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ATMASPHERE January 2015 Edition
ATMASPHERE JANUARY 2015
CONTENTS
Letter from the President - Page 01
Editor’s note - Page 02
Trading TRIX by Jihan a.k.a SpeculatorBaba –Page 03
Market Profile – The Final Turn by Alex a.k.a Pit Trader– Page 05
The Coppock Indicator by Kannan Raju – Page 07
The Regression Channel and The Fibonacci Fan by Sahil Vijay – Page 09
Swing Trading Entry Strategy by Rajat Dutta – Page 12
Past and Present Events – Page 16
Future Events’ Updates– Page 17
This newsletter is produced by the Association of Technical Market Analysts. All comments and editorial material do not necessarily reflect the organization's opinion
nor does it constitute an endorsement by the Association of Technical Market Analysts or any of its officers, of any products or services mentioned. Sources are
believed to be reliable at time of publication, but not guaranteed. The Association of Technical Market Analysts and its officers, assume no responsibility for errors or
omissions.
JANUARY 2015 ATMASPHERE|1
LETTER FROM THE PRESIDENT
Dear Colleagues,
ATMA continues to make strides ahead in its inclusive approach to growing the Technical Analysis community in India. You will
notice up to three forward months’ educational monthly meetings open for registration on our website for most chapters, hereon.
Do take full advantage of those and register your seats and mark your diaries. Regularly meeting with like minded professionals
enhances the networking and learning value. Chennai & Hyderabad Chapters have been initiated well and meetings have started in them now, on a regular
basis. ATMA is raising its commitment to accumulating quality content and now by default effort will be made by each chapter to record videos of these
meetings and load on our website for the benefit of country-wide membership. We urge all to continue to recommend good speakers to us.
Special content and events will be a strong focus this year. To begin with we are bringing the highly popular two day workshop on the Certified Algo Trader
conducted by Mr. Manish Jalan to National Capital Region. Members, as usual, will be beneficiaries of very large discounts. Register early. An Annual
Conclave gathering India’s Technical Analysts under a single roof and having a wide battery of good presentations, networking and expanding the
community has been due since inception. We are changing that this year. Early May this year the 1st ATMA Annual Conclave is going to be underway.
Detailed plans will be announced soon. Mark your diaries I the meantime. We are hopeful this will be an event to remember for the rest of the year, until its
next edition.
ATMA wishes to make a special mention of gratitude to two of its new sponsors Zerodha & Tradejini. Not for Profits sustain and nourish their work with
active participation and support of the For profit sectors. Your support in sponsoring all our Monthly Chapter meetings for the first quarter 2015 across
India is very inspiring.
Thank You.
Sincerely,
Sushil Kedia
2 | ATMASPHERE JANUARY 2015
EDITOR’S NOTE
In this issue -
1. Jihan illustrates a powerful oscillator, TRIX, which is used by many professional traders worldwide.
2. Alex comes towards the final turn of his series on Market Profile.
3.Kannan Raju explains one of the best indicators on the reversal trade, The Coppock Indicator.
4.Sahil Vijay explicates two simple yet powerful trading tools, The Regression Bands and The Fibonacci Fan.
5.Rajat Dutta brings yet another article on the concept of Swing Trading Systems.
ATMAsphere is your platform to learn & to teach. In fact, when you teach you learn better by handling curiosities of younger minds. So do write out to me
sending in your articles and we can all learn from each other. We await your feedback on ATMASphere. Please let us know what we can do to deliver content
that meets your needs by sending an email to editor@atma-india.net. You can also subscribe to ATMASphere completely free by clicking here.
Sincerely,
Gunjan Duaa.
JANUARY 2015 ATMASPHERE|3
Trading TRIX
Description
Triple Exponential Average (TRIX) is a momentum indicator that displays
the percent rate-of-change of a triple exponentially smoothed moving
average of a security’s closing price. The triple exponential average (TRIX)
indicator is an oscillator used to identify oversold and overbought markets,
and it can also be used as a momentum indicator. Like many oscillators,
TRIX oscillates around a zero line. TRIX is used as an oscillator, a positive
value indicates an overbought market while a negative value indicates an
oversold market. When TRIX is used as a momentum indicator, a positive
value suggests momentum is increasing while a negative value suggests
momentum is decreasing. Many analysts believe that when the TRIX
crosses above the zero line it gives a buy signal, and when it closes below
the zero line, it gives a sell signal. Also, divergences between price and TRIX
can indicate significant turning points in the market.
Formula
EMA1 = EMA1n-1 + ((2 / (n + 1)) * (Pn - EMA1n-1))
EMA2 = EMA2n-1 + ((2 / (n + 1)) * (EMA1n - EMA2n-1))
EMA3 = EMA3n-1 + ((2 / (n + 1)) * (EMA2n - EMA3n-1))
TRIX = (EMA3n - EMA3n-1 ) / EMA3n-1
Where:
Pn =the current price. EMA1n-1 = the exponential moving average value of n periods back EMA2n-1 = the exponential moving average value of n periods back EMA3n-1 = the exponential moving average value of n periods back
Use Since TRIX measures the rate-of-change of closing prices, a positive TRIX
value is interpreted as a steady rise in the closing price of a security. A
positive TRIX is thus akin to a positive trending price, allowing the indicator
to act as a buy signal whenever it crosses up above the zero line. Similarly,
crossing below the zero line suggests the price is tending to close down at
the end of each period, which can be a sell signal.
The “signal line” is also a useful buy/sell indicator. Since the signal line
period is shorter, a cross above it suggests that recent stock prices are
closing much higher. A buy signal is triggered when TRIX crosses above its
signal line, and a sell signal is triggered when TRIX crosses below its signal
4 | ATMASPHERE JANUARY 2015
line. This method can generate false signals during sideways price
movements, so it works best when prices are trending. It is therefore wise
to use TRIX in tandem with other indicators for confirmation.
The above chart is of SBIN and plotted under the price chart is the TRIX
indicator, which oscillates around the 0 point, which is the centre (Green
Line). Buy signals are generated by a crossover. As you can see the
crossover give accurate buy and sell signals , another way to take trade is
to trade when price moves above the centre line, here the risk is that
sometimes one gets an entry in the middle of the trend. Although, some
traders use the 0 line buy or sell signal a point where they increase their
positions. Divergence is another way to find the reversal in the trend but
divergence are taken as a signal while crossover is taken as an entry point.
The author of this article goes by the name of his twitter handle
@Speculatorbaba. His name is Jihan, He lives in Singapore and is a fund
manager, who trade Global Commodities and Indian Indexes. He has
been trading for the last 10 years and writes fiction when he can’t find a
decent looking chart.
JANUARY 2015 ATMASPHERE|5
Market Profile – The Final Turn
We have been discussing Market Profile in the last few articles
Now we come to the closing end of this series on Marketprofile. So I
assume that you already know basics of Marketprofile, if you don’t then
before reading this you read the earlier editions of the series in the
previous editions before reading this.
As I mentioned previously Marketprofile is useful to understand the
context. Problem with the context is subjective and it changes with
person-to-person but with the MarketProfile subjectivity is nullified
because Market Profile is based on data and data is constant. So when
someone say market is trading above previous Value area high (VAH) then
it ought to be bullish.
Now comes the 2nd challenge that is to identifying context. Context is far
superior when observed on higher timeframe and somewhat meaningless
when observed on very short time frame. Isn’t it will be nice if we have say
30 or 60 days Marketprofile combine together?
Here comes the composite profile for our rescue. Before going into the
explanation just look at the chart so it will be lot easier to understand. In
the chart to the extreme left in magenta composite profile of hundred days
volume profile been plotted on regular Nifty future Marketprofile chart.
On that composite volume profile there are lots of mountains and valleys.
Where nifty future attracted most of the volume is called as composite
high volume node (CHVN) and where Nifty Future auctioned less and
attracted very less volume is called as composite low volume node (CLVN).
Low volume nodes are mostly extensions of ongoing trend. Therefore most
6 | ATMASPHERE JANUARY 2015
traders use it for effective entry points. And composite high volume nodes
are usually used for exits. Mostly price remains choppy at and near CHVN
so using it as a entry instead of exit is not a great idea. In above chart Nifty
future attracted highest volume in last 100 days is at 8370 (horizontal
magenta line). This can be also treated as important support (exit
reference if short.)
Hi, I often go with nick name Pit Trader.
I mostly trade in index futures and options. I am an Indian National but
presently stay put in Toronto. I actively trade in both national stock
exchange India(NSE) and Chicago Mercantile exchange US (CME),my
preferred instruments are NiftyFuture and E-mini S&P 500. I use
Multicharts & R. I'm a programmer myself, and use my own trading
systems based on statistical models and Marketprofile.
JANUARY 2015 ATMASPHERE|7
The Coppock Indicator.
The Coppock Breadth Indicator, originally known as Trendex Timing
Techniques for Texas Traders, is a little known indicator used to identify buy signals from around the bottom of the bear market. It is very good at discriminating between bear market rallies and true bottoms in the stock market and has proven to be remarkably resistant to “whipsaws”. It was first published in Barron’s Magazine in October 15, 1962. Since then, the coppock momentum oscillator has been adopted and adapted by savvy market technicians around the world. The indicator is designed for use on a monthly time scale. It is the sum of a
14-month rate of change and 11-month rate of change, smoothed by a 10-
period weighted moving average.
Formula : -
Coppock = WMA[10] of (ROC[14] + ROC[11])
Coppock, the founder of Trendex Research in San Antonio Texas, was
an economist. He had been asked by the Episcopal Church to identify
buying opportunities for long-term investors. He thought market
downturns were like bereavements and required a period
of mourning. He asked the church bishops how long that normally took
for people, their answer was 11 to 14 months and so he used those
periods in his calculation.
A buy signal is generated when the indicator is below zero and turns
upwards from a trough. No sell signals are generated (that not being its
design). The indicator is designed for trend following, and based on
averages, so by its nature it doesn't pick a market bottom, but rather
shows when a rally has become established.
Interpreting the Coppock Curve
The Coppock Curve is simply a smoothed momentum oscillator with long
timeframes that have only generated a few signals throughout recent
history. While the indicator generates signals in both directions, most
technical analysts prefer to watch for sell signals rather than buy signals
The Coppock Curve can also be adjusted in many different ways:
Different Periods – Coppock Curves can be calculated using monthly,
weekly, or even daily periods, although the indicator gets progressively
more choppy as the duration of the periods shortens due to increased
volatility.
Changing Metrics – Coppock Curves are designed to be calculated with
11-day and 14-day ROCs, but traders can adjust these numbers as
necessary in order to increase the accuracy of the indicator in certain
cases.
Multiple Curves – Multiple Coppock Curves can be utilized in order to
identify crossovers and other events, similar to the way in
which MACD and moving averages are interpreted when looking for
buy or sell signals.
8 | ATMASPHERE JANUARY 2015
The chart above shows the points, where the coppock indicator gave
reversal signals and as we can see that most of the times the signals gave
good buy signals and good money was made on these buy signals.
Some limitations to keep in mind include:
False Signals. The Coppock Curve generates a lot of false signals, where
the indicator crosses above or below the zero line during choppy
trading, particularly when using shorter timeframes like daily or weekly
bars.
Curve Fitting. The Coppock Curve’s default settings are relatively
arbitrary, which means that traders may be tempted to change them in
order to curve fit a given index or equity and generate buy/sell signals.
Kannan Lakshman Raju is currently working as a Research Analyst in
AdVentures India Financial Services Limited. He is the founder of the
website www.chartslive.com, a free global Technical Charting portal.He is
currently developing Trading Strategies for various technical charting
softwares.
JANUARY 2015 ATMASPHERE|9
The Regression channel and The Fibonacci Fan
Today I will discuss two systems that I regularly use to track the trend
and most of the time these system do well to achieve what I expect from
them.
The Regression Channel.
The regression channel is an analytical graphing tool that is based on the
Linear Regression line. There are several types of regression channel that
differ mainly by how the distance to the upper and lower channel lines are
calculated:
Standard Regression Line - the distance is based on a selected
number of standard deviations
Raff Regression channel - the distance to the channel bands is
equal to the distance to the farthest point, whether above or
below the Regression line;
Error Line - the distance is based on the number of standard
errors.
The most common selection of the upper and lower bands of the channel is
when a user has an ability to set the distance based on the previous price
reversal points. Many traders, in addition to the main bands, use additional
50% bands that extend for half of the main bands' length.
In technical analysis, the Regression channel is used to trade along the
trend by assuming that the general trend will follow the Regression line.
Thus, the upper and lower bands are drawn in the way in which that 80-
90% of the price actions are placed between the bands. The periods when
the price moves below the lower band line are considered to be periods for
buying and periods when the price moves above the upper band are
considered to be periods for selling. Since the general price trend that is
defined by the Regression line can be broken and the price could remain
for a prolonged time above the upper band or below the lower band, a
conservative approach might be to move the buy and sell points to when
the price moves back inside of the channel.
10 | ATMASPHERE JANUARY 2015
Fibonacci Fan
The Fibonacci fan is a charting technique that constructs the support and
resistance levels by creating three diagonal lines that follow the Fibonacci
ratios of 38.2%, 50% and 61.8% respectively. The diagonal lines drawn
across the chart shown below are based on the Fibonacci ratio percentages
Fibonacci fans are very similar in concept to the Fibonacci retracements
and in many ways they are used the same way Both are effective tools for
identifying support and resistance levels, determine the trend, areas to
enter and exit, and to help provide levels to set stops.
Fibonacci fans, go one step further then Fibonacci retracements by
adding time to the equation, so now we have price and time, mixed
together. The Fibonacci fan uses the same primary ratios of 38.2%, 50%
and 61.8% that form the “Golden Ratio”
Fibonacci Fans use these ratios based on time and price to provide support
and resistance trendlines and are used to measure the speed of a trend's
movement, higher or lower. In a bullish Fib fan, the higher fan that the
price is in, the stronger the movements are, as the price starts to
deteriorate and weaken, the price will challenge the first fan, where at first
it provides support, once the price breaks through the first fan line it
usually won’t stop until it reaches the next fan line of support.
If the price moves below a Fib Fan trendline, then the price is usually
expected to fall further until the next Fib Fan trendline is reached. When
the final fan has been broke and the price is no longer with-in any parts of
the fan, it signals that the trend has changed. Used along with Elliott wave
counts, is a great tool for confirming a trend change has taken place. I
would never use the Fib fan chart alone because of the possibilities of false
signals, always use it together with other forms of Technical analysis to
strengthen your existing tool belt.
JANUARY 2015 ATMASPHERE|11
In the chart above, The price touching the Fibonacci line acts as a support
or as a resistance and when the price move out of that range , it acts as a
breakout for the extension of the trend
The downtrend Fibonacci fan again shows how much of a powerful tool it is
and is a must for every investor and trader. The price made an attempt to
move out of the bearish run but was forced to stop at the resistance and
moved back toward the support, before finally moving out of the fan lines
and starting a new bullish trend.
Sahil Vijay, CMT is in the financial markets for the last nine years and
currently working as a Treasury Analyst with Capital Bank. A Banker by
profession he looks after Investments and takes trading decision in Debt,
Equity and Foreign Exchange markets. He uses Elliot Wave Theory, Gann
Studies, Bollinger Bands, Fibonacci Analysis and Momentum Oscillators
like RSI to drive confluence points in various markets to establish low risk
–high yield set ups, he also include inter market analysis and global
indices in his study to draw better understanding of the under currents in
global financial markets.
12 | ATMASPHERE JANUARY 2015
SWING TRADING ENTRY STRATEGY
In my previous articles I explained the Swing Trading concepts / Strategy,
in this article in will explain the Entry & Exit Points.Your swing trading entry
strategy is the most important part of the trade. This is the one time when
all of your trading capital is at risk. Once the trend goes in your favor you
can then relax, manage your stops, and await a graceful exit.
This Article explains the basic price pattern that is used to enter stocks.
Once you become familiar with it, you can try out more advanced
strategies based on the specific pattern that you trade.
With your entry strategy, the first thing that you want to do is identify
swing points. What's a swing point you ask?This is a pattern that consists of
three candles. For entries on long positions, you look for a swing point low.
For entries on short positions you look for a swing point high.
Identifying reversals using swing points
For a swing point low:
-The first candle makes a low.
-The second candle makes a lower low.
- The third candle makes a higher low.
This third candle tells us that the sellers have gotten weak and the
stock will likely reverse.
For a swing point high:
-The first candle makes a high.
-The second candle makes a higher high.
-The third candle makes a lower high.
This third candle tells us that the buyers have gotten weak and the
stock will likely reverse.
For our long entry strategy, we should try to find stocks that have pulled
back and made a swing point low.
Let's look at some examples:
JANUARY 2015 ATMASPHERE|13
See how the pattern consists of a low (1), lower low (2), and then a higher
low (3)? This is a classic swing point low. Our entry strategy would be to
enter this stock on the day of the third candle.
Now let’s look at a stock on the short side.
See how the pattern consists of a high (1), higher high (2), and then a lower
high (3)? We would look for an entry on the third candle.
It is worth noting that not all swing points will result in a powerful reversal.
However, a reversal will not happen without a swing point developing.
Take the time to go though a few charts and look at the reversals that
happened in the past so that you are able to quickly identify this crucial
price pattern.
Consecutive price patterns
Ideally, we want to trade stocks that have consecutive down days prior to
the swing point low developing. This is the best case scenario. Here is an
example on the long side:
This is reversed on the short side. In this case, you want to look for
consecutive up days prior to the swing point high developing.
14 | ATMASPHERE JANUARY 2015
When you look for swing points to develop, you always want to look to the
left of the chart to see if the stock is at a support or resistance area on the
chart. That will improve the reliability of this entry strategy.
Also, sometimes you may want to be more aggressive with your entry. Ok,
now that we know how to get into a trade, how do we get out?
We need an exit strategy. I will Share that in the February Edition.
Rajat Dutta is a system designer & a fund manager for Moneyrizing
Wealth Management Company. He is a trader since 1998. His Specialty is
trading micro trend with a focus on analyzing and trading Index, Index
based Options & Commodities. You can follow him@Moneyrizing& can
interact with him atRajat@moneyrizing.com
JANUARY 2015 ATMASPHERE|15
Accessible on your favorite Gadget!
World's FIRST E-Library of Technical Analysis
Some of the latest e-book additions in the Library:
As a well rounded professional you surely wish to read on
negotiation techniques, VBA programming, Statistics,
business biographies, investment classics and a whole host
of subjects. Yes, the R.N. Elliott ATMA E-library of Technical
Analysis regularly stocks up on varied titles that take care of
holistic professional interests of Technical Analysts!
The R. N. Elliott ATMA E-library of Technical Analysis
Inaugurated on 6th October 2012, at the hands of Mr. Robert
Prechter, Jr. the world’s first E-library for Technical Analysts continues
to grow.
A world that is short on time to travel, you can check-out books,
return them as now you have the E-Library that you could access for
ethically obtained, copyright respecting readings using any of your
favorite devices: Whether based on windows, apple, android, kindle
or even nook!
Access E-books as well as audio-books on Technical Analysis, Trading
Strategies, Quantitative Finance, and Back-testing, Algorithmic
Trading, Investment Psychology, Hedge Funds, Behavioral Finance &
lots more!
ATMA Members& Affiliates, except for the student
affiliates, can access the library 24X7 by just logging into
ATMA’s website. In case you still don’t have your PIN No. ,
please feel free to contact ATMA Office and enjoy reading!
16 | ATMASPHERE JANUARY 2015
PAST EVENTS’ UPDATES CHAPTER DATE
Delhi 31-08-2014
Bengaluru 07-09-2014
Mumbai 20-09-2014
Mumbai 08-10-2014
Delhi 02-11-2014
SPEAKER TOPIC
Dr Sanjay Sinha Elliot& Fibonacci – Understanding The
Eternal Relationship
Mr. Krishna Rao P S Using Trendlines and Fibonacci
Mr.Atul Suri Trading for a Living
Mr. Ambareesh Baliga The Games Promoters Play - In the
market as well as in the financial
accounts
Mr. Sachin Aggarwal
Stock Markets, Charts and Profit Making
JANUARY 2015 ATMASPHERE|17
FUTURE EVENTS’ UPDATES CHAPTER DATE SPEAKER TOPIC
Delhi 31-01-2015 Dr. Sanjay Sinha
Elliott Wave – How to
Forecast the Critical
Moves
Mumbai 31-01-2015 Mr Ashish Kyal
Two Stage
Confirmation
techniques &
Advanced Elliott
Waves
Bengaluru 31-01-2015 Mr Kora Reddy
Introduction to
Seasonal Trading
Patterns
Chennai 07-02-2015 Mr Vipul
Ramaiya
Equity Research &
Strategy for
Institutions
Kolkata 14-02-2015 Mr. Vikram
Murarka
Innovative
applications of
Moving Averages
FUTURE EVENTS’ UPDATES CHAPTER DATE SPEAKER TOPIC
Mumbai 21-02-2015 Mr Manish Jalan Advanced Options
Strategy using the
framework of
Technical Analysis
Hyderabad 22-02-2015 Mr Sunil Daga
Fusion Analysis:
Concepts applied to
study the India story.
Delhi
28-02-2015 Mr. Kunal
Saraogi
Evaluating Long Term
Outperformance
Bengaluru 28-02-2015 Mr Anurag
Saboo
Systematic Trading
sans Emotions
Bengaluru 21-03-2015 Mr Jagdish Ahuja Rise of Algo Trading in
India
Kolkata 21-03-2015 Mr. Subhadip
Nandy
Using Elliot Oscillator
, Stochastics and
Displaced Moving
Averages to identify
short term options
trades
18 | ATMASPHERE JANUARY 2015
FUTURE EVENTS’ UPDATES CHAPTER DATE SPEAKER TOPIC
Mumbai 21-03-2015 Mr Hemant Kale
Wolf Wave: The One
Strategy which you
can never miss.
Delhi 04-04-2015
To
05-04-2015
Mr Manish Jalan Certified Algorithmic
Trader Program
Kolkata 25-04-2015 Mr. Rajat Bose
Using RSI and MACD
together to identify
positional trading
opportunities.
20 | ATMASPHERE JANUARY 2015
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