Page 64 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

The most common EMAs used in the calculation are the 26-day and 12-day averages,
while the signal line is often created using a 9-day MEA of the average of the MACD
values. These values can be adjusted by traders, but it’s worth noting that these values
are the most widely followed.

The MACD histogram is also plotted along the centerline using bars. Each bar
represents the difference between the MACD and signal line, or in most cases, the 9-
day exponential moving average. Higher bars in either direction represent greater
momentum behind the price movement.

Conclusion
Stochastics is a favorite indicator of some technicians because of the accuracy of its
findings. It is easily perceived both by seasoned veterans and new technicians, and it
tends to help all investors make good entry and exit decisions on their holdings.

Fundamental Analysis Signals

Fundamental analysis means that you are basing your entries and exits on Federal
Reserve reports, corporate annual reports, news, weather reports, and other public data
that pertain to the current stability of the instrument you are trading.
Fundamental analysis is a completely different animal altogether than technical
analysis. My approach to trading is primarily a technical approach, but fundamentals
clearly play a significant role in many traders’ sets of profitable rules. The key for you is
to decide what your preference is, fundamental or technical, or a combination of the
two, and then design your rules around this preference.

Illustrations of how a fundamental approach can work. Some fundamentals are
used for long-term positions, and some are for short-term positions:
• Weather reports forecasts predict freezing temperatures in Florida this year, so
you go long the commodity orange juice because the price will go up due to low
supply and high demand.

• A cell phone maker’s stock is downgraded; the value of its shares drops
significantly, so you go short.

• There is unrest in the Middle East, which historically leads to higher prices in oil;
you go long on crude oil.
• There are rumors that the CEO of XYZ Corporation will be indicted for illegal
activity, so you short the XYZ Corporation.
• A tsunami hits Japan and creates devastation, the USD/JPY pair drops
dramatically.

64 | P a g e