FuturesTechs Blog

Event: 4 Practical workshops on Technical Analysis, delivered over 2 days by our chief Technical Analyst, Clive Lambert

Date: March 17^th and 18^th 2010

Place: MWB Business Exchange, Houndsditch (City of London).

Details: Join Clive Lambert for a 2 day seminar introducing the basics of Technical Analysis, then delving deeper into three key methodologies used by traders every day.

This course is suitable for anyone from a new trader to an experienced market professional wishing to expand their knowledge on essential technical tools for short and medium term trading.

These practical modules on key trading methodologies may count towards 12 hours of your FSA CPD, based on them satisfying you training requirements*.

Clive Lambert has been a central figure in the UK Futures day trading arena for 10 years now, and has taught thousands of traders how to incorporate Technical Analysis into their daily routine. He is the Author of “Candlestick Charts” and is an accomplished and interesting speaker, who delivers seminars for many organisations including the UK Society of Technical Analysts.

March 17^th - 10am to 1pm - Module 1 - Introduction to Technical Analysis/Support and Resistance - £300 (+VAT)

• Clive will explain the basic principles and the main chart types before looking into the creation of support and resistance levels, and how to spot potential turning points using methods like trendlines and chart pattern recognition.

March 17^th - 2pm to 5pm - Module 2 - Candlestick Analysis - £300 (+VAT)

• After a run through of the history and construction of candlesticks Clive will go through the 7 most powerful patterns in candlestick analysis, sharing his unique insight into the “psychology” of each pattern, and their application on whatever timeframe chart you’re viewing. Clive is one of the UK’s leading proponents of Candlestick Analysis.

March 18^th - 10am to 1pm - Module 3 - Moving Averages and Momentum Indicators - £300 (+VAT)

• These studies are sometimes overused and often misunderstood. Clive will run through the common Indicators used in by different types of traders, the mistakes that are often made in their interpretation, and the correct way to utilise these studies to enhance your trading and understanding of price movement.

March 18^th - 2pm to 5pm - Module 4 - Market Profile - £300 (+VAT)

• Originally from the Futures Pits in Chicago this methodology is extremely tough to convey, as evidenced by the pile of difficult to read books on the subject. Clive breaks down the ideas behind Market Profile and tells first hand, in a practical way, how traders in London and Chicago use this in their daily trading. He has “grown up” around traders using Profile, so understands not only the complexities of this methodology, but its benefits to day traders.

Class sizes will be limited to 12 people, so you are guaranteed training that is both relevant and “personal”. All methodologies will be discussed using live charts of markets familiar to you.

Top notch Refreshments and Lunch will be provided, as well as course notes, either in bound, full colour “paper” format or on Memory Stick.

Delegates will also get a free signed copy of Clive’s book “Candlestick Charts”.
The course will take place at the MWB Business Exchange in Houndsditch (EC3, 5 minute walk from Liverpool Street); a fantastic modern space where delegates will enjoy excellent facilities.

Book now by clicking here or call us on +44 (0) 1702 333461.

Remember, places are limited.

Or take advantage of our generous discounts:

All four modules - £1000 (+VAT), or £800 (+VAT) for FuturesTechs customers**

FuturesTechs customers** can chose individual modules for £250 (+VAT).

If you wish to discuss block bookings for any of these Modules please let us know. I’m sure we can sort something out!!

Yours,

Clive

* Check with your compliance officer prior to booking

**Discount does not apply to FuturesTechs Website customers on month-to-month contracts.

In Brief: All I keep hearing at the moment is how we will have a 10% correction, so, let’s have a look:

The “funnymentalist” community, particularly Stateside, seem pretty happy with the idea that this pullback will be a “normal” affair and will pull back 10% from the January highs, at which point you can happily pile in, buy the dip, and carry on where we left off…

I thought it would be useful to know where this level is on the markets we watch. So here goes, and we’re looking at the Cash Indexes here, NOT the Futures:

Dow: High was 10730. 10% pullback level is 9657 (currently 10023)

S&P 500: High was 1150, pullback level is 1035 (at 1065 right now)

NASDAQ: High was 1897, pullback level is 1707 (1743 now)

DAX: 6094 was the January high, 10% off that is 5485.  BROKEN

FTSE: 5600 high, 5040 is 10% pullback. 5033 was last week’s low, so holding…

Eurostoxx: Pulled back from 3044. 10% back from here is 2740. BROKEN

CAC: high was 4088, so 10% back from there is 3680, BROKEN.

So to summarise,  if anyone stateside says to you about 10% pullbacks the simple thing to say is “thanks, but we’re already beyond that!”… especially if/when the FTSE breaks 5030-40.

Keep safe in these markets.

Let’s go back to basics: technical analysis is the study of market action, i.e. the interactions of buyers and sellers. Rather than the merits of what is being bought and sold, we analyse these interactions in search of patterns and trends that will identify profitable opportunities.

But the information available to the technical analyst does not need to consist merely of price movements; technical data is anything related to market action. The level of participation in the market, then, is also an important component of this data. We measure it by the number of stocks or futures contracts which are traded over any given period, and call it volume. The reason for the name is fairly simple: in a trading pit, it would be directly proportional to the noise!

Volume is available for nearly any market, except for Forex, whose decentralised structure makes a measurement impossible!

So what’s useful about volume?

Volume tells us where the majority of people are taking and covering their positions, so has big implications in terms of market memory.

For example, suppose that during a rally in a stock we notice that there is a price range where volume is particularly high. What does this mean? It means that there are particularly many positions originating and closing here. Going foward, then, there are lots of participants who have a “stake” in this particular price region.

If the price gets back here, people who bought in the first time might use this as an opportunity to pick up more of the stock at what they still consider to be good value. This is manifested in the price finding support here instead of falling back down.

On the other hand, what happens if sellers do come out in enough force to take us through this region? In that case, anybody who went long there is now offside and may be tempted to exit their positions. Lots of stops can get triggered, resulting in an acceleration of the decline.

So that’s the significance of volume: it tells us where most people are taking their positions. You could almost say that the market “remembers” levels in direct proportion with the level of volume seen when it trades around those levels.

Volume has long been a key component of technical analysis. One of the tenets of Dow Theory is that “Volume must confirm the trend”. High volume demonstrates mass participation in a move, and hence widespread acceptance of the new price levels. Price moves without volume were subject to suspicion, since it was possible that only a small number of rogue traders were moving the price. In that case the price  would revert back to where it came from as soon as they stopped participating.

It should be noted that sometimes, volume will be so light that the relevance of the price levels becomes negligible. This is true, for example, in the overnight session for the Agricultural commodities. Here’s a sample:

While the overnight price action will be visible to traders, some of whom may give it some small consideration, the volumes are so small that the levels can generally be ignored.

One common way in which volume is used is in the confirmation of price patterns. This is in the same spirit as Dow Theory: just as volume should confirm a trend, it should equally confirm a reversal or continuation pattern.

For example, consider the famous Head and Shoulders pattern. This begins with a series of higher highs and higher lows, a classic Dow Theory uptrend. But then we get a high below the prior high, and then a fall through the “Neckline” connecting the previous two lows.

There are definite patterns in volume which we may seek to accompany the Head and Shoulders. These may not always appear, but that’s ok: volume is only an additional piece of the jigsaw, and not the most important piece of evidence we look at when analysing the markets. Volume is always secondary to price. That said, we are encouraged when we see volume acting in a way that confirms the price action: for a Head and Shoulders pattern, that means cooling off as the market runs into resistance, and then expanding as the market decisively changes direction.

The above Head and Shoulders pattern for Silver shows volume declining on each successive peak, and then expanding as it completes the pattern with a severe breakdown.

Volume can also be incorporated into momentum indicators, usually in combination with some price information.

For example, “On Balance Volume” (OBV, see below) is a type of running sum of the volume. The trick is that we add the volume when the market has gone up, but subtract it when it goes down.

We can treat the OBV like any other indicator: adding moving averages, trendlines, etc. The trendline added to OBV above illustrated how the market was struggling.

So that’s an overview of Volume: as a core componenent of technical analysis, it confirms trends and price patterns, and can be incorporated into momentum indicators. An essential tool of the technician and trader!

Graham Neary, MSTA (graham@futurestechs.co.uk)

The finalists for the 2010 Technical Analyst Awards have been announced, and we’re pleased to report that FuturesTechs has been shortlisted in the “Best Fixed Income Research and Strategy” category.

We are up against some strong competition including RBS and UBS.

“Friends” of FuturesTechs that have been nominated in other categories include CQG in the “Best Data Provider” and “Best Technical Analysis Platform” categories, and Progress Apama in the “Best Automated Trading Product” group.

The winners will be announced towards the end of March.

Other Company News:

On April 6th we celebrate our 10th birthday. We started life writing reports on the Bund, Bobl, T-Notes and 30 Year Bonds, and have since expanded to cover 28 markets in all (and counting!), covering Equities, Commodities and Foreign Exchange.

Our client base has morphed from a hard core of ex-LIFFE traders to a wide range of users, from Prop traders to Brokers, End Users and Fund Managers.

Last year we added Individual UK Equities (FTSE 350) to our product range, catering to CFD Brokers and Fund Management/trading groups. We send out structured buy/sell recommendations, and are working hard to add to the distribution channels for this, as more and more institutions show an interest in this product.

If you wish to see our track record or receive a trial of our daily recommendations click here and let us know.

2010 is already shaping up to be a big year for FuturesTechs as we continue to widen our readership by providing a reliable, timely, easy to read, innovative and trusted service. We recently asked our clients for feedback on the services we provide. Below are a few replies we received:

“I believe you are a market leader in technical analysis and reporting” - PW  - Ireland

“When trading the FTSE , FuturesTechs provides key technical levels that count whichever way the market is moving. At the click of a mouse , the analysis is delivered in an easy to read format and is part of a robust and reliable service which is spot on” - RH - East Sussex

“I don’t trade unless I have my FuturesTechs levels on my desk” - JB - Dublin

“As a company we use FuturesTechs for both daily technical analysis and charting seminars. On both counts they have been professional, dependable and efficient. The daily reports are easy to read and always on time, and should intra-day markets exceed the levels stated in the reports, they will always send out an update with added commentary. The charting seminars provided by Clive are tailored to the needs of the group and are comprehensive in their content. Clive is friendly and approachable and always very thorough. We are very happy with the services provided by FuturesTechs, and we would thoroughly recommend using them” - HT - London.

We (mostly!!) thank our clients for their continued support.

Click here if you wish to discuss a Trial of our Professional Service, or Click here to try out our Website Members’ Area.

Below are some “general thoughts” on the FTSE that I sent out to our “Pro” client base this morning:

I was sticking with the trend until yesterday, and looking for levels like 5400 in FTSE Futures and 1127 in the S&P Futures to hold firm. Alas they didn’t.

Obama changed all that.

At the same time as being bullish at the start of this year, I have mentioned to many of you that I’m looking for a pullback some time this year that will take us back to somewhere like 4750 or even 4250.

Is this it? Let’s look at the last two sell offs; the 23^rd October – 3^rd November move, and the 23^rd-27^th November sell off. The first of these shed 317 points on the Futures, the latter 299.

So far from high to low this time we’ve lost 314 points - very similar, suggesting we could be in dip buying territory.

We won’t need to wait long to find out, and for now I would be getting defensively positioned because the risk of a swift move is with the bears. In the coming sessions we will likely either grind higher (and the bear threat alert will lessen considerably once 5341 is retaken) or we will sell off through 5245 which will make this move bigger than anything we’ve seen so far, and therefore “the real deal”…

The latest appearance by Clive on CNBC:

Market Profile (c) is a distinct way of charting and analysing price action. It has a very different feel to normal methods of charting, so be prepared to look at markets in a very different way after reading this tutorial! Hopefully you’ll see why there are so many traders who swear by it.

Let’s jump straight in and have a look at one of these creatures:

The above represents a single day’s trading in FTSE futures. It could equally be represented by 30-minute candlesticks like this:

So what’s going on here?

Each letter corresponds to a 30-minute period. “m” is 8:00-8:30, “n” is 8:30-9:00, etc. The m’s are drawn in each price interval where this contract traded during the first half hour of trading, the n’s for the second half hour, etc.

Each letter is called a Time Price Opportunity (TPO). These form the building blocks of Market Profile.

Looking at the FTSE Profile above, we can see that the letters are sat next to each other from left to right, forming a “heap” . Where the price bulges out the most tells us where the price traded in the most time intervals, giving a sense of “value” for the day.

With that said, let’s introduce some more terminology.

Initial Balance Period (IBP): this is the range of the first hour’s trading. In the FTSE, then, it is represented by the price range covered by the m’s and n’s. CQG draws a blue line to the left of the Profile to highlight this, and we’ll put it in bold below:

The IBP is often important, depending on which market you’re trading, since volatility on the open can sometimes bring about a “Comfort Zone” within which people will trade with a sense of safety for the rest of the day. Breaking out of the IBP then, is something that Profile watchers will keep an eye on.

Point of Control (POC): This is the price region with the most TPO’s, i.e. which has been traded during the most time periods. If there is a tie for which price has the most TPO’s then we choose the one closest to the middle of the day’s range.

In the above Profile, we see that 5220 and 5190 both have eight TPO’s. But 5190 is closest to the centre of the range, so it is the Point of Control.

This is a useful price because it tells us quite precisely where the market traded most frequently. Above there could be considered poor value for the day, while below there could be considered good value for the day.

This notion of “value” is expanded with the concept of the Value Area. This is the price range containing 70% of the TPO’s, split evenly around the Point of Control. (The reasoning behind this is that in the “Normal” distribution, around 70% of observations are contained within one standard deviation of the mean.)

This gives us a wider range of value for the day. This range can then be overlaid onto a candle or bar chart; we can use it to provide suggestions for support and resistance levels, or just to see how the market’s perception of value is evolving. Here’s an example:

In the above chart, we have the folowing key:

Green: High of Value Area

Blue: Point of Control

Brown: Low of Value Area

That completes our discussion of Profile construction. Now let’s consider some of the ways to intepret what’s happening (this will involve some extra terminology!)

Initiative and Responsive Price Action: we can classifying buying and selling as “Initiative” or “Responsive” depending on whether it takes place above or below the previous day’s value area.

So if the price is expanding above the previous day’s value area, then we can call that “Initiative” buying. And if those gains are being sold back down, that selling can be described as “responsive”.

Similary, selling down below the previous day’s value area is called “initiative” selling. As you might guess, gains back through those levels would be called “responsive” buying.

Much of the philosophy behind Market Profile is to do with the fact that different types of market participant move the market in different ways. On the one hand, there are “liquidity providers”, the local or proprietary traders, who profit by making small gains on lots of trades every day.  Their purpose is to facilitate the actions of the institutional traders.

The institutions are the ones who, thanks to their size, are truly capable of moving markets. In the context of  commodity futures, these would be the commercial hedgers.

For example, the below chart shows a market which was fairly stable on the first day, and then made a big shift on the second:

Without looking at the volume figures, we could surmise that much of the action in the first day took place with traders and a relatively small number of evenly matched institutions. The second day, though, took us out of that day’s range, with the gains being accepted by the market. That makes it Initiative Buying, and we can surmise that it was institutional demand which created it.

Single Print Tails: time periods with just a single TPO, mostly at the extremes of the Profile.

In the above Profile, we can see that this market had two such tails: for period “D” at 5300, and period “E” at 5440. The price moved into those regions, but the move was rejected. The move back from 5300 is probably “responsive buying”, while the move back from 5440 is probably “responsive selling”.

In the next article on this topic, we’ll categorise different types of trading day according to their Market Profile. There’s lots more to be covered here, so stay tuned!

Graham Neary MSTA (graham@futurestechs.co.uk)

This is a quick summary of important candlestick patterns. It’s presumed that you know the basics of candles: if you don’t, see the article links in our Members Area.

Without further ado, let’s begin.

1. Bullish Marabuzo

Number of candles: 1.

Description: long green candle which opens near its low, and closes near its high.

Implications: BULLISH.

2. Bearish Marabuzo

Number of candles: 1.

Description: long red candle which opens near its high, and closes near its close.

Implications: BEARISH.

3. Doji

Number of candles: 1.

Description: candle which closes near where it opened.

Implications: REVERSAL.

4. Shooting Star

Number of candles: 1.

Description: candle which closes near where it opened, at the bottom of the period’s range.

Implications: BEARISH REVERSAL (in an uptrend).

5. Hammer

Number of candles: 1.

Description: candle which closes near where it opened, at the top of the period’s range.

Implications: BULLISH REVERSAL (in a downtrend).

6. Hanging Man

Number of candles: 1.

Description: candle which closes near where it opened, at the top of the period’s range.

Implications: BEARISH REVERSAL (in an uptrend) (only weak effectiveness)

7. Inverted Hammer

Number of candles: 1.

Description: candle which closes near where it opened, at the bottom of the period’s range.

Implications: BULLISH REVERSAL (in a downtrend) (only weak effectiveness)

8. Bullish Engulfing Pattern

Number of candles: 2.

Description: green candle with a lower open and a higher close than the previous candle.

Implications: BULLISH REVERSAL (in a downtrend)

9. Bearish Engulfing Pattern

Number of candles: 2.

Description: red candle with a higher open and a lower close than the previous candle.

Implications: BEARISH REVERSAL (in an uptrend)

10. Harami

Number of candles: 2.

Description: candle with a real body contained within the range of the prior real body (which must have moved in the direction of the prior trend).

Implications: REVERSAL (only weak effectiveness)

11. Dark Cloud Cover

Number of candles: 2.

Description: red candle with a higher open than the previous candle, but a close in the bottom half of that prior candle.

Implications: BEARISH REVERSAL (in an uptrend)

12. Piercing Pattern

Number of candles: 2.

Description: green candle with a lower open than the previous candle, but a close in the top half of that prior candle.

Implications: BULLISH REVERSAL (in a downtrend)

13. Morning Star

Number of candles: 3.

Description: long red candle followed by a small-bodied candle which gaps lower. The third candle closes in the top half of the first candle.

Implications: BULLISH REVERSAL (in a downtrend)

14. Evening Star

Number of candles: 3.

Description: long green candle followed by a small-bodied candle which gaps higher. The third candle closes in the bottom half of the first candle.

Implications: BEARISH REVERSAL (in a downtrend)

Graham Neary MSTA (graham@futurestechs.co.uk)