Technical Analysis Workshop Series

Session One
Trend Indicators

DISCLOSURES & DISCLAIMERS

This research material has been prepared by NUS Invest.

NUS Invest specifically prohibits the redistribution of this material in whole or in part without the
written permission of NUS Invest.

The research officer(s) primarily responsible for the content of this research material, in whole or
in part, certifies that their views are accurately expressed and they will not receive direct or
indirect compensation in exchange for expressing specific recommendations or views in this
research material.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

DISCLOSURES & DISCLAIMERS

Nothing in this research material constitutes a representation that any investment strategy or
recommendation contained herein is suitable or appropriate to a recipients individual
circumstances or otherwise constitutes a personal recommendation. It is published solely for
information purposes, it does not constitute an advertisement and is not to be construed as a
solicitation or an offer to buy or sell any securities or related financial instruments.

No representation or warranty, either expressed or implied, is provided in relation to the

accuracy, completeness or reliability of the information contained herein. The research material
should not be regarded by recipients as a substitute for the exercise of their own judgement. Any
opinions expressed in this research material are subject to change without notice.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Agenda

Introduction to Trend Indicators

Recap of Moving Averages
Bollinger Bands
Using Bollinger Bands as Targets
Parabolic SAR
Q&A

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Introduction to Trend Indicators

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

PIVOT
Q&A
POINTS
S

What are trend indicators?

Trend indicators attempt to give an objective direction of trend.
Bar chart signals often conflict and it is difficult to separate the
trend from the surrounding 'noise'.
Price data is smoothed and the trend is represented by a single
line, as in the case of a moving average.
Because of the smoothing process, the indicators tend to lag
price changes and are often called trend following indicators.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

 Most trend indicators lose money during a ranging market as

fluctuations in a narrow price band tend to whipsaw traders in
and out of their positions.
It is important to identify whether the market is trending or
ranging and to employ indicators suited to the purpose: trend
indicators for trending markets and the faster momentum
indicators for ranging markets.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Examples of Trend Indicators

Examples of trend-following indicators:

Moving Average (exponential, simple, weighted, variable)
Moving Average Envelope
Parabolic SAR
Bollinger Bands
Directional Movement
ADX
Aroon
MACD / MACD Histogram

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Recap of Moving Averages

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Moving Average
A moving average is the average price of
securities at a given time.
Simple Moving Average (SMA) =
Sum( Price )n / N
* N = Time Period
INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Types of Moving Averages

Simple Moving Averages
Weighted Moving Averages
Exponential Moving Averages

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

20 SMA

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Moving Average Envelopes

Envelopes are placed at fixed percentages above
and below the moving average
Tells us when prices have strayed too far from the
moving average line
Market overextended in either direction

MA is the center of the trend and the envelope

consists of points of maximum and minimum
divergence from it

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Moving Average Envelopes

Short term analysis
3% envelope around a simple 21 day SMA

Long term analysis

5% envelope around a 10 week SMA
10% envelope around a 20 week SMA

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Examples

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Examples

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Bollinger Bands

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Bollinger Bands
Technique developed by John Bollinger in
the 80s and a term trademarked by him in
2011
Two trading Bands placed around a moving
average similar to MA envelopes
2 standard deviations above and below the
moving average

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Bollinger Bands
When prices touch the upper band
Overextended on the upside
(Overbought)

When prices touch the lower band

Overextended on the downside
(Oversold)
INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Bollinger Bands

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Bollinger Bands

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Use of Bollinger Bands as Targets

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Use of Bollinger Bands as Targets

Simplest way to use bollinger bands

Use of upper and lower bands as price targets

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Use of Bollinger Bands as Targets

Situation 1

Price bounces off lower

band and crosses the
moving average line

Upper band becomes the

upper price target

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Use of Bollinger Bands as Targets

Situation 2

Price bounces off upper

band and crosses the
moving average line

Lower band becomes the

lower price target

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Use of Bollinger Bands as Targets

Can also be used to predict reversals

In a strong uptrend, prices will fluctuate between the

moving average line and the upper band

If if falls below the moving average line, this warns of

a reversal to the downside

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Measure of Volatility

Bands width is a measure of volatility

Unlike envelopes whose width stay the same,

bollinger bands expand and contract based on last 20
days volatility

Rising volatility, bands expand

Falling volatility, bands contract

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Measure of Volatility

When bands far apart, current trend is ending

When band are very narrow, new trend is about to be

initiated.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Bollinger Squeeze

Periods of low volatility are often followed by periods

of high volatility

Therefore, a volatility contraction or narrowing of the

bands can foreshadow a significant advance or
decline.

Once the squeeze play is on, a subsequent band break

signals the start of a new move.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Bollinger Squeeze

A new advance starts with a squeeze and subsequent

break above the upper band.

A new decline starts with a squeeze and subsequent

break below the lower band.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Bollinger Squeeze

There is also an indicator for measuring the distance

between the Bollinger Bands, the BandWidth
indicator.

It is simply the value of the upper band less the

value of the lower band.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Bollinger Squeeze

Stocks with higher prices tend to have higher

BandWidth readings than stocks with lower prices.

If price equals 100 and BandWidth equals 5, then

BandWidth would be 5% of the price.

If price equals 20 and BandWidth equals 1, then

BandWidth would also be 5% of price. Keep this in
mind when using the indicator.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Strategy

Narrowing Bollinger Bands

and low BandWidth levels.
Ideally near the low end of
its six month range.

Wait for a band break to

signal the start of a new
move.

An upside bank break is

bullish, while a downside
bank break is bearish.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Strategy
Note that narrowing bands do not provide any
directional clues.
They simply infer that volatility is contracting
and chartists should be prepared for a
volatility expansion, which means a directional
move.

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Strategy

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic Stop and Reverse (SAR)

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

Developed by J. Welles Wilder Jr.

Trend following system

Stop and Reverse

Position is reversed when the protective stop is hit

Helps to identify when a trend is ending

Trailing stops that are shaped like a parabola

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

Appears as dots on the charts

As prices trend higher, the rising dots below the

price action starts out slower and then accelerates
with trend

In the downtrend, the reverse happens

INTRODUCTION

Dots above the price action

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR
Acceleration Factor

Wilder built in an acceleration factor into the system

At first, movement of the stop is relatively slow to allow

the trend time to become established

As the acceleration factor increases, the SAR begins to

move faster, catching up with the price action

If trend fails to materialize, result is a stop and a reverse

signal

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

As seen in the diagram,

dots shift from being
below the candles in
an uptrend to being
above the candles in a
downtrend

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

Simply, when the dots

are below the candles
it is a buy signal

When it is above the

candles it is a sell
signal

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

Can also be used to know when to exit trades

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

Works extremely well during trending markets

However, during non trending periods and ranges,

the system will whipsaw and not be very useful

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Parabolic SAR

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

DMI and ADX

One way to deal with this problem is to use some type of

filter or device to determine if the market is in trending
mode

Wilder developed the directional movement index (DMI)

and the average directional movement index (ADX)

ADX is essentially a smoothed difference between the

+DI and DI lines

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

DMI and ADX

Rates the directional movement of the market on a scale

of 0-100

A rising ADX line indicates that the market is trending

Suitable for trend following system

A falling ADX line indicates that the market is non-trending

INTRODUCTION

Not suitable for a trend following system

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

DMI and ADX

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

DMI and ADX

Trader could simply trade on those markets with the

highest trend ratings

Non trending systems (e.g. oscillators) can be utilized

on markets with low directional movement

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

DMI and ADX

Directional indicators can be used on their own or as

a filter

2 lines are generated for DMI study

+DI
Measures positive (upward) movement

-DI
Measures negative (downward) movement

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

DMI and ADX

A buy signal is given when the +DI line crosses over

the DI line

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

DMI and ADX

A sell signal is given when the +DI line crosses below

the DI line

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Using both parabolic SAR and DMI together

Parabolic SAR is a more sensitive system

More frequent, earlier signals given

DMI used as a filter

Follow only those signals in the same direction as

the DMI lines

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Using both parabolic SAR and ADX together

Best to use trending system when ADX is rising

Caveat

When ADX starts to drop from above the 40 level,

early sign that the trend is weakening

Rise back above the 20 level is often the start

of a new trend

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Using both parabolic SAR and ADX together

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Using both parabolic SAR and ADX together

INTRODUCTION

BOLLINGER
BANDS

PARABOLIC
SAR

Q&A

Q&A

INTRODUCTION
INTRODUCTION

REVERSAL
PATTERNS

PRACTICE

Q&A

THANK YOU!

REVERSALTECHNICAL
INTRODUCTION
INTRODUCTION FM & BC MODEL
PATTERNSANALYSIS

PRACTICE
DOW THEORY

Q&A
Q&A