Technical AnalysisChanneling ConceptsandUse of TechnicalIndicators & Oscillators

Technical AnalysisConcepts and ApplicationsTechnical AnalysisAssumptions:Serial correlations exist and are probabilistic.Examines buying and selling pressure within a particular market for a security and not in the intrinsic value of the security.Attempts to form an opinion of market directionality based on behavioral characteristics (i.e. Prices moves in trends).Behavioral characteristics of large masses tend to herd (i.e. History tends to repeat itself).The market discounts all known and unknown variables.

Technical AnalysisConcepts and ApplicationsTechnical AnalysisApplications and Tools:Trend linesIdealized representation of stock price movement

Technical AnalysisConcepts and ApplicationsTrend LinesIdealized representation of stock price movement

Technical AnalysisConcepts and ApplicationsHow to Identify Market Structure Highs/Lows (MSH and MSL)Self-Price ConfirmationTrend BehaviorChanneling???MSH?MSL?ConfirmedMSHConfirmedMSLMSH?MSL?ConfirmedMSHConfirmedMSLProjected Price Path?

Technical AnalysisConcepts and ApplicationsTrend LinesIdealized representation of stock price movementMaterial Trend Change?

Technical AnalysisConcepts and ApplicationsWave TheoryA form of Technical Analysis.Analyzes markets in cycles.Created by RN Elliott in the 1930s.Assumes that the market behaves in waves of optimism and pessimism that are of a repeating fractal nature (i.e. this time its different).Defines trends into two categories: Impulsions and Corrections.

Technical AnalysisConcepts and ApplicationsImpulsions (Impulsive Waves or Motive Waves)Five adjacent segments must be present (monowave or larger), which must meet form requirements of a trending impulsion or terminal patterns.Three of the five segments must thrust in the same direction (upward or downward).Immediately after the first segment (wave-1), a minor move in the opposite direction (wave-2).The third segment (wave-3) must retrace the entirety of the second segment (wave-2) and be longer than wave-2.Immediately after the third segment, a minor move in the opposite direction of the third (same direction as wave-2), but never retraces the entirety of the third segment.The fifth segment (wave-5) will almost always be longer than the fourth, but only has to be 38.2% of the fourth segment (price wise). When the fifth segment is shorter than the fourth, the fifth segment is termed, a failure or truncation.The second segment (wave-2) cannot enter the price territory of the fourth segment (Wave-4), unless a terminal triangle or terminal impulsion is forming.When the entire vertical price distances covered by the first, third, and fifth segments are measured and compared amongst each other, the third does not have to be the longest, but it can never be the shortest of the three segments.If any of these rules are violated, the trending behavior thus far in the market is considered Corrective and NOT Impulsive.If Corrective, then the directionality is in the opposite direction of the main trend one degree larger.

Technical AnalysisConcepts and ApplicationsCorrections (Corrective Waves)Three adjacent segments must be present (monowave or larger), which must meet form requirements of a correction.Two of the three segments must thrust in the same direction (upward or downward).Immediately after the first segment (wave-A), a minor move in the opposite direction (wave-B).Wave-A could be, but does not have to a five-wave-impulsion (in the case of sharps).The third segment (wave-C) must retrace at least 23.6% of Wave-B and must be a five-wave-impulsive structure itself, regardless of the entirety of the Corrective Structure (3-3-5 flat). Immediately after the third segment (Wave-C), the trend of one larger degree reasserts itself in the main impulsion of one larger degree.Occurring within in a five-wave-impulsion (trending impulse), Corrections can only occur in the Wave-2 and Wave-4 position, unless a triangle or terminal formation is unfolding.Rules of Alternation between Waves-2 and 4 and their ABC Corrective structures must alternate in terms of Price, Time, Severity, Intricacy, and Construction (aka Design).Corrective Design may include, flats, sharps, triangles and complex corrections which encompass multiple polywave-flats, polywave-sharps, polywave-triangles (sometimes referred to as diametrics).

Technical AnalysisConcepts and Applications

Technical AnalysisConcepts and Applications

Technical AnalysisConcepts and Applications

Technical AnalysisConcepts and Applications

Is this structure impulsive or corrective?

Lets review the Guidelines

Technical AnalysisConcepts and ApplicationsImpulsions (Impulsive Waves or Motive Waves)Five adjacent segments must be present (monowave or larger), which must meet form requirements of a trending impulsion or terminal patterns.Three of the five segments must thrust in the same direction (upward or downward).Immediately after the first segment (wave-1), a minor move in the opposite direction (wave-2).The third segment (wave-3) must retrace the entirety of the second segment (wave-2) and be longer than wave-2.Immediately after the third segment, a minor move in the opposite direction of the third (same direction as wave-2), but never retraces the entirety of the third segment.The fifth segment (wave-5) will almost always be longer than the fourth, but only has to be 38.2% of the fourth segment (price wise). When the fifth segment is shorter than the fourth, the fifth segment is termed, a failure or truncation.The second segment (wave-2) cannot enter the price territory of the fourth segment (Wave-4), unless a terminal triangle or terminal impulsion is forming.When the entire vertical price distances covered by the first, third, and fifth segments are measured and compared amongst each other, the third does not have to be the longest, but it can never be the shortest of the three segments.If any of these rules are violated, the trending behavior thus far in the market is considered Corrective and NOT Impulsive.If Corrective, then the directionality is in the opposite direction of the main trend one degree larger.

Technical AnalysisConcepts and Applications

Is this structure impulsive or corrective?

Possibly Impulsive

So as long as this MSL holds

Technical AnalysisConcepts and Applications

What can be inferred about this market and its possible progression?

Since the structure appears to be impulsive, then the main trend must be up

What wave is this? Does it matter?Not Really(yet)

Technical AnalysisConcepts and Applications

What can be expected is a retracement of some degree; hence a minor move in the opposite direction

Technical AnalysisConcepts and ApplicationsImpulsions (Impulsive Waves or Motive Waves)Five adjacent segments must be present (monowave or larger), which must meet form requirements of a trending impulsion or terminal patterns.Three of the five segments must thrust in the same direction (upward or downward).Immediately after the first segment (wave-1), a minor move in the opposite direction (wave-2).The third segment (wave-3) must retrace the entirety of the second segment (wave-2) and be longer than wave-2.Immediately after the third segment, a minor move in the opposite direction of the third (same direction as wave-2), but never retraces the entirety of the third segment.The fifth segment (wave-5) will almost always be longer than the fourth, but only has to be 38.2% of the fourth segment (price wise). When the fifth segment is shorter than the fourth, the fifth segment is termed, a failure or truncation.The second segment (wave-2) cannot enter the price territory of the fourth segment (Wave-4), unless a terminal triangle or terminal impulsion is forming.When the entire vertical price distances covered by the first, third, and fifth segments are measured and compared amongst each other, the third does not have to be the longest, but it can never be the shortest of the three segments.If any of these rules are violated, the trending behavior thus far in the market is considered Corrective and NOT Impulsive.If Corrective, then the directionality is in the opposite direction of the main trend one degree larger.

Technical AnalysisConcepts and Applications

What can be expected is a retracement of some degree; hence a minor move in the opposite direction

What cannot be determined is the type of correction.

Technical AnalysisConcepts and Applications

What can be expected is a retracement of some degree; hence a minor move in the opposite direction

What cannot be determined is the type of correction.

Technical AnalysisConcepts and Applications

What can be expected is a retracement of some degree; hence a minor move in the opposite direction

What cannot be determined is the type of correction.

Technical AnalysisConcepts and Applications

Sharp Correction?

Technical AnalysisConcepts and Applications

Flat Correction?

Technical AnalysisConcepts and Applications

Triangle Correction?

Technical AnalysisConcepts and Applications

Technical AnalysisConcepts and ApplicationsIs this structure impulsive or corrective?

Lets review the Guidelines

Technical AnalysisConcepts and ApplicationsImpulsions (Impulsive Waves or Motive Waves)Five adjacent segments must be present (monowave or larger), which must meet form requirements of a trending impulsion or terminal patterns.Three of the five segments must thrust in the same direction (upward or downward).Immediately after the first segment (wave-1), a minor move in the opposite direction (wave-2).The third segment (wave-3) must retrace the entirety of the second segment (wave-2) and be longer than wave-2.Immediately after the third segment, a minor move in the opposite direction of the third (same direction as wave-2), but never retraces the entirety of the third segment.The fifth segment (wave-5) will almost always be longer than the fourth, but only has to be 38.2% of the fourth segment (price wise). When the fifth segment is shorter than the fourth, the fifth segment is termed, a failure or truncation.The second segment (wave-2) cannot enter the price territory of the fourth segment (Wave-4), unless a terminal triangle or terminal impulsion is forming.When the entire vertical price distances covered by the first, third, and fifth segments are measured and compared amongst each other, the third does not have to be the longest, but it can never be the shortest of the three segments.If any of these rules are violated, the trending behavior thus far in the market is considered Corrective and NOT Impulsive.If Corrective, then the directionality is in the opposite direction of the main trend one degree larger.

Technical AnalysisConcepts and ApplicationsIs this structure impulsive or corrective?

Lets review the Guidelines

Technical AnalysisConcepts and Applications

Technical AnalysisConcepts and ApplicationsDirectional Move

Directional Move 3-waves?

Directional Move 5-waves?

Technical AnalysisConcepts and ApplicationsEven though there is a possible impulsive structure, it is within an overall Corrective Structure. Therefore, the entire directional move is corrective. And, if corrective, it is against its main trend

Technical AnalysisConcepts and ApplicationsEven though there is a possible impulsive structure, it is within an overall Corrective Structure. Therefore, the entire directional move is corrective. And, if corrective, it is against its main trend

The segments that comprise this directional move are as follows

Technical AnalysisConcepts and ApplicationsEven though there is a possible impulsive structure, it is within an overall Corrective Structure. Therefore, the entire directional move is corrective. And, if corrective, it is against its main trend

The segments that comprise this directional move are as follows

Technical AnalysisConcepts and ApplicationsEven though there is a possible impulsive structure, it is within an overall Corrective Structure. Therefore, the entire directional move is corrective. And, if corrective, it is against its main trend

The segments that comprise this directional move are as follows

Technical AnalysisConcepts and ApplicationsEven though there is a possible impulsive structure, it is within an overall Corrective Structure. Therefore, the entire directional move is corrective. And, if corrective, it is against its main trend

The segments that comprise this directional move are as follows

Technical AnalysisConcepts and ApplicationsEven though there is a possible impulsive structure, it is within an overall Corrective Structure. Therefore, the entire directional move is corrective. And, if corrective, it is against its main trend

The segments that comprise this directional move are as follows

Technical AnalysisConcepts and Applications

Technical AnalysisConcepts and Applications

Sharp Correction?

Technical AnalysisConcepts and Applications

Flat Correction?

Technical AnalysisConcepts and Applications

Triangle Correction?

Technical AnalysisConcepts and Applications

Flat Correction!!!

Technical AnalysisConcepts and ApplicationsFlat Correction!!!

Technical AnalysisConcepts and ApplicationsWhat seems to be unfolding is an impulsive series of waves followed by a corrective series of waves

In better context, the rally seems to be impulsive, and is therefore the dominant trend. The decline seems to be corrective, and therefore is countertrend to the primary trend.

Technical AnalysisConcepts and ApplicationsWhat seems to be unfolding is an impulsive series of waves followed by a corrective series of waves

In better context, the rally seems to be impulsive, and is therefore the dominant trend. The decline seems to be corrective, and therefore is countertrend to the primary trend.

Technical AnalysisConcepts and ApplicationsResumption of the Impulsive Structure (i.e. new uptrend)

Technical AnalysisConcepts and ApplicationsResumption of the Impulsive Structure (i.e. new uptrend)

Technical AnalysisConcepts and ApplicationsIs this entire structure Impulsive or Corrective?5-waves3-waves5-waves

Technical AnalysisConcepts and Applications5-waves3-waves5-waves3-waves5-wavesPrimary Trend is UP!!!

Technical AnalysisConcepts and Applications12345?This is an impulse wave, and since it is rallying, the primary dominant trend is UP!!!

Technical AnalysisConcepts and ApplicationsIs this entire structure Impulsive or Corrective?5-waves3-waves5-waves

Technical AnalysisConcepts and Applications5-waves3-waves5-waves5-wavesPrimary Trend is DOWN!!!

Technical AnalysisConcepts and Applications

Technical AnalysisConcepts and ApplicationsIt is important to understand where you are in the structure of an on-going primary bull market (or bear market).You Are Here

Technical AnalysisConcepts and ApplicationsIt is important to understand where you are in the structure of an on-going primary bull market (or bear market).You Are Here

Technical AnalysisConcepts and ApplicationsIt is important to understand where you are in the structure of an on-going primary bull market (or bear market).You Are Here

Technical AnalysisConcepts and ApplicationsIdentifying Behavioral SignaturesTechnical Indicators are used to define strength of trend and validity of potential buy/sell signals.Technical Indicators when used in the context of Wave Theory can support or refute structural behavior of trends.There are two types of Technical Indicators: Oscillators and Overlays.Of the two types of Technical Indicators there are two categories: Leading and Lagging.The rest of the semester will focus primarily on Oscillators, both leading and lagging.

Technical AnalysisConcepts and ApplicationsTechnical Indicators: OscillatorsOscillators are range bound Technical Indicators that typical measures price/volume characteristics.Range bound calculations are unique to the Oscillator itself (i.e. ranges from 1-100 or -50 to +50).Oscillators are what technicians use to gauge the amount of over-boughtness and over-soldness within a security. Are used to confirm overall strength of trend.Confirm price movements through divergence characteristics.Technicians use Oscillators to show possible price entries and exits. These are done with buy/sell signals that are either called crossovers OR divergences.

Technical AnalysisConcepts and ApplicationsTechnical Indicators: Oscillators LeadingLeading Indicators are used to preemptively recognize price changes.Leading Indicators are volatile measures as they are not based on MAs, rather price volatility themselves.Leading Indicators are best used during periods of consolidation (non trending markets).Popular Leading Indicators include the RSI, Stochastics, and Momentum.

Technical AnalysisConcepts and Applications