HOW TO Trade Successfully
using 5 Indicator System
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Disclaimer
These educational recommendations are based on author‟s
personal observations & on the study of technical analysis
and hence, do not reflect the fundamental validity of the
script. Due care has been taken by the author while
preparing these comments & outcomes, But still no
responsibility will be assumed by the author for the
consequences whatsoever resulting out of acting on these
recommendations. You are advised to take your position
with your best sense and judgment. This document does not
claim for profits/Losses. Some Information, here with
provided is obtained from the sources deemed to be reliable
but is not guaranteed as to accuracy and completeness.
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Why 5 indicators .?
In any Market whether in Stock market or Commodity market or Forex market.
. Price moves higher when people are Buying and,
. Price moves lower when people are Selling.
Most Traders lose money because they use Only one Indicator or they use
multiple indicators from same category.
(Main categories of Tech. Analysis are on next slide.)
Think for a second, if you identify a certain price for your stock to Buy
where people from various indicators are also watching, then you are looking at a
Price level which has the highest potential of success because when you will
Buy, other people will also be buying and that is the beauty of this
5- indicator system, let me explain it you in this small EBook.
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Main categories in the Technical Analysis
Main categories in the Technical Analysis
Moving Average
Support and Resistance
Stochastic ,MACD,RSI
Bands like Bollinger Bands
Fibonacci Levels
Elliot Waves
Trendlines
Chart patterns
Volume etc etc etc.
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High Probability Set-up - I
Lets take a example.
4.Channel P
5.Support 2.Moving average R
I
C
E
3.Trendline
80
20
1. Stochastic
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High Probability Set-up - II
In above example, ‘’X” is a price level where different
Technical aspects comes together to form Highest
potential area where we should take our trades.
Out of my last 35 trades, only 3 are losing trades with little loss.
Believe me, it’s that simple and you can do it too.
Virtually all my students make money.
For me, High Probability Trade zone is a Price level where
3 or more indicators of different category come together.
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Now, let’s see 5 indicators in nutshell.
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Stochastic
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Stochastic - I
Stochastic (14,3,3) Overbought
Oversold
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Stochastic - II
You can see in the figures that the stochastic oscillator fluctuates between zero and 100. A
stochastic value of 50 indicates that the closing price is at the midpoint of the trading range
for the specified period. As values reach above 50, it indicates that the price is moving up
into the higher trading-range for the period. The opposite is true when values fall below
50—the price is moving into the lower levels of the trading range for the period. At the
extreme, a value of 100 signals that the price closed at the absolute highest point for the
period, while a value of zero means that the price closed at the lowest point for the period.
The two to use the stochastic oscillator are,
• Oversold/overbought.
• Divergences
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Stochastic - III
OVERBOUGHT & OVERSOLD
The horizontal lines at 20 and 80 mark overbought and oversold areas for a given
security.
A security is considered overbought when the stochastic lines rise above 80. Likewise,
It is viewed as oversold when they cross below 20.
These levels represent points where one would expect prices to reverse—the extreme
price levels are not sustainable over time.
There is no indication as to how long the security will remain at the price extremes,
meaning that the security could become even more overbought or oversold.
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Stochastic - IV
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Stochastic - V
DIVERGENCES
When Lane first introduced stochastic, he believed that the only valid signal occurred
when a divergence developed between the price and the stochastic oscillator, more
specifically the %D line. Divergences between price and an indicator occur when the
behavior in the price is not mirrored by the indicator.
A Bullish divergences occur when the price is making new lows while the oscillator is
making new highs—or failing to make new lows— below the 20 line. Here you can expect
prices to bottom out and begin to rise, matching the behavior of the indicator.
A Bearish divergence, for example, takes place when the prices are making higher highs
while the stochastic is making new lows (preferably below 20), or is failing to also make
new highs. This occurs because, while prices are reaching new intraperiod highs, the
closing prices are falling. When you see this, you can reasonably expect the price to fall in
line with the indicator—which means prices will reverse course and begin to fall.
Stochastic divergence is one of the main confluence among other.
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Simple Moving Average
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Simple Moving Average - I
• Wikipedia definition:
• In financial applications a simple moving average (SMA) is the unweighted mean of the previous data.
However, in science and engineering the mean is normally taken from an equal number of data on
either side of a central value. This ensures that variations in the mean are aligned with the variations in
the data rather than being shifted in time.
• Simple Moving Average Formula:
The simple moving average (SMA) is the most basic of the moving averages used for trading. The
simple moving average formula is calculated by taking the average closing price of a stock over the last
"x" periods.
Let's take a look at a simple moving average example with Scrip “X”. The last five closing prices for
Scrip “X”. are:
28.93+28.48+28.44+28.91+28.48 = 143.24
To calculate the simple moving average formula you divide the total of the closing prices and divide it by
the number of periods.
5-day SMA = 143.24/5 = 28.65
• We all have heard the expression “the trend is your friend” and “trade with the trend” but often it‟s difficult to
identify the trend. That‟s because financial instruments don‟t move in straight lines as well as the fact that the
trend may be different depending on your timeframe.
• Moving averages are lagging indicators, they do not react instantly to price behavior and thus are used only as
trend filters and “value” reference points.
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Simple Moving Average - II
For me, 100 SMA is the most important moving average
My Rule for TREND Recognition is very simple,
UP Trend : Price above 100 SMA.
DOWN Trend: Price below 100 SMA.
if and only if Price is above 100 SMA, I will look for
buying opportunity, similarly
if and only if Price is below 100 SMA, I will look for
Short selling opportunity.
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Simple Moving Average - III
Moving averages are also act as Dynamic Support
and Resistance.
Dynamic meaning, as Prices advance, these levels of also
changes along with it.
Whereas Trendlines, Horizontal support & Resistance lines
don’t move, so I called them as Fixed Support & Resistance.
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Trendline
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Trendline - I
• What is a 'Trend line„
• A trendline is a line drawn over swing point highs or under swing point lows to
show the prevailing direction of price. Trendlines are a visual representation of
support and resistance in any timeframe. Trendlines are used to show direction and
speed of price, and also describe patterns during periods of price contraction.
• When the market is trending to the upside, many traders will pay close attention
to the price of a security as it falls toward the broader support of the trendline
because historically, this has been an area that has prevented the price of the asset
from moving substantially lower.
• On the other hand, when the market is trending to the downside, traders will
watch for a series of declining peaks and will attempt to connect these peaks
together with a trendline. When the price approaches the trendline, most traders
will watch for the asset to encounter selling pressure and may consider entering a
short position because this is an area that has pushed the price downward in the
past.
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Trendline - II
• The support/resistance of an identified level, whether discovered with a
trendline or through any other method, is deemed to be stronger the more
times that the price has historically been unable to move beyond it.
Creating Trendlines
• To create a trendline, we must have at least two points on a price chart.
• Some like to use different timeframes such as 30 minute or hourly,
Daily or weekly charts. Trendlines drawn on Higher timeframe hold more
weightage as compared to Trendline drawn on lower timeframe.
• What makes Trendlines so universal in usage and appeal is they can be
used to help identify trends regardless of the time period, timeframe or
interval used.
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Trendline - III
Trendline
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