CONTENT:
INTRODUCTION
WHAT IS AN INDICATOR?
ADDING THE INDICATOR
D.Y.O.R
FRAMEWORK INDICATORS:
ALPHA PRIME
ALPHA TRENDBREAK
OSCILLATOR INDICATORS:
ALPHA WAVE
ALPHA MOMENTIMENT
ALPHA VOLUME
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INTRODUCTION
Welcome to the Alpha Indicator Suite Guide
This will give you the outlines of each of the indicators functions
and also alert opportunities along with what they mean. It will
contain an advised timeframe for each indicator along with the best
combination of indicators to use in conjunction. Please note that
this is not a guide on multiple base strategies for the base
indicators or an in depth description on what each of the indicators
are based on or their historical trading relevance - we advise you
always to further in depth reading and learning - you can never stop
learning in trading. If looking at charts is very new to you then it
is heavily advised to spend time learning and practise trading with
Paper Accounts or Backtesting ideas and strategies and simulating
buy’s/sell to see how you would fare in a real market. Even with the
strength of these indicators on your side without a basic knowledge
in trading can end up with you losing a lot of $$$. On the flipside
learn the foundation of trading and these indicators will end up
making you a lot of $$$.
WHAT IS AN INDICATOR?
A trading indicator is exactly as the name suggests it is an
indication as to what MIGHT happen. There is no such thing as a perfect indicator that will always be right...unfortunately. That
being said there are indicators that are far more advanced and
utilise multiple different conditions to help identify a very strong
suggestion of what might happen...you are about to see 5.
ADDING THE INDICATOR
- Create an Account with TradingView
- Open ANY Cryptocurrency chart
- Select Indicators
- Open “Invite-Only” Option
- Add simply by clicking any of the ALPHA indicators
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Indicator Settings
All settings are customisable although the default settings are tried
and tested of many trading scenarios that have proven to yield best
and most accurate results an automated system can offer
Colour-Coordinating
All indicators are designed for dark background charts because white
backgrounds are for FOREX, S & DINOSAURS (JOKING!) although if you
want to change the colours of any indicators then these are all
customisable to your preference in the settings - custom paint jobs
can be done on request….minimum payment of $1,000,000 per indicator….
D.Y.O.R
Do Your Own Research - In theory you can blindly follow signals and be successful be you will become WAY WAY more successful in trading
if you understand what & why you are entering certain trade set ups.
There is a lof of information in this guide with “light” explanations
on some of the foundations of trading analysis. Understanding the
basics and even the advanced techniques of some of the tools used in
these indicators will turn you from saving a few pennies for a rainy
day to owning a fleet of ‘Lambo’s or whatever floats your boat….like
a boat! So Do Your Own Research and never stop learning.
ALPHA FRAMEWORKS
ALPHAPRIME(Core)
The Alpha Prime is a multi-functional framework that is streamlined
to operate in a longer term (4hr+) swing format and a short-term
(5min and below) scalper style...at the flick of a switch.
i) SWING SETTING
This indicator is based around Support & Resistance, TD9
functionality - utilising Weekly & Monthly Pivot Points to support.
It is a clever algorithm is centred around breakouts and
dips/reversals. There is a clever background Wave Oscillator that
helps to target likely bottoms/dips and highlighted overbought/sold
regions.
Recommended Timeframe: 4hr, 1Day Recommended Supporting Indicators: Wave, TrendBreak, Volume, Momentiment
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Alerts:
1.0 - SWING - SWING ALERT - BreakOut // TD9 // Dip/Peak
1.1 - SWING - BULLISH SWING ALERT - 'BreakUp // Dip // Bullish TD9
1.2 - SWING - BEARISH SWING ALERT - BreakDown // Peak // Bearish TD9
FEATURES
OverBought/OverSold Zones
Support & Resistance
Weekly/Monthly Pivots
Future Monthly Pivots
Moving Averages
BreakOut Signals
TD9 Signals
Dip/Peak Signals
OverBought/OverSold Zones
These highlighted zones are derived from the ALPHA Prime indicating
when the “Cloud” of MFI’s, RSI’s, Stoch are heavily
oversold/overbought indicating an incoming reversal
Support & Resistance
Support is a price level where a downtrend can be expected to pause
due to a concentration of demand or buying interest. As the price of
assets or securities drops, demand for the shares increases, thus
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forming the support line. Meanwhile, resistance zones arise due to
selling interest when prices have increased.
Once an area or "zone" of support or resistance has been identified,
those price levels can serve as potential entry or exit points
because, as a price reaches a point of support or resistance, it will
do one of two things—bounce back away from the support or resistance
level, or violate the price level and continue in its direction—until
it hits the next support or resistance level.
Weekly/Monthly Pivots
Pivot points are used by traders in equity and commodity exchanges. They're calculated based on the high, low, and closing prices of
previous trading sessions, and they're used to predict support and resistance levels in the current or upcoming session. These support and resistance levels can be used by traders to determine entry and
exit points, both for stop-losses and profit taking.
KEY TAKEAWAYS
● A pivot point is a technical analysis indicator, or
calculations, used to determine the overall trend of the market
over different time frames.
● The pivot point itself is simply the average of the high, low
and closing prices from the previous trading day.
Future Monthly Pivots
These are simply the current or future monthly pivot points - they
determine a good idea of the future movement.
Moving Averages
Moving average is a simple, technical analysis tool. Moving averages
are usually calculated to identify the trend direction of a or to
determine its support and resistance levels. It is a
trend-following—or lagging —indicator because it is based on past prices.
The longer the time period for the moving average, the greater the
lag. So, a 200-day moving average will have a much greater degree of
lag than a 20-day MA because it contains prices for the past 200
days. The 50-day and 200-day moving average figures for s are widely
followed by investors and traders and are considered to be important
trading signals . Moving averages are a totally customizable indicator, which means
that an investor can freely choose whatever time frame they want when
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calculating an average. The most common time periods used in moving
averages are 15, 20, 30, 50, 100, and 200 days. The shorter the time
span used to create the average, the more sensitive it will be to
price changes. The longer the time span, the less sensitive the
average will be.
Investors may choose different time periods of varying lengths to
calculate moving averages based on their trading objectives. Shorter
moving averages are typically used for short-term trading, while
longer-term moving averages are more suited for long-term investors.
There is no correct time frame to use when setting up your moving
averages. The best way to figure out which one works best for you is
to experiment with a number of different time periods until you find
one that fits your strategy.
Predicting trends in the market is no simple process. While it is
impossible to predict the future movement of a specific , using
technical analysis and research can help you make better predictions.
A rising moving average indicates that the security is in an uptrend , while a declining moving average indicates that it is in a downtrend . Similarly, upward momentum is confirmed with a bullish crossover , which occurs when a short-term moving average crosses above a
longer-term moving average. Conversely, downward momentum is
confirmed with a bearish crossover, which occurs when a short-term
moving average crosses below a longer-term moving average
BreakOut Signals
These are simply indications of the price breaking up through
resistance or down through support - there is a large amount of back
ground algorithm to help filter these into very simple and strong
signals
A breakout refers to when the price of an asset moves above a
resistance area, or moves below a support area. Breakouts indicate the potential for the price to start trending in the breakout direction. For example, a breakout to the upside from a chart pattern could indicate the price will start trending higher. Breakouts that
occur on high volume (relative to normal volume) show greater conviction which means the price is more likely to trend in that
direction.
KEY TAKEAWAYS
● A breakout is when the price moves above a resistance level or
moves below a support level.
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● Breakouts can be subjective since not all traders will
recognize or use the same support and resistance levels.
● Breakouts provide possible trading opportunities. A breakout to
the upside signals traders to possible get long or cover short
positions. A breakout to the downside signals traders to
possibly get short or to sell long positions.
● Breakouts with relatively high volume show conviction and
interest, and therefore the price is more likely to continue
moving in the breakout direction.
● Breakouts on low relative volume are more prone to failure, so
the price is less likely to trend in the breakout direction.
What Does a Breakout Tell You?
A breakout occurs because the price has been contained below a
resistance level or above a support level, potentially for some time.
The resistance or support level becomes a line in the sand which many
traders use to set entry points or stop loss levels . When the price breaks through the support or resistance level traders waiting for
the breakout jump in, and those who didn't want the price to breakout
exit their positions to avoid larger losses.
TD9 Signals
Indicator Logic
When the price reaches the trigger condition for 9 consecutive days
in the process of rising or falling, the series 1, 2, 3… 7, 8, 9 will
be generated, and the series will be marked above (below) the
candlestick chart of the day. Only when the price reaches the
trigger condition for the sixth consecutive day, the series will
start to display, showing 1, 2, 3, 4, 5, 6 in turn. When the price
still reaches the trigger condition on the seventh day, it will
display 7. If the trigger condition is not met on the seventh day,
the serial number of the previous six days will disappear. The
display logic of the eighth day is the same as that of the seventh
day. When the trigger condition is still reached on the ninth day, a
nine turn structure (sequence) is formed. When the trigger condition
is not reached on the ninth day, the serial number of the first eight
days disappears and the nine turn structure does not hold. The nine
turn structure formed in the process of price rising is called up 9
structure, while the nine turn structure formed in the process of
price falling is called down 9 structure.
Trading Tactics
The core use of the magic 9 turn index is to help us effectively
escape the top area of the and accurately grasp the bottom
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opportunity of the . When the price rises 9 structures in the
process of operation, the price is often located in the top reversal
area, and individuals are likely to face the risk of reversal and
decline. At this time, we should reduce the position to avoid the
risk. When the price falls 9 structure, the price tends to be in
the bottom reversal area, and individuals are likely to start the
trend of stopping falling and rebounding. At this time, we can
consider building positions or increasing positions to obtain the
excess profits brought by the rise of prices.
Keep in Mind:
1. As a technical index, magic 9 can not be regarded as the judgment
basis of buying and selling s arbitrarily, but should be combined
with the fundamental and other technical indicators for comprehensive
analysis.
2. In the process of strong rise (fall) of price, 9-up (down)
structure may be formed continuously. At this time, the use strategy
of magic nine turn should be changed, and the first up (down) 9
structure should be regarded as a signal to strengthen the market
start (down).
3. The magic nine turn technical indicators superimpose the bottom
deviation (top deviation) and other signals for secondary
confirmation, which is more able to determine the reversal of the
trend.
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BreakOut’s
The custom algo does a lot of the work a basic strategy is, when a
signal fires:
2 Entry Points
1 > At close of candle of signal
2 > At Resistance or Support that has been broken
Optional Take Profits
TP 1 is next Fibonacci Level or Support/Resistance
TP2 is following Fibonacci Level or Support/Resistance
Stop-Loss is direct support/resistance or identified swing low/high
Dip/Peak
Exceptionally strong in the concurrent trending market ie. a dip
signal forming during an uptrend, although due to the refined algo
they are strong in the opposing market. Use in conjunction with the
ALPHA Wave for best understanding. See more in depth details there.
Utilise overbought/oversold signs from the ALPHA Wave and Divergences
to support and add strength to the reversal potential.
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TD9
What is a TD sequential indicator?
Number indicator used to identify a price point where an uptrend or a
downtrend exhausts itself and reverses. It gives you a recommendation
where to buy and where to sell.
What are we looking at?
A series of nine candles where each close higher/lower than its 4th
predecessor candle’s close value.
When is there a buy recommendation?
When you see 9 consecutive closes “lower” than the close 4 bars
prior.
An ideal buy is when the low of bars 6 and 7 in the count are
exceeded by the low of bars 8 or 9.
When is there a sell recommendation?
● When you see 9 consecutive closes “higher” than the close 4
candles prior.
● An ideal sell is when the the high of bars 6 and 7 in the count
are exceeded by the high of bars 8 or 9.
Support/Resistance zones add strong confluence to confirm incoming
reversals.
ii) SCALPER SETTING
This is the second setting to the ALPHA Prime - signals and framework
is refined to operate most effectively in scalping setups.
This as the name suggests is a framework and alerts created
specifically for the support of scalping in the very low timeframes.
It gives a very sharp read of the direction of the trend whilst
trying to catch the important reversals. It shares duality with the
ALPHA PullBack in the Support & Resistance lines that are critical
within Scalping. The core signal is a confluence of multiple
directional and price action background indicators to give the best
chance of providing a signal of the trending direction - although be
warned false signals do happen so you have to be alert to catch them!
It is advised to always work with dual charts with a higher time
frame at 1hr+ to follow the bigger picture. It is helpful to also be
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following the BTC movement too. Lots of screens, lots of eyes!
Remember this is scalping - targets are small, short and frequent.
Getting into a trade is quite easy but knowing when to get out is
key. There for look for identifiers such as hitting support of
resistances, hitting 200emas reentering into the bollinger bands or
entering into overbought/oversold zone.
Recommended Timeframe: 5min Recommended Supporting Indicators: Wave, Momentiment, Volume, TrendBreak
Alerts:
2.0 - SCALP - SCALP ALERT - Dip/Peak // TD9 // Trend Change
2.1 - SCALP - BULLISH SCALP ALERT - Peak // Bullish TD9 // Bullish
Trend Change
2.2 - SCALP - BEARISH SCALP ALERT - Peak // Bearish TD9 // Bearish
Trend Change
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FEATURES
Support & Resistance
OverBought/OverSold Zones
Bull/Bear TrendScalp Signals
Bollinger Band
Bollinger Band Squeeze
Moving Averages
Dip/Peak Signals
TD9 Signals
Support/Resistance
See Alpha Prime - Swing Setting
OverBought/OverSold Zones
These highlighted zones are derived from the ALPHA Prime indicating
when the “Cloud” of MFI’s, RSI’s, Stoch are heavily
oversold/overbought indicating an incoming reversal
Moving Averages
Be aware of the 200EMA as a key line of support/resistance there is a
helpful “cloud” that will give an instant indication of which way the
gerbera trend is Orange = bear, white = bull. The tighter moving
averages are based on 10 and 20 to give a quicker indication of trend
change but to also act as moving support and resistances, that are
very popular in these timeframes.
Bollinger Band & Squeeze
Integral to understanding Scalping - giving a clear indication of
volatility within the chart movement. Conduct extended learning on
the Bollinger Bands to truly understand them. Included is a strong
aid which will help instantly identify consolidation. This is when
the bands become “Squeezed” - commonly during consolidation it is
followed by a large movement. For this reason it is riskier to enter
bull or bear alerts during these consolidation periods - and best to
enter when exiting consolidation.
STRATEGIES
Bull/Bear Trend Signal
These signals are derived from multiple directional indicators and
price action to give technically the best chance for a continuation
in trend directions. These can be very short term or extended
depending on the strength of the trend. Be wary of false signals on
support or resistances and quick to react to changes to minimise
losses. Use in confluence with ALPHA Waves, ALPHA Volume, ALPHA
Momentum for further confirmations. ALPHA TrendBreak will help give
further active support and resistance Fibonacci lines and auto
updating trendlines.
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Dip/Peak
See Alpha Prime - Swing Setting
TD9 Signal
See Alpha Prime - Swing Setting
ALPHA TRENDBREAK (Support)
This is a support indicator to be used in confluence with other
indicators - it auto prints, trendlines along with Trendline breaks
to support with support and resistance breaks or key changes in trend
direction via ALPHA Momentum or Volume Breakouts. Fibonacci
Retracement is auto populated to a fixed lookback to add further
fibonacci support and resistance zones to help identify breakouts
and/or rejections. Finally the Zig-Zag lines are optimal for quickly
identifying standardised chart patterns (Research Chart Patterns and
Harmonics - very key to trading).
Recommended Timeframe: All Time Frames*
Recommended Supporting Indicators: ALPHA Prime, ALPHA Momentiment, ALPHA Volume
Alerts: 1.0 - 1ST TRENDBREAK - 1st Trendline AND Support/Resistance Break of
Sequence
1.2 - 1ST BULLISH TRENDBREAK - 1st Trendline AND Resistance Break of
Sequence
1.3 - 1ST BEARISH TRENDBREAK - 1st Trendline AND Support Break of
Sequence
2.1 - ALL TRENDBREAKS - All Trendline AND Support/Resistance Breaks
2.2 - ALL BULLISH TRENDBREAKS - All Trendline AND Resistance Breaks
2.3 - ALL BEARISH TRENDBREAKS - All Trendline AND Support Breaks
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FEATURES
ZIG-ZAG LINE
AUTO-TRENDLINES
AUTO-FIBONACCI
BREAKOUT CANDLES
SUPPORT/RESISTANCE BREAKS
TREND BREAKS
1ST BREAKOUTS
ZIG-ZAG LINE
What Is the Zig-Zag Line?
The Zig Zag line lowers the impact of random price fluctuations and
is used to help identify price trends and changes in price trends.
KEY TAKEAWAYS
● The Zig Zag indicator lowers the impact of random price
fluctuations and is used to identify price trends and changes
in price trends.
● The indicator lowers noise levels, highlighting underlying
trends higher and lower.
● The Zig Zag indicator works best in strongly trending markets.
Understanding the Zig Zag Indicator
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The Zig Zag indicator plots points on a chart whenever prices reverse
by a percentage greater than a pre-chosen variable. Straight lines
are then drawn, connecting these points.
The indicator is used to help identify price trends. It eliminates
random price fluctuations and attempts to show trend changes. Zig Zag
lines only appear when there is a price movement between a swing high and a swing low that is greater than a specified percentage—often 5%.
By filtering minor price movements, the indicator makes trends easier
to spot in all time frames.
The Zig Zag indicator is often used in conjunction with Elliot Wave Theory to determine the positioning of each wave in the overall cycle. Traders can experiment with different percentage settings to
see what gives the best results. For example, a setting of 4% may
define waves more clearly than a setting of 5%. Stocks have their own
patterns, so it is likely that traders will need to optimize the Zig
Zag indicator’s percentage setting to suit those securities .
Although the Zig Zag indicator does not predict future trends, it
helps to identify potential support and resistance zones between plotted swing highs and swing lows. Zig-Zag lines can also reveal
reversal patterns, i.e. double bottoms and head and shoulders tops. Traders can use popular technical indicators such as the relative
strength index (RSI) and the stochastics oscillator to confirm
whether the price of a security is overbought or oversold when the
Zig-Zag line changes direction.
A momentum investor might use the indicator to stay in a trade until the Zig-Zag line confirms in the opposite direction. For example, if
the investor holds a long position , they would not sell until the Zig-Zag line turns downward.
AUTO-TRENDLINES
What Is a Trendline?
Trendlines are easily recognizable lines that traders draw on charts
to connect a series of prices together or show some data's best fit.
The resulting line is then used to give the trader a good idea of the
direction in which an investment's value might move.
A trendline is a line drawn over pivot highs or under pivot lows to
show the prevailing direction of price. Trendlines are a visual
representation of support and resistance in any time frame. They show
direction and speed of price, and also describe patterns during
periods of price contraction.
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KEY TAKEAWAYS
● Trendlines indicate the best fit of some data using a single
line or curve.
● A single trendline can be applied to a chart to give a clearer
picture of the trend.
● Trendlines can be applied to the highs and the lows to create a
channel.
● The time period being analyzed and the exact points used to
create a trendline vary from trader to trader.
What Do Trendlines Tell You?
The trendline is among the most important tools used by technical
analysts. Instead of looking at past business performance or other
fundamentals , technical analysts look for trends in price action . A trendline helps technical analysts determine the current direction in
market prices. Technical analysts believe the trend is your friend,
and identifying this trend is the first step in the process of making
a good trade.
To create a trendline, an analyst must have at least two points on a
price chart. Some analysts like to use different time frames such as
one minute or five minutes. Others look at daily charts or weekly charts. Some analysts put aside time altogether, choosing to view
trends based on tick intervals rather than intervals of time. What makes trendlines so universal in usage and appeal is they can be used
to help identify trends regardless of the time period, time frame or
interval used.
If company A is trading at $35 and moves to $40 in two days and $45
in three days, the analyst has three points to plot on a chart, starting at $35, then moving to $40, and then moving to $45. If the
analyst draws a line between all three price points, they have an
upward trend. The trendline drawn has a positive slope and is
therefore telling the analyst to buy in the direction of the trend.
If company A's price goes from $35 to $25, however, the trendline has
a negative slope and the analyst should sell in the direction of the
trend.
Example Using a Trendline
Trendlines are relatively easy to use. A trader simply has to chart
the price data normally, using open, close, high and low. Below is
data for the Russell 2000 in a candlestick chart with the trendline applied to three session lows over a two month period.
The trendline shows the uptrend in the Russell 2000 and can be
thought of as support when entering a position. In this case, trader
may choose to enter a long position near the trendline and then
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extend it into the future. If the price action breaches the trendline
on the downside, the trader can use that as a signal to close the
position. This allows the trader to exit when the trend they are
following starts to weaken.
Trendlines are, of course, a product of the time period. In the
example above, a trader doesn't need to redraw the trendline very
often. On a time scale of minutes, however, trendlines and trades may
need to be readjusted frequently.
The Difference Between Trendlines and Channels
More than one trendline can be applied to a chart. Traders often use
a trendline connecting highs for a period as well as another to
connect lows in order to create channels . A channel adds a visual representation of both support and resistance for the time period
being analyzed. Similar to a single trendline, traders are looking
for a spike or a breakout to take the price action out of the channel. They may use that breach as an exit point or an entry point
depending on how they are setting up their trade.
Limitations of a Trendline
Trendlines have limitations shared by all charting tools in that they
have to be readjusted as more price data comes in. A trendline will
sometimes last for a long time, but eventually the price action will
deviate enough that it needs to be updated. Moreover, traders often
choose different data points to connect. For example, some traders
will use the lowest lows, while others may only use the lowest
closing prices for a period. Last, trendlines applied on smaller time
frames can be volume sensitive. A trendline formed on low volume may
easily be broken as volume picks up throughout a session.
AUTO-FIBONACCI LEVELS
What are Fibonacci Extensions?
Fibonacci extensions are a tool that traders can use to establish
profit targets or estimate how far a price may travel after a retracement/ pullback is finished. Extension levels are also possible areas where the price may reverse.
Extensions are drawn on a chart, marking price levels of possible
importance. These levels are based on Fibonacci ratios (as percentages) and the size of the price move the indicator is being
applied to.
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KEY TAKEAWAYS
● Common Fibonacci extension levels are 61.8%, 100%, 161.8%,
200%, and 261.8%.
● The Fibonacci extensions show how far the next price wave could move following a pullback.
● Fibonacci ratios are common in everyday life, seen in galaxy
formations, architecture, as well as how some plants grow.
Therefore, some traders believe these common ratios may also
have significance in the financial markets.
● Extension levels signal possible areas of importance, but
should not be relied on exclusively.
The Formula For Fibonacci Extensions
Fibonacci extensions don't have a formula. When the indicator is
applied to a chart the trader chooses three points. Once the three
points are chosen, the lines are drawn at percentages of that move.
The first point chosen is the start of a move, the second point is
the end of a move, and the third point is the end of the retracement against that move. The extensions then help project where the price
could go next.
How to Calculate Fibonacci Retracement Levels
1. Multiply the difference between points one and two by any of
the ratios desired, such as 1.618 or 0.618. This gives you a
dollar amount.
2. If projecting a price move higher, add the dollar amount above
to the price at point three. If projecting a price move lower,
subtract the dollar amount from step one from the price at
point three.
For example, if the price moves from $10 to $20, back to $15, $10
could be point one, $20 point two, and $15 point three. The Fibonacci
levels will then be projected out above $15, providing levels to the
upside of where the price could go next. If instead, the price drops,
the indicator would need to be redrawn to accommodate the lower price
at point three.
If the price rises from $10 to $20, and these two price levels are
points one and two used on the indicator, then the 61.8% level will
be $6.18 (0.618 x $10) above the price chosen for point three. In
this case, point three is $15, so the 61.8% extension level is $21.18
($15 + $6.18). The 100% level is $10 above point three for an
extension level of $25 ((1.0 x $10) + 15).
The ratios themselves are based on something called the Golden Ratio .
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To learn about this ratio, start a sequence of numbers with zero and
one, and then add the prior two numbers to end up with a number
string like this:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987...
The Fibonacci extension levels are derived from this number string.
Excluding the first few numbers, as the sequence gets going, if you
divide one number by the prior number, you get a ratio approaching
1.618, such as dividing 233 by 144. Divide a number by two places to
the left and the ratio approaches 2.618. Divide a number by three to
the left and the ratio is 4.236.
The 100% and 200% levels are not official Fibonacci numbers, but they
are useful since they project a similar move (or a multiple of it) to
what just happened on the price chart.
What Do Fibonacci Extensions Tell You?
Fibonacci extensions are a way to establish price targets or find
projected areas of support or resistance when the price is moving
into an area where other methods of finding support or resistance are
not applicable or evident.
If the price moves through one extension level, it may continue
moving toward the next. That said, Fibonacci extensions are areas of
possible interest. The price may not stop and/or reverse right at the level, but the area around it may be important. For example, the
price may move just past the 1.618 level, or pull up just shy of it,
before changing directions.
If a trader is long on a stock and a new high occurs, the trader can use the Fibonacci extension levels for an idea of where the stock may
go. The same is true for a trader who is short . Fibonacci extension levels can be calculated to give the trader ideas on profit target
placement. The trader then has the option to decide whether to cover
the position at that level.
Fibonacci extensions can be used for any timeframe or in any market.
Typically, clusters of Fibonacci levels indicate a price area that will be significant for the stock, and also for traders in their
decision making. Since extension levels can be drawn on different
price waves over time, when multiple levels from these different
waves converge at one price, that could be a very important area.
The Difference Between Fibonacci Extensions and Fibonacci
Retracements
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While extensions show where the price will go following a
retracement, Fibonacci retracement levels indicate how deep a retracement could be. In other words, Fibonacci retracements measure
the pullbacks within a trend, while Fibonacci extensions measure the
impulse waves in the direction of the trend
STRATEGIES
1ST BREAKOUT SIGNALS
A combination of a break down of Support and a breakthrough of a
notable trendline being the first in the sequence until the next
opposing Breakout signal. Indication of a notable long term trend
change.
ALL BREAKOUT SIGNALS
Similar to the above these will notify you of all combined breakouts
of notable trend lines and support/resistances. These will indicate
the continuation of trends.
HARMONICS
Utilising the Fibonacci levels, Trend lines and Zig-Zag it makes
reading Harmonics infinitely easier. An advanced technique brought on
by learning specific patterns that can be extremely strong for
trading set ups.
See the Chart Patterns in the Treaders Lounge at
www.blockpartytrading.com for a cheat sheet on the harmonic patterns.
Harmonic price patterns are those that take geometric price patterns
to the next level by utilizing Fibonacci numbers to define precise turning points. Unlike other more common trading methods, harmonic
trading attempts to predict future movements.
Let's look at some examples of how harmonic price patterns are used
to trade currencies in the forex market .
KEY TAKEAWAYS
● Harmonic trading refers to the idea that trends are harmonic
phenomena, meaning they can subdivided into smaller or larger
waves that may predict price direction.
● Harmonic trading relies on Fibonacci numbers, which are used to
create technical indicators.
● The Fibonacci sequence of numbers, starting with zero and one,
is created by adding the previous two numbers: 0, 1, 1, 2, 3,
5, 8, 13, 21, 34, 55, 89, 144, etc.
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● This sequence can then be broken down into ratios which some
believe provide clues as to where a given financial market will
move to.
● The Gartley, bat, and crab are among the most popular harmonic
patterns available to technical traders.
Geometry and Fibonacci Numbers
Harmonic trading combines patterns and math into a trading method
that is precise and based on the premise that patterns repeat
themselves. At the root of the methodology is the primary ratio, or
some derivative of it (0.618 or 1.618). Complementing ratios include:
0.382, 0.50, 1.41, 2.0, 2.24, 2.618, 3.14 and 3.618. The primary
ratio is found in almost all natural and environmental structures and
events; it is also found in man-made structures. Since the pattern
repeats throughout nature and within society, the ratio is also seen
in the financial markets , which are affected by the environments and societies in which they trade.
By finding patterns of varying lengths and magnitudes, the trader can then apply Fibonacci ratios to the patterns and try to predict future
movements. The trading method is largely attributed to Scott Carney, 1 although others have contributed or found patterns and levels that
enhance performance.
Issues with Harmonics
Harmonic price patterns are precise, requiring the pattern to show
movements of a particular magnitude in order for the unfolding of the
pattern to provide an accurate reversal point. A trader may often see a pattern that looks like a harmonic pattern, but the Fibonacci
levels will not align in the pattern, thus rendering the pattern
unreliable in terms of the harmonic approach. This can be an
advantage, as it requires the trader to be patient and wait for ideal
set-ups.
Harmonic patterns can gauge how long current moves will last, but
they can also be used to isolate reversal points. The danger occurs
when a trader takes a position in the reversal area and the pattern
fails. When this happens, the trader can be caught in a trade where
the trend rapidly extends against them. Therefore, as with all
trading strategies, risk must be controlled.
It is important to note that patterns may exist within other
patterns, and it is also possible that non-harmonic patterns may (and
likely will) exist within the context of harmonic patterns. These can
be used to aid in the effectiveness of the harmonic pattern and
enhance entry and exit performance. Several price waves may also exist within a single harmonic wave (for instance, a CD wave or AB
wave). Prices are constantly gyrating; therefore, it is important to
focus on the bigger picture of the time frame being traded. The
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fractal nature of the markets allows the theory to be applied from the smallest to largest time frames.
To use the method, a trader will benefit from a chart platform that
allows them to plot multiple Fibonacci retracements to measure each wave.
Types of Harmonic Patterns
There is quite an assortment of harmonic patterns, although there are
four that seem most popular. These are the Gartley , butterfly , bat, and crab patterns.
The Gartley
The Gartley was originally published by H.M. Gartley in his book
Profits in the Stock Market2 and the Fibonacci levels were later added by Scott Carney in his book The Harmonic Trader. 3 The levels discussed below are from that book. Over the years, some other traders have
come up with some other common ratios. When relevant, those are
mentioned as well.
The bullish pattern is often seen early in a trend, and it is a sign the corrective waves are ending and an upward move will ensue following point D. All patterns may be within the context of a
broader trend or range and traders must be aware of that.
It's a lot of information to absorb, but this is how to read the
chart. We will use the bullish example. The price moves up to A, it
then corrects and B is a 0.618 retracement of wave A. The price moves
up via BC and is a 0.382 to 0.886 retracement of AB. The next move is
down via CD, and it is an extension of 1.13 to 1.618 of AB. Point D
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is a 0.786 retracement of XA. Many traders look for CD to extend 1.27
to 1.618 of AB.
The area at D is known as the potential reversal zone. This is where
long positions could be entered, although waiting for some confirmation of the price starting to rise is encouraged. A stop-loss
is placed not far below entry, although addition stop loss tactics
are discussed in a later section.
For the bearish pattern, look to short trade near D, with a stop loss
not far above.
The Butterfly
The butterfly pattern is different than the Gartley in that the
butterfly has point D extending beyond point X.
Here we will look at the bearish example to break down the numbers.
The price is dropping to A. The up wave of AB is a 0.786 retracement
of XA. BC is a 0.382 to 0.886 retracement of AB. CD is a 1.618 to
2.24 extension of AB. D is at a 1.27 extension of the XA wave. D is
an area to consider a short trade, although waiting for some confirmation of the price starting to move lower is encouraged. Place
a stop loss not far above.
With all these patterns, some traders look for any ratio between the
numbers mentioned, while others look for one or the other. For
example, above it was mentioned that CD is a 1.618 to 2.24 extension
of AB. Some traders will only look for 1.618 or 2.24, and disregard
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numbers in between unless they are very close to these specific
numbers.
The Bat
The bat pattern is similar to Gartley in appearance, but not in
measurement.
Let's look at the bullish example. There is a rise via XA. B retraces
0.382 to 0.5 of XA. BC retraces 0.382 to 0.886 of AB. CD is a 1.618
to 2.618 extension of AB. D is at a 0.886 retracement of XA. D is the
area to look for a long, although the wait for the price to start
rising before doing so. A stop loss can be placed not far below.
For the bearish pattern, look to short near D, with a stop loss not
far above.
The Crab
The crab is considered by Carney to be one of the most precise of the
patterns, providing reversals in extremely close proximity to what
the Fibonacci numbers indicate.
This pattern is similar to the butterfly, yet different in
measurement.
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In a bullish pattern, point B will pullback 0.382 to 0.618 of XA. BC will retrace 0.382 to 0.886 of AB. CD extends 2.618 to 3.618 of AB.
Point D is a 1.618 extension of XA. Take longs near D, with a stop
loss not far below.
For the bearish pattern, enter a short near D, with a stop loss not
far above.
Fine-Tune Entries and Stop Losses
Each pattern provides a potential reversal zone (PRZ), and not
necessarily an exact price. This is because two different projections
are forming point D. If all projected levels are within close
proximity, the trader can enter a position at that area. If the
projection zone is spread out, such as on longer-term charts where
the levels may be 50 pips or more apart, look for some other confirmation of the price moving in the expected direction. This
could be from an indicator, or simply watching price action .
A stop loss can also be placed outside the furthest projection. This
means the stop loss is unlikely to be reached unless the pattern
invalidates itself by moving too far.
The Bottom Line
Harmonic trading is a precise and mathematical way to trade, but it
requires patience, practice, and a lot of studies to master the
patterns. The basic measurements are just the beginning. Movements
that do not align with proper pattern measurements invalidate a
pattern and can lead traders astray.
The Gartley, butterfly, bat, and crab are the better-known patterns
that traders watch for. Entries are made in the potential reversal
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zone when price confirmation indicates a reversal, and stop losses
are placed just below a long entry or above a short entry, or
alternatively outside the furthest projection of the pattern.
ALPHA OSCILLATORS
ALPHA WAVE (Support)
The ALPHA Wave comes in 2 parts the “Cloud” and the “Wave” - The
“Cloud” consists of multiple RSI, MFI & Stoch indicators - its key
function it’s to follow the price action and momentum to help target
reliably when price is effectively oversold or overbought and
ultimately the highest chance of tops and bottoms of the markets. IT
can be used in confluence with any strategy to help identify when the
market is looking like a reversal. The “Wave” follows price movement
and momentum with multiple background indicators to help identify
incoming reversals included with the “Wave” contains Bullish and
Bearish Auto Divergence that will again add further confluence to
potential reversals.The base of this also functions in the background
of the ALPHA PPrime to give active alerts for them to help identify
reversals.
Recommended Timeframe: All Timeframes Recommended Supporting Indicators: ALPHA Prime, ALPHA Momentiment
Alerts:
1.1 - REVERSAL - REVERSAL
1.2 - BULLISH REVERSAL - BULLISH REVERSAL
1.3 - BEARISH REVERSAL - BEARISH REVERSAL
2.1 - TOP/BOTTOM - TOP/BOTTOM
2.2 - BOTTOM - BOTTOM
2.3 - TOP -TOP
3.1 - DIP/PEAK - DIP/PEAK
3.2 - DIP - BULLISH DIP
3.3 - PEAK - BEARISH PEAK
26
FEATURES
OVERSOLD/OVERBOUGHT SIGNALS
OVERSOLD/OVERBOUGHT ZONES
DIVERGENCES
ALPHA CLOUD
ALPHA WAVE
MFI WAVE
DIP/PEAK SIGNALS
THE “Cloud”
The wave is effectively a visual representation of the strength of
the price direction - when above 70 or below 30 - then these are key
areas for expected reversals. They are color coordinated to help
confirm the direction of and upcoming trend - white is bullish and
orange is bearish - so if you see a clear color appearing then there
may well be a trend change or continuation coming. Finally the
wider the wave becomes then this is suggesting that the price is
becoming overstretched and a quick reversal can be expected.
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OVERBOUGHT/OVERSOLD
These alerts are essential giving a high chance of a market reversal
by identifying heavily overbought and oversold zones - these always
have a precursor of highlighted overbought/sold zones as preparation
for a reversal. It works similarly to the traditional overbought and
oversold strategies with the RSI (outlined below) although with far
more confluences to give a much stronger induction of reversal.
What Is the Relative Strength Index (RSI)?
The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price
changes to evaluate overbought or oversold conditions in the price of
a stock or other asset. The RSI is displayed as an oscillator (a line
graph that moves between two extremes) and can have a reading from 0
to 100. The indicator was originally developed by J. Welles Wilder
Jr. and introduced in his seminal 1978 book, "New Concepts in
Technical Trading Systems."
Traditional interpretation and usage of the RSI are that values of 70
or above indicate that a security is becoming overbought or
overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.
KEY TAKEAWAYS
● The relative strength index (RSI) is a popular momentum
oscillator developed in 1978.
● The RSI provides technical traders signals about bullish and
bearish price momentum, and it is often plotted beneath the
graph of an asset's price.
● An asset is usually considered overbought when the RSI is above
70% and oversold when it is below 30%.
Calculation of the RSI
Using the formulas above, RSI can be calculated, where the RSI line
can then be plotted beneath an asset's price chart.
The RSI will rise as the number and size of positive closes increase,
and it will fall as the number and size of losses increase. The
second part of the calculation smooths the result, so the RSI will
only near 100 or 0 in a strongly trending market .
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As you can see in the above chart, the RSI indicator can stay in the
overbought region for extended periods while the stock is in an
uptrend . The indicator may also remain in oversold territory for a long time when the stock is in a downtrend . This can be confusing for new analysts, but learning to use the indicator within the context of
the prevailing trend will clarify these issues.
What Does RSI Tell You?
The primary trend of the stock or asset is an important tool in
making sure the indicator's readings are properly understood. For
example, well-known market technician Constance Brown, CMT, has
promoted the idea that an oversold reading on the RSI in an uptrend
is likely much higher than 30%, and an overbought reading on the RSI
during a downtrend is much lower than the 70% level. 1
As you can see in the following chart, during a downtrend, the RSI
would peak near the 50% level rather than 70%, which could be used by
investors to more reliably signal bearish conditions. Many investors
will apply a horizontal trendline that is between 30% and 70% levels when a strong trend is in place to better identify extremes.
Modifying overbought or oversold levels when the price of a stock or
asset is in a long-term, horizontal channel is usually unnecessary.
29
A related concept to using overbought or oversold levels appropriate
to the trend is to focus on trading signals and techniques that conform to the trend. In other words, using bullish signals when the
price is in a bullish trend and bearish signals when a stock is in a
bearish trend will help to avoid the many false alarms the RSI can
generate.
STRATEGIES
DIPS/PEAKS
With a key focus on the bespoke ALPHA Wave this is as simple as
notifying you of a potential reversal in a peak or dip. It can be
used in any market direction with the foundation of the MFI being
used as a trend filter, you don’t have to worry to much. Used in
confluences with divergences (See below) this can be an extremely
reliable tool. The signals will appear when it is heavily over
stretched although the reversals can be used outside of the signals,
again with confluence of Divergences and trend direction.
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DIVERGENCES
Divergences are a very basic way of looking at Price movement and RSI
movement making a divergence in direction that often leads to a
reversal. It is always advised to follow the divergences that are
within the overbought and oversold zones to give a higher chance of
reversal. These do not carry specific alerts or signals but are used
to support other indicators.
Bullish divergences are, in essence, the opposite of bearish signals.
Despite their ease of use and general informational power, trading
oscillators tend to be somewhat misunderstood in the trading
industry, even considering their close relationship with momentum. At
its most fundamental level, momentum is actually a means of assessing
the relative levels of greed or fear in the market at a given point
in time.
Divergence Oscillators
Oscillators are most useful and issue their most valid trading
signals when their readings diverge from prices. A bullish divergence occurs when prices fall to a new low while an oscillator fails to
reach a new low. This situation demonstrates that bears are losing
power, and that bulls are ready to control the market again—often a
bullish divergence marks the end of a downtrend .
Bearish divergences signify potential downtrends when prices rally to
a new high while the oscillator refuses to reach a new peak. In this
situation, bulls are losing their grip on the market, prices are
rising only as a result of inertia, and the bears are ready to take
control again.
Classes of Divergences
Divergences, whether bullish or bearish in nature, have been
classified according to their levels of strength. The strongest
divergences are Class A divergences; exhibiting less strength are
Class B divergences; and the weakest divergences are Class C. The
best trading opportunities are indicated by Class A divergences,
while Class B and C divergences represent choppy market action and
should generally be ignored.
Class A bearish divergences occur when prices rise to a new high but
the oscillator can only muster a high that is lower than exhibited on
a previous rally. Class A bearish divergences often signal a sharp
and significant reversal toward a downtrend. Class A bullish divergences occur when prices reach a new low but an oscillator
reaches a higher bottom than it reached during its previous decline.
Class A bullish divergences are often the best signals of an
impending sharp rally .
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Class B bearish divergences are illustrated by prices making a double top , with an oscillator tracing a lower second top. Class B bullish divergences occur when prices trace a double bottom, with an
oscillator tracing a higher second bottom.
Class C bearish divergences occur when prices rise to a new high but
an indicator stops at the very same level it reached during the
previous rally. Class C bullish divergences occur when prices fall to
a new low while the indicator traces a double bottom. Class C
divergences are most indicative of market stagnation —bulls and bears are becoming neither stronger nor weaker.
The Effect of Momentum and Rate of Change
With divergences, traders identify a rather precise point at which
the market's momentum is expected to change direction. But aside from
that precise moment, you must also ascertain the speed at which you
are approaching a potential shift in momentum. Market trends can
speed up, slow down or maintain a steady rate of progress. A leading
indicator that you can use to ascertain this speed is referred to as
the rate of change (RoC) . RoC compares today's closing price to a closing price X days ago, as chosen by the trader:
Momentum is positive if today's price is higher than the price of X
days ago, negative if today's price is lower and at zero if today's
price is the same. Using the momentum figure calculated, the trader
will then plot a slope for the line connecting calculated momentum
values for each day, thereby illustrating in linear fashion whether
momentum is rising or falling.
Similarly, the rate of change divides the latest price by a closing
price X days hence. If both values are equal, RoC is 1. If today's
price is higher, then RoC is greater than 1. And, if today's price is
lower, then RoC is less than 1. The slope of the line that connects
the daily RoC values graphically illustrates whether the rate of
change is rising or falling.
How to Use Momentum as a Trader
Whether calculating momentum or RoC, a trader must choose the time
window that they wish to use. As with most every oscillator, it is
generally a good rule of thumb to keep the window narrow. Oscillators are most useful in detecting short-term changes in the markets,
perhaps within a time frame of a week; while trend-following
indicators are better employed for longer-term trends.
When momentum or RoC rises to a new peak, the optimism of the market
is growing, and prices are likely to rally higher. When momentum or
32
RoC falls to a new low, the pessimism of the market is increasing,
and lower prices are likely coming.
When prices rise but momentum or RoC falls, a top is likely near.
This is an important signal to look for when locking in your profits
from long positions or tightening your protective stops . If prices hit a new high but momentum or RoC reaches a lower top, a bearish
divergence has occurred, which is a strong sell signal. The
corresponding bullish divergence is an obvious buy signal.
The Bottom Line
Divergent oscillators are powerful leading indicators that guide the
trader on not only the market's future direction but also its speed.
When combined with demonstrable divergences, momentum and RoC can
precisely ascertain near the moment a market shifts direction.
ALPHA Momentiment (Crutch)
A groundbreaking new indicator to measure the market sentiment
exclusively for Alt’s. This is measured using the BTC Dominance,
Total ALT Market Cap (Excluding BTC) and BTC Price to give a strong
idea of the overall market trend. One of the most powerful indicators
in the Crypto world let alone the ALPHA Suite toolbox.
The second part to this indicator is based around the very popular
MACD, the settings are based around the default settings for the
purpose that due to the popularity of the indicator there will be
many, many traders following the same movement you will be looking
at. In the background is a custom RSI and Volume based oscillator to
help confirm real trend changes and filter out the false ones.
Additionally MACD’s are also a common resource for spotting
divergences - this is not automated although heavily suggested to
learn to add additional confluences to your decisions. This is very
multi-functional across all timeframes although highly advised as a
support indicator and not to trade solely off, support and resistance
is key to avoiding false signals.
Recommended Timeframe: All Timeframes Recommended Supporting Indicators: ALPHA Prime, ALPHA Volume
Alerts:
0.1 - TREND CHANGE - TREND LONG OR TREND SHORT
0.2 - TREND LONG - TREND LONG
0.3 - TREND SHORT - TREND SHORT
33
Market Sentiment Change - A change in sentiment when there is a confluence of increasing/decreasing BTC.D, BTC Price & ALT Market Cap
in the shorter term conditions
ALT’s Increase - A change in sentiment when there is a confluence of increasing BTC.D, BTC Price & ALT Market Cap in the shorter term
conditions
ALT’s Decrease - A change in sentiment when there is a confluence of decreasing BTC.D, BTC Price & ALT Market Cap in the shorter term
conditions
Market Sentiment Big Change
ALT Season - A change in sentiment when there is a confluence of increasing BTC.D, BTC Price & ALT Market Cap in the short-term and
long-term conditions
ALT Dump - A change in sentiment when there is a confluence of decreasing BTC.D, BTC Price & ALT Market Cap in the short-term and
long-term conditions
Any Market Sentiment Change - Any of the above
Features:
ALT INCREASE/DECREASE
ALTSEASON/DUMP
MARKET SENTIMENT HEATMAP
MACD
VOLUME OSCILLATOR
34
MACD
The MACD is a very popular indicator - doing some wider reading and
learning will help elevate this indicator to a crutch perk.
Decreasing “humps” will signify upcoming trend changes before they
happen, spotting divergences is another key standard support
confluence with the MACD. As mentioned at the beginning of the guide,
this is a guide about the ALPHA indicators not a deep dive into these
old school indicators - do some further reading to fully understand
them.
What Is Moving Average Convergence Divergence (MACD)?
Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA.
The result of that calculation is the MACD line. A nine-day EMA of
the MACD called the "signal line," is then plotted on top of the MACD
line, which can function as a trigger for buy and sell signals.
Traders may buy the security when the MACD crosses above its signal
line and sell—or short—the security when the MACD crosses below the
signal line. Moving average convergence divergence (MACD) indicators
can be interpreted in several ways, but the more common methods are
crossovers , divergences , and rapid rises/falls.
KEY TAKEAWAYS
● Moving average convergence divergence (MACD) is calculated by
subtracting the 26-period exponential moving average (EMA) from
the 12-period EMA.
● MACD triggers technical signals when it crosses above (to buy)
or below (to sell) its signal line.
● The speed of crossovers is also taken as a signal of a market
is overbought or oversold.
● MACD helps investors understand whether the bullish or bearish
movement in the price is strengthening or weakening.
MACD is calculated by subtracting the long-term EMA (26 periods) from
the short-term EMA (12 periods). An exponential moving average (EMA)
is a type of moving average (MA) that places a greater weight and significance on the most recent data points.
The exponential moving average is also referred to as the
exponentially weighted moving average. An exponentially weighted moving average reacts more significantly to recent price changes than
a simple moving average (SMA), which applies an equal weight to all observations in the period.
35
Learning From MACD
The MACD has a positive value (shown as the blue line in the lower
chart) whenever the 12-period EMA (indicated by the red line on the
price chart) is above the 26-period EMA (the blue line in the price
chart) and a negative value when the 12-period EMA is below the
26-period EMA. The more distant the MACD is above or below its
baseline indicates that the distance between the two EMAs is growing.
In the following chart, you can see how the two EMAs applied to the
price chart correspond to the MACD (blue) crossing above or below its
baseline (dashed) in the indicator below the price chart.
MACD is often displayed with a histogram (see the chart below) which graphs the distance between the MACD and its signal line. If the MACD
is above the signal line, the histogram will be above the MACD’s
baseline. If the MACD is below its signal line, the histogram will be below the MACD’s baseline. Traders use the MACD’s histogram to
identify when bullish or bearish momentum is high.
36
MACD vs. Relative Strength
The relative strength indicator (RSI) aims to signal whether a market
is considered to be overbought or oversold in relation to recent price levels. The RSI is an oscillator that calculates average price
gains and losses over a given period of time. The default time period
is 14 periods with values bounded from 0 to 100.
MACD measures the relationship between two EMAs, while the RSI
measures price change in relation to recent price highs and lows.
These two indicators are often used together to provide analysts a more complete technical picture of a market.
These indicators both measure momentum in a market, but, because they
measure different factors, they sometimes give contrary indications.
For example, the RSI may show a reading above 70 for a sustained
period of time, indicating a market is overextended to the buy side in relation to recent prices, while the MACD indicates the market is
still increasing in buying momentum. Either indicator may signal an
upcoming trend change by showing divergence from price (price
continues higher while the indicator turns lower, or vice versa).
Limitations of MACD
One of the main problems with divergence is that it can often signal
a possible reversal but then no actual reversal actually happens—it
37
produces a false positive. The other problem is that divergence
doesn't forecast all reversals. In other words, it predicts too many
reversals that don't occur and not enough real price reversals.
"False positive" divergence often occurs when the price of an asset
moves sideways, such as in a range or triangle pattern following a trend. A slowdown in the momentum—sideways movement or slow trending
movement—of the price will cause the MACD to pull away from its prior
extremes and gravitate toward the zero lines even in the absence of a
true reversal.
Additional MACD Resources
Are you interested in using MACD for your trades? Check out our own
primer on the MACD and Spotting Trend Reversals with MACD for more information.
If you'd like to learn about more indicators, Investopedia's
Technical Analysis Course provides a comprehensive introduction to the subject. You'll learn basic and advanced technical analysis,
chart reading skills, technical indicators you need to identify, and
how to capitalize on price trends in over five hours of on-demand
video, exercises, and interactive content.
Example of MACD Crossovers
As shown on the following chart, when the MACD falls below the signal
line, it is a bearish signal that indicates that it may be time to
sell. Conversely, when the MACD rises above the signal line, the
indicator gives a bullish signal, which suggests that the price of
the asset is likely to experience upward momentum. Some traders wait
for a confirmed cross above the signal line before entering a
position to reduce the chances of being "faked out" and entering a
position too early.
Crossovers are more reliable when they conform to the prevailing
trend. If the MACD crosses above its signal line following a brief
correction within a longer-term uptrend, it qualifies as bullish
confirmation.
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If the MACD crosses below its signal line following a brief move
higher within a longer-term downtrend, traders would consider that a
bearish confirmation.
Example of Divergence
When the MACD forms highs or lows that diverge from the corresponding
highs and lows on the price, it is called a divergence. A bullish
divergence appears when the MACD forms two rising lows that
correspond with two falling lows on the price. This is a valid
bullish signal when the long-term trend is still positive.
Some traders will look for bullish divergences even when the
long-term trend is negative because they can signal a change in the
trend, although this technique is less reliable.
39
When the MACD forms a series of two falling highs that correspond
with two rising highs on the price, a bearish divergence has been
formed. A bearish divergence that appears during a long-term bearish
trend is considered confirmation that the trend is likely to
continue.
Some traders will watch for bearish divergences during long-term
bullish trends because they can signal weakness in the trend.
However, it is not as reliable as a bearish divergence during a
bearish trend.
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Example of Rapid Rises or Falls
When the MACD rises or falls rapidly (the shorter-term moving average
pulls away from the longer-term moving average), it is a signal that
the security is overbought or oversold and will soon return to normal levels. Traders will often combine this analysis with the relative strength index (RSI) or other technical indicators to verify overbought or oversold conditions.
41
It is not uncommon for investors to use the MACD’s histogram the same
way they may use the MACD itself. Positive or negative crossovers,
divergences, and rapid rises or falls can be identified on the
histogram as well. Some experience is needed before deciding which is
best in any given situation because there are timing differences
between signals on the MACD and its histogram.
Frequently Asked Questions
How do traders use moving average convergence divergence (MACD)?
Traders use MACD to identify changes in the direction or severity of
a stock’s price trend. MACD can seem complicated at first glance,
since it relies on additional statistical concepts such as the
exponential moving average (EMA). But fundamentally, MACD helps
traders detect when the recent momentum in a stock’s price may signal
a change in its underlying trend. This can help traders decide when
to enter, add to, or exit a position.
Is MACD a leading indicator, or a lagging indicator?
MACD is a lagging indicator. After all, all of the data used in MACD
is based on the historical price action of the stock. Since it is
based on historical data, it must necessarily “lag” the price.
However, some traders use MACD histograms to predict when a change in
trend will occur. For these traders, this aspect of the MACD might be
viewed as a leading indicator of future trend changes.
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What is a MACD positive divergence?
A MACD positive divergence is a situation in which the MACD does not
reach a new low, despite the fact that the price of the stock reached
a new low. This is seen as a bullish trading signal—hence, the term
“positive divergence.” If the opposite scenario occurs—the stock
price reaching a new high, but the MACD failing to do so—this would
be seen as a bearish indicator and referred to as a negative
divergence.
MARKET SENTIMENT
MARKET SENTIMENT HEATMAP
In a nutshell it is simply a visual representation in indicator
format of the above infographic.
Based on a long and short term trend analysis of BTC Dominance, BTC
Price and Total ALT Market Cap. Quite simply the lighter the zone the
more bullish the market sentiment and the darker the zone the more
bearish market sentiment.
ALT INCREASE/DECREASE VS ALTSEASON/DUMP
The ALT Increase and Decrease signals are a more immediate signal of
market sentiment change and the ALT Season and ALT Dump are
confirmations of longer term and short term market sentiment changes.
These confirmation are based on BTC Price , Total Alt MArket Cap
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increasing and BTC Dominance decreasing.
STRATEGIES
Bullish/Bearish Momentum
When the Market is signalling an Increase/Decrease or ALTSeason/DUMP
then it is time to use in confluence with any of the other indicators
when the fire signals of a converging signal. For example If we are
being signalled of an ALT Season prior to an ALT Decrease - during
this period if there is a Bullish PullBack Signal from the PullBack
Script then there is confirmation of volume flowing into the overall
ALT Market with a bullish entry signal.
This is best advised to check on both the 4hr and 1 Day timeframe for
the strongest confirmations of immediate and long term trends.
Volume Driven Trend Change Alerts
These alerts are derived from MACD crossover, Positive Volume and a
custom background RSI to help give several confluence on a highly
likely trend change. Most importantly filter out minor MACD
crossovers that can create A LOT of noise and false signals. Key
confluences to look out for are support & resistances be aware if a
bounce from support or resistance might occur, Fibonacci lines
Trendlines or or outside of Bollinger Bands .
ALPHA Volume (Support)
Volume is the foundation of everything in trading as this is simply
all of the buying and selling. Having a strong understanding of
volume will give you the edge in every single trading situation. The
advanced volume indicator helps identify confirmed changes in the
direction of buying or selling pressure. As well as continuation of
trends. The Volume moving average is another key identifier for
“Volume Breakouts'' although not as reliable - this can be learnt
more manually in looking for the Volume Trend Lines which help
identify consolidation periods, the moving average can be utilised in
the same way. After consolidation there is almost always a big
movement. IF you can identify that direction first using other
indicators then you will almost always catch a dump or pump.
Recommended Timeframe: 4hr, 1Day Recommended Supporting Indicators: ALL ALPHA’S
Alerts:
BULL OPPORTUNITY - Bullish Volume Breakout/Trend Change
BEAR OPPORTUNITY - Bearish Volume Breakout/Trend Change
BULL/BEAR OPPORTUNITY - Bullish & Bearish Volume Breakout/Trend
Change
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FEATURES
1ST IN SEQUENCE VOLUME SPIKE
VOLUME SPIKES
VOLUME
VOLUME MOVING AVERAGE
VOLUME
Trading volume is a measure of how much of a given financial asset has traded in a period of time. For stocks, volume is measured in the
number of shares traded and, for futures and options, it is based on
how many contracts have changed hands. The numbers, and other
indicators that use volume data, are often provided with online charts .
Looking at volume patterns over time can help get a sense of the
strength or conviction behind advances and declines in specific
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stocks and entire markets. The same is true for options traders, as trading volume is an indicator of an option's current interest. In fact, volume plays an important role in technical analysis and
features prominently among some key technical indicators.
KEY TAKEAWAYS
● Volume measures the number of shares traded in a stock or
contracts traded in futures or options.
● Volume can be an indicator of market strength, as rising
markets on increasing volume are typically viewed as strong and
healthy.
● When prices fall on increasing volume, the trend is gathering
strength to the downside.
● When prices reach new highs (or no lows) on decreasing volume,
watch out; a reversal might be taking shape.
● On Balance Volume and Klinger Indicator are examples of
charting tools that are based on volume.
How To Use Volume To Improve Your Trading
Basic Guidelines for Using Volume
When analyzing volume, there are usually guidelines used to determine
the strength or weakness of a move. As traders, we are more inclined
to join strong moves and take no part in moves that show weakness—or
we may even watch for an entry in the opposite direction of a weak move. These guidelines do not hold true in all situations, but they
offer general guidance for trading decisions.
1. Trend Confirmation
A rising market should see rising volume. Buyers require increasing
numbers and increasing enthusiasm in order to keep pushing prices
higher. Increasing price and decreasing volume might suggest a lack
of interest, and this is a warning of a potential reversal . This can be hard to wrap your mind around, but the simple fact is that a price
drop (or rise) on little volume is not a strong signal. A price drop
(or rise) on large volume is a stronger signal that something in the
stock has fundamentally changed.
2. Exhaustion Moves and Volume
In a rising or falling market, we can see exhaustion moves. These are generally sharp moves in price combined with a sharp increase in
volume, which signals the potential end of a trend. Participants who
waited and are afraid of missing more of the move pile in at market
tops , exhausting the number of buyers.
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At a market bottom , falling prices eventually force out large numbers of traders, resulting in volatility and increased volume. We will see a decrease in volume after the spike in these situations, but how
volume continues to play out over the next days, weeks, and months
can be analyzed using the other volume guidelines.
3. Bullish Signs
Volume can be useful in identifying bullish signs. For example, imagine volume increases on a price decline and then the price moves
higher, followed by a move back lower. If the price on the move back
lower doesn't fall below the previous low, and volume is diminished
on the second decline, then this is usually interpreted as a bullish
sign.
4. Volume and Price Reversals
After a long price move higher or lower, if the price begins to range
with little price movement and heavy volume, this might indicate that
a reversal is underway, and prices will change direction.
5. Volume and Breakouts vs. False Breakouts
On the initial breakout from a range or other chart pattern, a rise in volume indicates strength in the move. Little change in volume or
declining volume on a breakout indicates a lack of interest and a
higher probability for a false breakout.
6. Volume History
Volume should be looked at relative to recent history. Comparing
today to volume 50 years ago might provide irrelevant data. The more
recent the data sets, the more relevant they are likely to be.
Volume is often viewed as an indicator of liquidity, as stocks or
markets with the most volume are the most liquid and considered the
best for short-term trading; there are many buyers and sellers ready
to trade at various prices.
The Bottom Line
Volume is a handy tool to study trends, and as you can see, there are
many ways to use it. Basic guidelines can be used to assess market
strength or weakness, as well as to check if volume is confirming a
price move or signaling that a reversal might be at hand. Indicators
based on volume are sometimes used to help in the decision process.
In short, while volume is not a precise tool, entry and exit signals
can sometimes be identified by looking at price action , volume, and a volume indicator.
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VOLUME MOVING AVERAGE
This is essentially as it suggests - a moving average that runs
through the volume - this is a great for confirming volume breakouts
alongside support/resistances or trendline breakouts.
STRATEGIES
1ST IN SEQUENCE VOLUME SPIKE
These are signified by either the highlighted volume bars as volume
breakouts although you will only be alerted by the first change in
trend in volume breakout on each cycle, these have proven to be more
consistently reliable although all volume breakouts can offer a great
entry point for strong trend continuation. Utilise these in
conjunction with breakouts through the Volume Moving Average or self
drawn Trend Lines on the Volume (Slightly more advanced but extremely
basic and easy to learn - it is advised to do wider reading into the
Volume)
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WELCOME
TO
THE
PARTY!
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