
If you want to be part of the trading daily lifestyle, then sure you will find MA useful. If you want to identify signals and reactions fast, then SMA is your friend. The periods that should be used are:
9/0 period (Don’t use it for less than 15 mins)
This is The fastest one
And Will be the closest one to the candles
It May cause “Fake Outs” since its very sensitive
However it is Not recommended for a “short time frame” chart alone
It is Best used as an indication of a trend reversal when it crosses a longer time period MA.
Next is the 21 period
Which is The most accurate for day trading
It is Proved to be great for prolonging trends
However it is A bit delayed in spotting trend reversals at real-time
When combined with RSI it can give a strong overbought or oversold signal.
Moving Average Periods For Longer Time Frames are
The 51 period
Which has Very wavy movements
And it is Best used for long term charts
However, it is Not recommended for spotting trend reversals
Since it is Very delayed
The further it is from the candles the stronger the trend will be.
And the last one is the 200 period
1.This one is Widely used
2.because it Shows the annual price changes
3.It is Not recommended for stock flips or short term trading
4. But for indices such as S&P 500
Overall the shorter the time frame used the more sensitive the average will be to price changes. The longer the time frame used to identify the average, the less sensitive will be to price changes.
RSI SLIDE (SHOW FOR 2-3 SECONDS NO VOICE OVER)
VIDEO RSI
Next up we will learn the RSI - Relative Strength Index. It is one of the most used indicators among traders. Let’s start with the basics. The RSI is different from the moving average. It is a momentum oscillator indicator which means it stays on a fixed scale of zero to 100. The indicator is measuring both the speed and rate of recent price changes to identify overbought and oversold positions in the price of an asset.
For instance when an asset is oversold, it indicates a buy signal whereas when the RSI shows overbought it gives a sell signal.
As you can see from the picture an overbought situation appears above the 70 line whilst an oversold situation appears above the 20 line. Simple enough right? Let’s implement this on a live chart now.
We are going to look at Nasdaq and select the technical indicator RSI. Immediately it gives as the chart below. Here it shows the numbers. From what it seems nasdaq is being oversold at the moment, so expect a lot of buyers to step in and change the price direction towards up.
If you want to know the actual mathematical equation behind the number you get is this:
100 minus 100 divided by 1 plus average gain divided by average loss.
Anything above 70 is going to be considered overbought. From below 70 until 30 is considered a neutral zone. And from 30 and below is considered an oversold zone.
However you need to remember that like most of the technical indicators, it can generate false signals and influence the wrong decision for a trader. Therefore, the RSI needs to be used in the correct market conditions.
True reversals are very rare compared to how often there are false alarms of reversals. A false positive for example would be a bullish crossover followed by a fast decline in the price. On the other hand, a false negative would be when there is a bearish crossover and the stock price is all of a sudden inclining.
Remember, since the indicator is showing the momentum, it can easily stay overbought or oversold for a very long time whether the momentum direction is one or the other.
VIDEO RSI 2
RSI Divergences give signals for a possible reversal because the direction of the trend does not confirm the price. There is a bullish divergence when oversold reading is seen on RSI. Besides, such oversold reading is accompanied by a higher low level, which corresponds to lower low prices.
Then, that is a bullish divergence. It is a signal for the growth of the bull’s momentum.
In contrast, a bearish divergence occurs when an overbought reading is seen on the RSI with an accompanying lower high that matches the higher high prices.
On the screen you can see an example of a bearish divergence when the RSI shows the price going up but the real chart shows the price going down. This is the exact opposite of a bullish divergence. It is a signal for the growth of the bear’s momentum and breaking over the oversold territory can mean starting a new long position.
Slide - 1 And that was our video for some of the most widely used indicators amongst traders. Thank you for watching.
Slide 3 read only the RISK DISCLAIMER.
SLIDE 10-Indicators slide
Technical indicators are tools with mathematical equations added on the historic price movement in order to plot lines. The purpose is to simplify what price is doing and help traders decide what the price is likely to do next.
There are hundreds of indicators however in this video we will discuss two of the most used indicators.
Moving average slide (show for 2-3 secs no voice over)
Video MA
The first one is the moving average.It is a technical analysis tool that analysts and traders use to determine the price direction of a trend. It takes into consideration the average of data points by dividing the data points for a specific period of time by the total data points. The MA is calculated constantly in order to include the latest data points.
Note: By data points, we mean the prices of a security.
Moreover, the MA is referred to as the lagging indicator because it marks the price movement of an underlying asset to produce a signal or show the direction of a given trend.
The reason it is important to traders is that it can identify the potential direction that the price will move.
There are two types of moving averages. Simple moving average is the most straightforward and is taking into account the recent data of price and divides them by the total data prices of an asset to find the average. Traders use it to identify potential entries or exits in the market.
The SMA helps to identify resistance and support levels or buy or sell signals in the market.
The other one is Exponential Moving Average (EMA)
The EMA takes into consideration the same data with more weight to the most relevant prices which are the recent prices. EMA tends to be more responsive to recent price data than the SMA which applies equal weight in the data prices.
The question is always which MA to use when trading. One of the differences, as has been said, is that the EMA gives weight to recent prices. The EMA is moving faster it On the other hand, the SMA will need more time to recognize the changing trend.
However, this means that the EMA will be more outspoken in giving the wrong signals that may occur. It will show them too early, and the possibility of error occurs much faster. Thus, while the EMA immediately follows the reversal of the trend, the SMA moves more slowly. It means that the SMA lasts longer in the game, and this is significant, especially when there is a short-term unpredictable price movement.
If you want to be part of the trading daily lifestyle, then sure you will find MA useful. If you want to identify signals and reactions fast, then SMA is your friend. The periods that should be used are:
9/0 period (Don’t use it for less than 15 mins)
This is The fastest one
And Will be the closest one to the candles
It May cause “Fake Outs” since its very sensitive
However it is Not recommended for a “short time frame” chart alone
It is Best used as an indication of a trend reversal when it crosses a longer time period MA.
Next is the 21 period
Which is The most accurate for day trading
It is Proved to be great for prolonging trends
However it is A bit delayed in spotting trend reversals at real-time
When combined with RSI it can give a strong overbought or oversold signal.
Moving Average Periods For Longer Time Frames are
The 51 period
Which has Very wavy movements
And it is Best used for long term charts
However, it is Not recommended for spotting trend reversals
Since it is Very delayed
The further it is from the candles the stronger the trend will be.
And the last one is the 200 period
1.This one is Widely used
2.because it Shows the annual price changes
3.It is Not recommended for stock flips or short term trading
4. But for indices such as S&P 500
Overall the shorter the time frame used the more sensitive the average will be to price changes. The longer the time frame used to identify the average, the less sensitive will be to price changes.
RSI SLIDE (SHOW FOR 2-3 SECONDS NO VOICE OVER)
VIDEO RSI
Next up we will learn the RSI - Relative Strength Index. It is one of the most used indicators among traders. Let’s start with the basics. The RSI is different from the moving average. It is a momentum oscillator indicator which means it stays on a fixed scale of zero to 100. The indicator is measuring both the speed and rate of recent price changes to identify overbought and oversold positions in the price of an asset.
For instance when an asset is oversold, it indicates a buy signal whereas when the RSI shows overbought it gives a sell signal.
As you can see from the picture an overbought situation appears above the 70 line whilst an oversold situation appears above the 20 line. Simple enough right? Let’s implement this on a live chart now.
We are going to look at Nasdaq and select the technical indicator RSI. Immediately it gives as the chart below. Here it shows the numbers. From what it seems nasdaq is being oversold at the moment, so expect a lot of buyers to step in and change the price direction towards up.
If you want to know the actual mathematical equation behind the number you get is this:
100 minus 100 divided by 1 plus average gain divided by average loss.
Anything above 70 is going to be considered overbought. From below 70 until 30 is considered a neutral zone. And from 30 and below is considered an oversold zone.
However you need to remember that like most of the technical indicators, it can generate false signals and influence the wrong decision for a trader. Therefore, the RSI needs to be used in the correct market conditions.
True reversals are very rare compared to how often there are false alarms of reversals. A false positive for example would be a bullish crossover followed by a fast decline in the price. On the other hand, a false negative would be when there is a bearish crossover and the stock price is all of a sudden inclining.
Remember, since the indicator is showing the momentum, it can easily stay overbought or oversold for a very long time whether the momentum direction is one or the other.
VIDEO RSI 2
RSI Divergences give signals for a possible reversal because the direction of the trend does not confirm the price. There is a bullish divergence when oversold reading is seen on RSI. Besides, such oversold reading is accompanied by a higher low level, which corresponds to lower low prices.
Then, that is a bullish divergence. It is a signal for the growth of the bull’s momentum.
In contrast, a bearish divergence occurs when an overbought reading is seen on the RSI with an accompanying lower high that matches the higher high prices.
On the screen you can see an example of a bearish divergence when the RSI shows the price going up but the real chart shows the price going down. This is the exact opposite of a bullish divergence. It is a signal for the growth of the bear’s momentum and breaking over the oversold territory can mean starting a new long position.
Slide - 1 And that was our video for some of the most widely used indicators amongst traders. Thank you for watching.
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